Ilinca Păun, Colliers International Romania: Real estate market starts moving upwards
The Romanian real estate market joins the economic growth and starts moving, says Ilinca Păun, Managing Director of Colliers International Romania, one of the main real estate consultancy companies on the corporate segment in Romania. As the economy shows a 3.8 percent growth, new requests arrive from investors who want to enter the local market, while the office market enjoys most of their attention. In the meantime, the banking system became one of the biggest owners of real estate properties and distressed assets.
How is the Romanian real estate market evolving, in the light of recent economic growth?
The market proves to be better and better every day, as large companies are expanding their local presence. We witnessed new demand coming from companies that are now entering the market, mostly in the services segment: business process outsourcing (BPO), call centers, shared services and other IT-related services are the main industries currently raising their presence.
Which are the main segments for growth in the real estate industry this year?
The office segment enjoys most of the growth. There are signs of new expansions, but there are still few new constructions on the pipeline, as the number of vacant office spaces is still quite generous. The industrial segment faces a growing demand, especially in the automotive area. Most of the companies chose the Western part of Romania for accommodating their warehousing and production facilities, in cities such as Timişoara, Arad and Oradea.
However, new investments in the industrial segment are hardly seen, as Romania still lacks the good yields that other countries, such as Poland, have.
How about the retail segment?
The retail market saw a drop in activity and is probably one of the most affected segments on the real estate market. In terms of new developments, the market is dominated by small projects. There are, however, a number of players stretching to reach for good land prices. While supermarket operators and discounters, such as Penny, Lidl or Kaufland, seem to have enrolled in the competition for securing the best expansion opportunities in small and medium-sized cities across the country, retail development as a whole seems to be in a race against the clock for prime locations.
The type of retail locations that benefited from increasing interest on behalf of investors in the past years are high-street locations - this type of investments function really well in today’s market, especially in the case of prime retail spaces located downtown or in central areas of the city, with high visibility and a good flow of visitors. These types of investments need between EUR 200,000 and EUR 1 million euro on average, but they are the most preferred investment nowadays, as it produces an after tax yield of 7-8 percent.
Is there any demand for distressed assets?
There is growing demand for distressed assets, especially on behalf of investors coming from Turkey, China or Israel. The biggest part of the supply comes mainly from the banking system, as well as from the big players in the economy.
Banks now own one of the largest portfolios of real estate properties in the economy. There is a lot of expertise required for managing and marketing this type of assets in order to make them a profitable business. While an increasing number of banks are hiring people with a lot of expertise to manage their real estate portfolios, they still lack the insights provided by an experienced real estate consultant.
What are the latest developments in the residential segment?
The residential market now starts to reboot, especially for new developments, but that doesn’t necessarily mean that the prices are rising. Prices for old apartments are continuing to decrease and there is increasing demand for new constructions. Actually, to be more exact, the type of residential developments which are targeted by the highest number of end-users are low-priced new apartments, suited for the Prima Casa/First House program on the one side, as well as apartments located in luxury compounds, which now have a good price, on the other side.
Meanwhile banks are writing off their real estate loan portfolios by a discount of 40 percent and these are taken over by investors who will market these estates one by one to end-users.
In the past 12 months, the prices for new apartments dropped by 3 to 5 percent. While for the Prima Casa/First House segment, prices vary between EUR 500-700 per sqm, on the luxury segment, a good price for a new apartment is considered to be between EUR 1,200-1,300 per sqm.
How do you see the market evolving for the next period, and what is Colliers main key performance indicators for 2014?
There is money waiting to enter Romania, and in the following 12 to 18 months I expect a real growth in transactions volume. Our target for 2014 is a 10 percent increase in the number of consultants, as well as a 15 percent increase in revenue and to maintain the leading position for the 18th time in a row, as we did each year since our debut in Romania.
By Bogdan Tudorache, business writer