CONTEXT:

• The office market, in particular, is facing an unprecedented decline in demand for new space globally, a situation made worse by high financing costs and the slow return of office workers. For example, the profile market in Germany is facing the most severe crisis in recent decades. In Bucharest, this year is expected to be the weakest in new building deliveries in the last 20 years.
• Low buyer interest in real estate investments during this period of price reset is the main feature of the market and the factor that could contribute to a cheapening of properties.
• The volume of commercial property transactions (offices, malls, warehouses and hotels) could be as weak this year as in 2023, when the lowest investment level in the last 10 years was recorded.

Rising funding costs and investor reluctance towards the office sector, which has been the preferred asset class for the past 5 years, have had a significant impact on investment activity. Thus, transactions with office projects represented only 19% of the volume traded in 2023, while the contribution of this sector in the period 2018-2022 was over 60%.

• At least in the first half of 2024, real estate consultants expect a continuation of the weak period for investments in the Central and Eastern European region. However, in the second half of the year, we may see a timid recovery, as interest rates will fall in the Eurozone and the US from the second quarter of the year, and economic activity will remain at decent levels .
• The office rental market is going through a period of decline, characterized by the offer on the market of spaces reduced by about 60% compared to what was required 3 years ago. The average demand in the office rental market has decreased, from 2,000 square meters in the years 2015-2020, to 700-800 square meters.
• On the retail market, there is a constant return of developer appetite for large-scale, mall-type or mixed-use projects, which tend to have a larger investment footprint, after retail parks dominated in previous years.
• The macroeconomic context and the difficult urban regime led to a restriction of housing supply, especially in Bucharest.
  In total, approximately 56,200 homes were sold in Bucharest and Ilfov in 2023, down 13.2% compared to the previous year – but it should be borne in mind that the reporting base, 2022, is represented by a year with absolute records in matter of sales of residential units.
• The Bucharest hotel market seems to be increasingly attractive for foreign investors. The occupancy rate of hotels in Bucharest increased last year to 66%.

THEMES FOR DEBATE

• The negative signals sent by the largest economy in Europe can affect the chain and the rest of the continent’s economies, mainly through the reluctance of investors to place their money in this sector.
• Compared to Warsaw, Prague, Bratislava and Budapest, the Bucharest market is the cheapest in the region in terms of office, retail, logistics and housing properties.
• Working outside the office, the downsizing of many companies with redundant spaces, and other factors have led to a reduction in the size of the average rental transaction in the office sector. The fragmentation of the spaces occupied by large corporations into small headquarters takes place in about a quarter of the modern spaces in the market.
• The trend launched by large food retail chains, such as Lidl or Penny, to diversify their local expansion strategy by renting stores.
• New names of international retailers are expected in the malls in Romania.
• The impact on the real estate market of preparations for the 2024 presidential, parliamentary, local and European parliamentary elections.
• Over 60% of the houses and apartments sold in Romania in 2023 were purchased exclusively from own resources, without resorting to a bank loan, according to SVN calculations.
• The average rate of a mortgage loan contracted over a period of 25 years for the purchase of a new two-room apartment (50 usable square meters) in Bucharest is estimated for January 2024 at a percentage of approximately 53% of the average salary net at national level, according to the SVN index.
• Higher construction costs will also contribute to lower housing supplies.
• The impact of the increase in the VAT rate from 5% to 9% on housing transactions from January 1, 2024.
• Concrete solutions to solve the problems caused by the lack of a unitary urban framework.
• What is the average profit margin for real estate developers? Have developers started selling below their originally estimated profit margins?
• The historical area of ​​Bucharest is restored through extensive projects of consolidation and transformation of historical buildings into hotels, office spaces or homes.
• The outlook on investment activity in hotel assets in the main cities of the country against the background of increasing financing costs and the economic and geopolitical situation.