CRBE Research: Romania Real Estate Market Outlook H1

Mid-year main macroeconomics indicators reveal a steady but at a slower pace economic rebound at two years after the 2020 economic decline.

Macroeconomics indicators

With annual growths ranging between 6.7% in Q2 2017 and 4.4% in Q2 2019, Romania’s GDP marked significant annual fluctuations in 2020 and 2021, respectively the lowest and the highest peaks in the selected time frame.

The government’s response and subsequent measures to the health and economic crisis, put Romania on an upward economic trend, that can be seen in the data estimated for the second quarter of 2022 and the forecasts on short to medium term.

At Q2 2023, the country’s GDP is forecasted to increase with +3.6% YoY and with +3.7% and +2.5% in the following two years. Even if compared with Eurozone area, the GDP growth at Q2 2022 is lower with 0.5 ppsfor Romania, the forecasted annual growths until Q2 2025 reveal differences up to 1.2 pps.

The wide budget deficit created in Q2 2020, managed be narrowed in Q2 2021, government balance (share of GDP) reaching from -11.3% at -6.6%. The fiscal deficit is forecasted to be reduced with 0.3 ppsat Q2 2022, and to bounce back at -6.6% in Q2 2023 before improving to -5.5% in Q2 2024 and -5.0% in Q2 2025.

In May the government announced the launch of a new package of social and economic measures „Support for Romania”, worth EUR 1.1 bln., that includes financial support for pensioners and citizens with low income and the postponement for nine months of bank rates for people and companies facing financial difficulties. The new measures will be effective from Julyand, at the same time, the Government will take measures for fiscal consolidation and compliance with public deficit commitment such as, but not limited to, reduction of budget expenditures by at least 10%, except for those with investments, salaries, pensions, social assistance.

On a downward path compared with the last two years, the unemployment rate at Q2 2022 is estimated at 5.6%, value marginally higher compared with the one registered in the second quarter of 2021, respectively 5.5%. The prognosis is optimistic for the unemployment evolution, a rate of 4.7% being estimated for Q2 2023 and 4.5% for 2024 and 2025. Analysedagainst the Eurozone area average, Romania’s unemployment rate was lower with up to 3.1 pps(in Q2 2017) and the prognosis indicates a similar dynamic on the short to medium term, the Euro area value being higher up to 2.5 pps(in Q2 of 2024 and 2025).

After a dramatic drop in Q2 2020, private consumption embarked on an ascending trend starting with 2021, registering a 10.8% YoY growth, and an estimated positive growth of 8.9% for Q2 2022. For the next three years, private consumption is expected to maintain on the upward trend but with a more tempered appetite for consumption, being forecasted YoY growths of 3.6% at the second quarters of 2023 and 2024 and 2.6% in Q2 2025. The sentiment of amuch-desired normality and mobility as well as the presence of an increased number of additional consumers such as foreigners are amongst the factors that contributed to the rise of private consumption.

In the second quarter of the year, the National Bank of Romania increased the monetary policy rate to 3.75% from 3.00%. Nevertheless, the Bank’s commitment to maintain firm control over money market liquidity continues to be itsmain priorities.

The CPI inflation estimated for Q2 2022 is with 10.5 ppshigher compared with the same period of the previous year when a value of 3.6% was registered. The accentuated growth of CPI inflation was determined by the effects of large increases in commodity quotations and increased energy and transportation costs, along with the influences of blockages in production chains.

„The smaller but still existing economic growth with GDP and private consumption estimated annual increases of 3.6% at the second quarter of next year, indicates the country’s resilience to both internal and external turmoil. Main macroeconomic indicators forecast disruptions only on short term, public authorities already addressing issues with multiple supportive measures meant to outcome better economic results” – Daniela Gavrile, Head of Research, CRBE Romania

Investment

Mid -2022, the investment volume in Romania amounted EUR 323 mln., 6% higher compared with the amount transacted in the same period of the previous year. 79% of the year-to-date volume was concluded during the second quarter of the year. The largest transaction of the year to date was signed in the second quarter of the year, with the purchase of Expo Business Park by S Immofrom Portland Trust.

Although the investment volume is higher compared with the first half of 2021, the number of transactions is with three deals less, meaning that fourteen transactions were registered in H1 2022. Moreover, ten transactions involved real estate properties located in Bucharest and claimed the largest share of the total investment volume. Only 20% of the total investment was directed towards regional cities out of which Cluj –Napocaemerged as the most sought-after regional location.

With 62% share from the H1 2022 overall country investment volume, office properties cement their position of the most appreciated local type of properties by investors. Industrial and retail properties claim 15% and 12% from the total volume, while hotel and mixed –use properties have a joint share of 11%.

The new trend that shaped on the office leasing market, where office projects lease large spaces to hospitals, respectively tenants with a history of long-term lease agreements, can only positively contribute to office products WAULT’s and to the attractivity in the investors’ eyes.

Starting with the second half of 2018, local source of capital started to claim higher shares from the semestrial investment volume, the highest percentage being recorded in the first part of 2019, respectively 53% from the H1 2019 investment volume. One representative deal sealed in Q2 2019 by a local investor is the transaction of The Office, an office building inCluj -Napocabought by Dedemanfrom NEPI Rockcastle and businessman Ovidiu Sandor for an estimated value of EUR 129 mln.

In the last two semesters, Romanian investors generated 18% of the total investment capital. During H1 2022, Austrian investors were the main source of investment capital in Romania. Even though the source of capital was exclusively foreign in the first quarter of the year, Romanian investors managed to close several deals in Q2. Thus, with a percentage of 18% local investors made the top three main sources of capital in Romania, after Austrians and Belgians which claimed shares of 37% and 22% from the total investment volume.

In the first half of the year, prime yields didn’t register any fluctuations and maintained stable from the last quarter of 2021, respectively at 7.00% for retail market, 6.75% for the office market and 7.25% for the industrial market.

Already overpassing the previous year’ s investment volume when comparing the same period and with the investment deals pipeline quite consistent, the year’s total investment volume contours to reach if not to surpass the 2021 traded volume. The pipeline of investment deals will be shaped by the leasing market, combined with the ongoing outlook for financial conditions in the broader monetary markets.