New challenges for real estate market in context COVID-19

The Romanian real estate market is going through a period similar to an identity crisis that is manifested by developers dissatisfied with the yields obtained and foreign investors delaying the realization of an investment here due to the lack of liquidity and the increased risk. Today there is a gap between the returns you can get by investing in an office building in Bucharest and a placement in other capitals in Central and Eastern Europe. The acquisition of an office building in the Romanian capital brings the same yield with a similar investment in the Polish city of Poznan.

The most recent market reports show a yield of 7.25% for offices in Bucharest and 7% for those in Poznan. The higher the percentage, the cheaper the building. The country risk is also the reason invoked for the interest of the local banks on the investment loans, which are still higher than those practiced in countries such as Hungary, Czech Republic or Poland. Despite these impediments, the consumption fueled by wage increases has kept alive the desire to expand retailers, but it has reached a point where the direction of development is towards small cities, with a decreasing purchasing power. Romanians spend almost a third of their money on retail, identical to the European Union average of 30.5% in 2018, according to a GfK study. Some of the money left by Romanians in shops and restaurants goes into the pockets of the owners of malls in the form of rents. In the meantime, inflation has also affected the ability of Romanians to buy a home, with accessibility in the residential sector declining.

In addition to the fact that increased interest rates restrict the population’s access to mortgage loans, their evolution directly affects Romanians who already have loans in lei. The optimal ratio between the price of housing, wages and the cost of financing from 2015-2017 made more and more Romanians with below average incomes to meet their dreams. Last but not least, the labor crisis puts pressure on the cost of all constructions, with the risk of a higher quality discount.

DISSCUSIONS TOPICS:

• Postponement of the rent payment in the maximum amount of 10,000 lei, for each location. The facility will be applied during the state of emergency and for another month for the companies affected by the Covid-19 pandemic, and the rent will be settled by the owner’s tax authority.
• Necessary measures for the reopening of mall-type malls.
• Cost-saving programs in shopping malls to offset declining rents caused by store closures.
• The slowdown in home sales in the short term and the evolution of apartment prices.
• The need for retailers to have a strong online presence, with a sales, marketing and delivery platform equipped for this model, as well as a clearly defined online strategy.
• Postponement of real estate projects that were due to start in the second half of this year and due to limitations in the construction materials distribution chain.
• Empty spaces due to homework could be filled by larger jobs dedicated to each employee, in order to comply with the rules of social distancing.
• Increasing the share of contract renewals in the volume of office space leasing transactions, to the detriment of pre-leases and newly signed contracts.