In a volatile environment generated by rising prices for building materials and utilities, rising inflation, as well as the border dispute and the effects of the pandemic, the local real estate market could still see an increase in value. listing of commercial real estate such as shopping malls, office buildings and logistics centers in the short to medium term, according to consultants at Colliers.
Investor interest in retail products has grown steadily over the past year, focusing on various product categories, such as business parks or shopping malls, shopping malls in secondary cities tertiary to be repositioned, or boxes rented to supermarkets or DIY. Malls are not available in the market for trading, so investors have turned to similar alternative products. However, Colliers’ consultants estimate high interest in any such property that may be available on the market.
The elimination of rent discounts following COVID restrictions has an impact of up to 0.5% on the evolution of shopping center market values, Colliers consultants show, with the positive trend also supported by revenue-based rentals. Although INSSE data shows an 8% increase in retail sales in the first quarter of this year compared to the same period last year, the increase in percentage rent income in large shopping centers has been higher, showing a return even higher than the figures for 2019. Thus, in the short term, we can speak of an increase in the value of commercial properties, but it remains to be analyzed how consumption will influence the end of the year, when the effects of the economic squeeze will be felt more strongly.
“Other important factors that can change the value of shopping center properties relate to changes in lending, interest rates, inflation and utility costs. Consumer credit rose in the first quarter of this year by around 12% compared to the same period last year, which would be almost in line with inflation. The 3-month ROBOR has also increased this year from 3.19% to 5.5% and bank rates are expected to rise further in the near future, which could put additional pressure on lending and consumption. But most likely the increase will be gradual, with effects visible late this year or early next year,” says Raluca Buciuc, Director and Partner of Assessment and Advisory Services at Colliers.
In Romania, excluding volatile and controlled prices, such as food and energy, the core inflation rate is 6-7%, and this high value suggests long-term effects, Colliers consultants point out, adding that the inflation rate will hardly return to the level of the pre-pandemic period, which will again affect consumption.
“The sustainability of the transfer of inflation in the indexation of rents remains under discussion, especially since the cost of utilities has also increased significantly. It remains difficult to estimate how much they will impact the level of sales of a shopping center, but these two elements also influence the cost of money over time, the country risk, which can have a negative impact up to at 2-3% in the value of the property”, adds Gabriela Bosînceanu – Otea, Associate Director Valuation and Advisory Services at Colliers.
In addition, in the next 2-3 years, commercial, office and industrial property owners will also have additional expenditure to align with the requirements of ESG in Europe, which ensures that environmental, social and of governance are respected.
Modern office buildings will be more competitive, with better occupancy rates and stable rents
Rising construction costs will also influence how quickly new office projects get to market, with many developers preferring to delay construction to see how much of the extra cost can be absorbed by higher rents, Colliers consultants note. Thus, the market value of buildings will begin to differentiate even more, fluctuating within fairly generous margins. Specifically, while in the Floreasca-Barbu Vacarescu area values can exceed 3,000 euros per leasable square meter for buildings less than 5 years old, in the emerging Center-West area values average 2,500 euros per square meter lettable.
“The level of annual deliveries, against the backdrop of rising construction costs and general uncertainty, is expected to halve over the next 2-3 years, starting this year when around 130,000 square meters of offices could be delivered.Thus, the vacancy rate will be absorbed differently depending on the type of building, which will create a growing gap between recent buildings, located in good areas with superior technical specifications and constant investments in the improving the performance of buildings, and older ones, located in outlying areas, in which insufficient investment has been made to directly compete with the first category.If the slowdown in deliveries can be perceived as market stagnation, the moment is conducive to delivering new buildings or repositioning existing ones, particularly in the context of redefining office layouts”, d says Anca Baldea, Director in Colliers’ Valuation & Advisory Services Department.
An additional new differentiator in the office market is related to the adaptability of buildings to ESG. In the case of older buildings, Colliers consultants point out, the investment required to meet specific standards could be far too high compared to the market value of the building, based on current leases, and difficult to cover any future rent increases. As a result, prime buildings will have better occupancy rates and a higher and more stable level of rent. Colliers consultants are already noticing that in some areas there is a shift from a renter’s market to a landlord’s market, with gross rents increasing in some cases by 5-7%, despite the fact that there has been an overall decline 10% of actual rents on the Bucharest market.
The logistics and industrial market could lose its competitiveness against regional markets due to high costs of materials and utilities
Romania’s stock of modern industrial and logistics space, which could soon exceed 6 million square meters, has more than doubled over the past 5 years, but on a per capita basis, there is still a significant gap between Romania and other markets in ‘Central Europe. As a result, there is potential for further development of these properties, Colliers consultants point out.
The rapid growth observed in construction prices and utility costs puts pressure on rent levels for newly built facilities and may lead to reduced competitiveness with neighboring countries that will offer higher subsidies or not participate. to the same extent to the application of economic sanctions to Russia, such as Serbia and Hungary.
“However, the outlook for the Romanian industrial and logistics market is very optimistic about the opportunity for Romania to become a regional center for the Balkans (Serbia, Bulgaria, Bosnia and Herzegovina, Macedonia, Montenegro, Albania and even Greece) and e-commerce remains an important driver of future demand for industrial and logistics space, as it requires greater storage volume.An opportunity for growth is also the relocation of production facilities from China, due from rising labor and transportation costs, and more recently from Russia and Ukraine due to war,” adds Mihai Pană, Director of Valuation and Advisory Services at Colliers.
In the short term, the consultants at Colliers believe that the shifts in values driven by both opportunities and challenges appear to be balanced, but in the medium to long term, it remains to be seen how these challenges will materialize in the economy. In addition, commercial building owners increasingly need to align with European ESG requirements. For starters, this alignment will involve additional investment with the goal of reducing carbon footprint and sustainable energy use, which could be recouped within 3-4 years by lowering utility costs and selling electricity. additional energy obtained.
Colliers consultants point out that it is difficult to estimate the impact on the value of real estate, but that over time, non-alignment with new European ESG requirements could influence the commercialization of real estate as well as the main factors contributing to the market value of real estate, such as higher vacancy rates, higher capitalization rates or lower rents.