King Sturge has released its “Romania Property Market Review Fall 2010“ report this month which states that the Romanian economy was severely affected by the global financial crisis, and overall GDP is expected to decline again this year. Whilst there are tentative signs of recovery in certain sectors, the government’s austerity measures to address the fiscal deficit will have a negative impact on growth in the short-term. Forecasters are now not generally expecting a return to growth until 2011/2012.
The economic and financial turbulence hit all parts of the Romanian real estate sector and markets are only now beginning to see some patchy signs of stabilisation. A chronic lack of finance and liquidity will mean that the pace of any recovery will be slow. Investment markets remain characterised by very limited activity. There is a lack of investment grade stock, and demand is subdued, with many of the large western European institutional investors still unwilling to re-enter the market. The supply of ‘distressed assets’ has been relatively modest to date, because banks have been reluctant to foreclose on breached loan agreements. However, the supply is likely to increase going forward, especially for ‘postponed’ development projects.
The residential market in Bucharest was one of the first victims of the credit crunch, and over the past two years prices and rental levels have fallen sharply. The market showed some signs of improvement in the first half of 2010, but transaction volumes remain well below pre-recession levels and new apartment deliveries this year will be less than a third of the level in 2009. A two-tier market is emerging, with stronger price differentials between prime and secondary residential schemes, which represents a step forward in terms of market sophistication and maturity.
The sharp contraction in economic activity in 2009 hit the Bucharest office market very hard, and led to a slump in occupier demand and a rise in vacancy, which was highest among the newly developed stock. Whilst headline rents fell comparatively modestly, tenants have been able to secure generous incentives, particularly in the form of rent free periods and fit-out contributions. There is now some evidence that the market is recovering, with leasing activity increasing and vacancy rates stabilising. In the Bucharest retail market, new shopping centre development has slowed sharply. A number of established schemes, which have traditionally been virtually 100% occupied, now have some vacant units. Retailer demand has fallen significantly, although a handful of international brands, notably in fashion and footwear, are seeking to increase their store networks. Shopping centre rents in Bucharest have softened, and even more so in the regional markets. The High Street market has experienced similar trends with increasing vacancies on some of Bucharest’s most prominent locations. However, there are now tentative signs of stabilisation in the market. Whilst consumer spending and confidence remain weak, the longer-term fundamentals for Romania are good in terms of its potential to support more retail provision. The Bucharest industrial and logistics market is showing signs of improvement with a higher level of take-up in H1 2010 compared with the same period of 2009. However, the overall vacancy rate which stood at 12% at the start of the year could rise to 15% by the year-end, if new deliveries are not occupied. The market balance still favours tenants, with the major retailers, in particular, in a strong negotiating position.
The market for land has seen the sharpest price corrections. Values for prime sites have fallen by 30 to 40%, whilst plots of a more speculative nature have seen their value decline by 50 to 60%. The Romanian economy and real estate sectors continue to face a range of difficult challenges and uncertainties remain. However, economic forecasts suggest an improving outlook over the medium term. In this climate, there is a stronger need for all participants to seek sound market analysis and professional advice
Source: King Sturge