Real estate transactions of 491 million euros in the first half of 2024

The first semester of 2024 ended with real estate transactions of 419 million euros in Romania, more than twice as much as in the same period last year (when the total value of transactions in the first six months was 167 million euros), and the construction sector has reached historic highs, stimulated by massive investments from EU funds and a very active private market, Colliers company experts said yesterday, during a press conference where they presented the prospects of the real estate market for the current year.

From the data provided by Colliers specialists, it appears that the logistics and industrial space market also offers promising results, amid the migration of rentals to destinations other than the Capital, and the retail sector continues its accelerated development. In the land market, Colliers consultants see lower interest, but expect large transactions in the future on the back of transactions already started. In the office space, demand remains at a relatively sustained level, even if deliveries are low.

The main factors of this positive trend are the large investments in infrastructure, the growth of wages well above inflation, the decent external economic context and the success of central banks in combating inflation, say Colliers representatives.

Silviu Pop, director of CEE&Romania Research at Colliers said: "The economy is sending mixed signals. Delays in the PNRR area, geopolitical uncertainty and insecurities generated by the US elections, along with the prospect of a major tightening of taxation in Romania from 2025, temper optimism. However, there are reasons for a slightly positive approach, coming especially from the consumer area and from the large investments - private or public - that are taking place in Romania. The local real estate market is influenced by these developments, but the impact varies from sector to sector. The outlook remains quite solid in the region, with environmental, social and governance (ESG) criteria becoming increasingly relevant to real estate investors, banks and tenants in the decision-making process".

This year, Romania recorded the best performance in real estate investment compared to the other five major economies in Central and Eastern Europe (Bulgaria, the Czech Republic, Hungary, Poland and Slovakia), and this achievement comes in a context where the activity in the regional market was reduced and the volume of transactions reached one of the lowest levels in the last decade.

The first half of the year was also quite solid for the local industrial and logistics space market, with modern space stock reaching 7.3 million square meters. Bucharest represents just under half of the total, and developers still have around 800,000 square meters of modern space under construction, with delivery dates in 2024 and 2025. And infrastructure works continue at an accelerated pace and will open up new areas of interest for the industrial market, including for production. The nearshoring/friendshoring trend remains valid and will further strengthen the manufacturing sector.

However, rental demand for logistics and production space fell by around 29% in the first half to 342,000 square meters and the vacancy rate reached 6%. However, Colliers experts point out that this does not necessarily indicate a dramatic drop in market activity, but rather reflects a lack of very large contracts. Also, the market is in a completely different paradigm compared to the pre-pandemic period, when rental volumes in a semester could be even less than 200,000 square meters.

• Calm of local demand in the office market

In the office market, new demand was moderate in the first half of this year and deliveries were non-existent. About 160,000 square meters of modern office space were leased in Bucharest in the first six months of the year, down slightly compared to the same period in 2023. However, new demand reached about 64,000 square meters, up 7% compared to by 2023, but remains below past peak levels.

Silviu Pop said: "We have 3.4 million square meters in stock in Bucharest, but zero square meters completed in 2024. We only have 74,000 square meters under construction, which is not a big deal, because we had 200,000 square meters annually. We see a moderation in local demand, we see a small decrease of 3%. The office market is in a neutral position in terms of the relationship between tenants and owners, but in the medium term of a year and a half to two years we may find ourselves in a market of owners. We see a growing gap between very good buildings and those that do not quite comply with ESG standards, and this gap is reflected in the price of rents and the degree of occupancy of office buildings".

The IT&C sector remains dominant, however the demand is now more diversified, including other sectors. Colliers consultants are also seeing a widening gap between prime and old buildings. Another aspect worth mentioning would be that deliveries start to accelerate from 2026, but even so, the market will not return to 200,000 square meters per year anytime soon.

And the retail sector remains attractive, given the effervescence of deals, the emergence of new brands and the re-emergence of large schemes post-2026. Consultants Colliers anticipate that the 5 million square meter mark of modern retail space will be exceeded in 2026-2027, from a stock of 4.6 million square meters currently. In the first part of the year, 104,000 square meters were delivered for the retail sector, and another 251,000 square meters are under construction for 2024. Cautious expectations at the start of 2024 were exceeded, with mass-market and discount retailers resuming accelerated expansion. Wages are growing at around 14-15% annually, compared to 5% inflation, offering good prospects for consumption over the medium term.

• Land transactions, below the limits of previous years

In the land market, 2024 is proving to be a very good year for strategic acquisitions, in areas where investors are already present. Although the number of newly initiated deals is declining, previously initiated ones are closing in large numbers, including significant deals, suggesting that 2024 will be a good year to draw the line at the end. Otherwise, landlords are not too willing to offer opportunities to buyers, confident of the post-2025 market outlook, supported by consolidations around large projects, generous supply of land for mixed-use projects and high interest from residential and retail customers. Another important chapter of the real estate market, the residential sector, is in a delicate situation, given the increase in buying appetite and the decrease in supply. On the one hand, purchase intentions are close to historic highs, according to Eurostat surveys, while increased purchasing power and lower interest rates should boost demand. On the other hand, Colliers experts draw attention to the fact that permits and deliveries registered a significant decrease in the first part of the year, which creates the conditions for an accelerated increase in housing prices in the medium term.

Regarding the above two markets, Silviu Pop stated: "2024 is a weaker year for land transactions, but we still record transactions that started several years ago and are being completed now. That is why we believe that the current year will not be a very weak year, but we will not reach land transactions totaling one billion euros, because the owners do not want to let go of the price. The prices are stable, but bonuses are given for those who already have a building permit or Zonal Urbanistic Plan. In the residential market, the demand is quite high, but the supply is decreasing if we look at the actual deliveries of housing. It's a rather unbalanced market between supply and demand. We may have a period where prices rise faster than wages."

He also mentioned that the massive investments from EU funds (PNRR and structural funds), together with an active private market, brought construction works close to historical highs, but the competition between the private and state sectors, the increase in wages and the prices of materials found under pressure have strained the market, leading to an increase in costs on the construction market in Romania starting from the second half of 2023.

• New real estate projects in Bucharest

Regarding the real estate investment projects in Bucharest, Laurenţiu Lazăr, Managing Director of Colliers Romania, stated that there are several large projects to be authorized, some of the documents to be issued by the Capital City Hall, and some by the sector town halls, the respective buildings to be delivered in 2026 and 2027.

Laurentiu Lazăr stated: "The projects are advanced in the authorization area and I hope that things will go back to normal, after in the last four years we had some adjustments, some calibrations in the urban planning of the Capital. I don't think it was very bad for the market in Bucharest that last year and this year there were not many works, but I hope that from now on there will be a better balance. The slowdown in the granting of residential building permits over the last three years in the Capital was ultimately a good measure, because otherwise we would have had too much stock and faced too little demand due to inflation and high bank interest rates." .

His Majesty stated that in Bucharest there is still room for real estate construction in the retail and office areas, even if at the moment we are witnessing a calming down of the office market. As for the residential area, Mr. Lazăr indicated that now it seems like it would be much more affordable to buy an apartment than before, but he stated that he does not think that we will see a drop in prices for residential housing. He concluded by saying that while housing appears cheaper relative to wages, affordability is still difficult due to high interest rates.