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COVID-19 impact expected to be negative on commercial real estate market short term
The impact of COVID-19 will be negative in the short term on certain sectors of the commercial real estate market in Europe, provided that the outbreak gets under control within a reasonable time, says Anthony Selman, CBRE Head of Investment Properties Central and Eastern Europe.
According to an analysis conducted by the CBRE real estate consulting company, the volume of transactions in Romania exceeded the threshold of one billion euros last year, being the only main market in the CEE that did not witness a significant decrease in the annual return on investment.
CBRE analysts say that after a year of intense activity in the investment market, marked by the continuous appetite of local investors, Romania still has the highest return on investments, at 7%, maintaining its attractiveness with local and international capital. With 74% of the total volume, the office buildings sector in Romania dominates the transactional activity, followed by the retail sector with 16%, while the industrial, hotel and mixed-use projects have a combined weight of 10%.
According to Gijs Klomp, Head of Investment Properties CBRE Romania, Romania is the only main market of the CEE that has not witnessed a significant decrease in the annual return on investment. Since 2014, the yield of prime office spaces has remained stable, as have the prime rentals that have resulted in much greater capital values in Romania, currently lower than anywhere else, offering investors excellent value for their investments.
According to the study, the total volume of investment has doubled in the last six years in the enlarged CEE region, which includes the Czech Republic, Hungary, Poland, Romania, Slovakia, Austria and Serbia.
In 2019, Israeli investors dominated the real estate market, with a record deal completed at the end of the year, rising to 36% of their share in the total volume of investments. Romanian investors were even more dynamic than in the previous year, taking 23% of the total volume, followed by South Africans with a share of 17%. Regional cities have remained attractive to market players, almost doubling their contribution to the total volume of investment as against 2018.
Klomp also says that although the beginning of 2020 raises some concerns, a steady increase in investment volumes supported by a massive increase in investor demand should be expected. The annual return on short-term investment should keep on falling mainly due to falling interest rates (central banks will keep rates low in this environment, at the risk of slowing down economic development) but also of a certain degree of convergence with other CEE markets, especially Hungary.
CBRE Romania analysts claim that most CEE countries have reached new investment thresholds: Poland holds the highest share (38%), followed by Austria (30%) and the Czech Republic (15%). Austria and Poland exceeded 5 billion euros, reaching 5.98 billion euros and 7.70 billion euros, respectively, while Romania, Hungary and the Czech Republic recorded volumes in excess of 1 billion euros (1.06, 1.72 and 2.98 billion euros at the end of 2019).
At the same time, transactional activity was once again dominated by the office buildings sector, accounting for 44% of the total volume, followed at a considerable distance by the retail sector with 20% and the industrial sector with 14%. Hotels, residential and mixed-use projects and portfolios together accounted for 22%. More than half of the total volume, 59%, was traded in the capitals of the countries of the extended CEE region.
The CBRE analysis shows that the main source of capital for the last six years came from Western Europe, with an average weight of 35%, followed by local investors with a weight of 28%. Investors from other international destinations, including China, Russia, Australia and Canada, spent 14.27 billion euros in the period 2014-2019, representing a share of 16%.
The report says this is the fourth consecutive year of growth, with a new record volume of transactions for the main CEE countries, and also with excellent performance for the extended region. In 2020, we expect to see increased interest from investors in products on the CEE markets, which will require a higher level of consulting skills and understanding of the markets in context.
CBRE Group, headquartered in Los Angeles, is the largest commercial real estate investment and services company in the world, based on revenues from 2018. In Romania, CBRE offers a wide range of integrated services, including transaction administration and coordination of transaction and project management, design and build services, property management, investment management, appraisal, property leasing, strategic consulting, property sales, mortgage services and development services.