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Our real estate market continues to have a high growth potential, even though the pace may be slower this year compared to pre-pandemic trends, according to Colliers consultants. Specialists indicate that 2024 could prove to be better than 2023 for some segments. General trends are favorable in terms of industrial and logistics operations, considering global strategic relocation decisions, workforce availability and cost, and recent or anticipated improvements in infrastructure. At the same time, the current year will remain challenging for the local investment market, despite the chance of improving market conditions due to anticipated interest rate reductions. Other market trends include a shift from predominantly retail park developments to large commercial projects, as well as increased demand and accessibility in the residential market.
Representatives from Colliers express confidence for this year, with key reasons for optimism including the series of infrastructure projects, substantial European funds expected to enter our country, and Romania's emerging role as an increasingly important regional hub for distribution and production, particularly in Southeastern Europe.
The approximately 1,000 kilometers of high-speed roads in the country could double, as around 800 kilometers are currently under construction, with work starting soon on other sections. Significant upgrades are also planned for railways in certain parts of the country.
The prospect of a more business-friendly environment in transportation, coupled with a potential entry into the Schengen area for land borders, attracts investors, especially to areas with lower wages and better labor availability, according to Colliers consultants. This is expected to lead to a better distribution of growth and economic resources.
Romania's geographic position and its specific economic advantages, especially the significant gap between labor costs and labor productivity - a gap comparable to that in China, for example - support the idea that our country will become a major center for logistics and production activities in the context of the "friend-shoring" trend (relocation of activities to friendly countries). External reports also confirm this trend, as the Central and Eastern Europe (CEE) region, according to the Institute of Economic and Social Research - the oldest British think tank - is expected to become the engine of European economic growth. While companies cannot ignore Asia or certain areas in South America for production, they can diversify their operations to reduce risks, and CEE, including Romania, is well-positioned to attract such investments in the coming years - a trend observed by Colliers consultants over the past two years.
Among the concerns expressed by the specialists are both domestic issues, such as the country's massive fiscal imbalance, and external concerns, where uncertainty persists, especially regarding geopolitical aspects.
• Positive Estimates for Real Estate Investments
The situation could improve in the local investment market, given the expectations that the European Central Bank and the US Federal Reserve are likely to start reducing interest rates in the second quarter, even though the rate of interest rate cuts will be much slower than the rate at which they increased. This means that at least the second half of the year could show some improvement. There are some significant transactions in progress for the beginning of the year, but due to the fact that some deals fell through in 2023, uncertainties remain. In terms of volume, 2024 could be comparable to the previous year, which ended with total real estate investments of half a billion euros.
• Lowest Office Deliveries in the Last Two Decades
The office market will experience the lowest deliveries in the last two decades, according to Colliers consultants. They add that only one large project, approximately 16,000 square meters, could be delivered this year in Bucharest, making 2024 the weakest year at least since 2004-2005, when the office market was in its early stages. Regional cities will also not see significant deliveries, emphasizing that new demand will remain moderate, with the vacancy rate at last year's average. However, well-positioned buildings that comply with ESG standards are much more sought after. This situation could further drive rent increases, following a roughly 10% increase in rents last year.
• Colliers: The Industrial Segment to Shine in the Real Estate Market
The industrial and logistics sector remains active, especially compared to pre-pandemic levels, although the unprecedented rental growth of over 10% per year, both in 2022 and 2023, impacts the attractiveness of storage spaces in Romania for international companies. However, the prospects remain encouraging as Romania ended 2023 with less than 7 million square meters of modern storage spaces, a relatively limited supply compared to European countries. This is especially true in the context of ongoing infrastructure improvements and anticipated demand growth due to reshoring, according to Colliers representatives during the press conference where they presented the Top 10 predictions for the real estate market in Romania in 2024.
• Mixed-Use Retail Projects to Intensify
Traditional retail networks seamlessly integrate their activities with online ones, given that people still have the desire and culture of going to stores for most purchases, according to the cited specialists. After several years in which retail parks took the spotlight in the industry, Colliers consultants see an increasing interest in large-scale projects, both standalone and integrated into larger mixed-use developments. They expect many such projects to continue or commence development nationally in 2024. Concurrently, on the consumer side, the decrease in inflation and substantial salary increases should continue to fuel the desire to spend, and sales volume could accelerate compared to 2023. However, after the recent inflation surge, Colliers consultants anticipate that discount retailers will once again be at the top of preferences.
• Increase in Residential Demand
Colliers consultants anticipate growth in both demand and accessibility for the residential market. Many of Romania's dynamic cities and economic zones are affected by overcrowding, supporting a long-term demand for affordable housing. Moreover, the anticipated relaxation of the central bank's monetary policy, projected for mid-2024, along with a substantial increase in salaries, should sustain a high interest in such acquisitions, according to Colliers. Otherwise, housing affordability in relation to salaries has slightly deteriorated in recent years, but starting in 2023, the trend has reversed, and it is expected that this consumer-friendly dynamic will continue.
• Low Interest in Land
In the land market, Colliers consultants noted a slight decrease in investor interest in 2023, considering the number of new registrations, and this trend is likely to continue in 2024 as many developers already have land for future developments. However, a series of significant transactions that have been in preparation for some time could be finalized this year, contributing to another year of solid results. Prime lands continue to benefit from a price premium, and if longer-term uncertainties decrease significantly, land prices could start to rise again more broadly.
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