A good year for real estate

After a draught that lasted more than three years and a sort of rainy summer, we can see the signs of a good year for the Romanian real estate market. When analyzing the regional picture, we notice that Poland remains the investors` favorite country but there is a lot of money at stake and it started going into Bucharest as well.

Until recently, the Central and Eastern European region (ECE) had only two points of interest, in the eyes of the investors: Poland, the only country of the EU that has escaped the 2009 recession and has attracted no less than three quarters of the foreign capital; and Prague, a city that absorbed whatever was left. But, the investments were significantly increasing during the first half of this year. While Poland still represents a major interest point and is on the verge of having its best real estate year since 2006, the rest of the region starts to finally catch up. According to a report drafted by Jones Lang LaSalle (JLL), during the first half of 2014, only 50% of the ECE investments targeted Polish assets. Some other 25% targeted the Czech Republic – including, but not limited to Prague – while Romania and Hungary have attracted 15%, and 8%.

According to Jos Tromp, chief of ECE research and consultancy within the CBRE, this increased interest was determined by Romania and Hungary`s improved economical results – countries that were seriously affected by the crisis, real estate market included – combined with a lack of investment opportunities in the most popular locations. “In these last few years, Poland was the core of Central European investments, especially for those investors in search for capital; as a consequence, it became more and more difficult to purchase good quality assets”, says Jos Tromp. The analysts are also saying that the high level of cash coming from Western Europe and going into ECE, obviously in search of comfortable outputs, is feeding the imbalance between supply and demand. “At the present time, there is much more capital available on the market, more than it was in the top year 2007”, Tromp said as well. This imbalance is also due to the increasing high number of assets owned by long-term investors.

The impulse of the investment funds

The Prague real estate market was traditionally characterized by a high percentage of long term investors, but we expect this trend to include also the rest of the ECE.

The shopping centers industry had to cope with this type of investors in particular, and a similar process is ongoing in the sector of industrial spaces and logistics. In return, this fact shows the changeable nature of the investors and of their strategy in the region, believes Troy Javaher, chief of ECE capital markets within JLL. “While, two years ago, the investors were not looking so much for top and non-risky opportunities, the current focus point of the investment funds is purchasing portfolios or, ideally, going into partnerships with famous platforms and doing these things at a scale that permits them to leave a mark in several countries”, Javaher also said. Moreover, the investors are now taking into account several types of exits – an important detail, especially for the increasingly high number of North American investment funds that put their money into the ECE.

The most important of these funds is Blackstone; it has been frantically purchasing assets in the region this summer and has bought over 540 million Euro worth of assets in a three transaction package done through their European logistical platform – Logicor.

The partner investment funds BlackRock and Lone Star have also come into the ECE, and so did the Canadian gigantic pensions fund – PSP Investment.

With regards to debt financing, the market share owners are reporting some similar trends in terms of supply and markets with financing potential. “Debt financing has always been a consistent element on the Polish market and there is a comfortable quantity of cash in the Czech Republic; but we are also starting to see banks that turn to real estate loans in Romania and Hungary”, Javaher points out.

The conditions are not some of the best, but they are permanently improving. Robert Sztemberg, chief of corporate financing within JLL Poland, says that, while the banks remain quite retrograde regarding time limits and loans-to-value (granting a maximum of 75%-95% of the total cost of the asset), the value of the loans has increased in the last 12 months, and the 100 million Euro loans granted by a single bank are not so rare anymore. Likewise, non-traditional investors such as bond funds are also making a step forward in order to fill the financing void in the region, especially in Romania and Hungary, countries where the banks are still reserved when it comes to loans.

The advantages of economical growth

According to the most recent Colliers International report covering the Romanian market, this year seems a good one for the local real estate market. What is the basis used by experts for making this statement? The European economy is predicted to grow in 2014 and, considering the massive foreign capital in the residential ECE sector, it is high time for investors to place their attention on those markets that have a more attractive profile regarding risk-profit relation – as in the case of Romania. “After an excellent 2013, when we experienced a 3, 5% economical growth, this year the GDP is expected to continue its way forward with over 2%. This will generate an attractive environment for investments on a global market where there is uncertainty and turbulence both on the Western and also on the emergent markets”, shows the Colliers report.

During 2013, some of the investors who had worries about investing in Romania have become more interested to look for opportunities to place capital in this country. As a consequence, there was an increase of the local market exploration activities and several purchasing negotiations beyond Bucharest`s borders have been initiated. The residential real estate market shall be marked this year by an increase of available assets and new projects, considering the greater demand for new apartments and the developers` desire to finish their expansion plans.

According to the Colliers analysts, we shall see an additional development of profitable projects similar to the precedent years, but, it is most likely that it will have a higher pace in order to satisfy the market demand. In fact, according to an analysis made in August by Imobiliare.ro, a nationally specialized website, the apartments` prices have gone up to an average of 907 Euro per square meter, after a 1, 8% blowback in June.

In Bucharest, the average amount of money demanded for apartments on sale went up to 1.076 Euro/mp, at the end of August. The current price is 2, 1% greater than the one recorded during the same period of the last year. Going back to the Colliers prognosis, regarding the prices of the land, this shows that trades shall continue in the same pace as in 2013. Nevertheless, most buyers shall continue to make profit as long as there are banks and owners urged to sell and the market offers very good deals. The offices real estate market, on the other hand, shall have an 1110.000 square meters rentable surface until the end of 2014, considering the current ongoing construction projects.