First semester sees dynamic M&A market, but fewer real estate transactions than last year

The total value of transactions with commercial real estate assets in Romania reached EUR 298 million in the first half of 2021, a 23 percent decline compared to the same period of 2020, with the market primarily supported by the return of Austrian investors’ appetite for office buildings, according to the Romania Investment Marketbeat, launched by real estate consultancy Cushman & Wakefield Echinox.

By Aurel Constantin

Romania still has some of the most attractive yields in the region

The three most important transactions of the first semester were closed by Austrian investors, who expanded their presence on the Bucharest office market by acquiring the Campus 6.2 & 6.3 (S Immo), The Light One (Uniqa RE), and Bucharest Financial Plaza (Immofinanz) buildings. The three transactions, with a total value of around EUR 189 million, represent a 63 percent share of the total volume transacted in the first half of the year.

The next asset class preferred by investors was represented by industrial and logistics spaces, a sector in which CTP and Globalworth have expanded their portfolios by acquiring buildings in the western part of the country, while Swedish group Oresa Ventures purchased the Solo Parc project, the largest logistics park in Iasi. In total, the industrial and logistics segment attracted 24 percent of the capital.

The hotel sector recorded two transactions in Bucharest, with a total value of around EUR 21 million (7 percent of the total), the most important being the sale of the Ramada Majestic hotel on Calea Victoriei, which attracted a new investor on the local market: Swiss company Visionapartments. The retail sector was the least active in H1 2021, with only individual commercial units included in transactions. In total, 24 income-generating properties with an average value of EUR 12 million were transacted in the first semester.

“Market liquidity held impressively throughout the most difficult phases of the pandemic in 2020 and it has also remained quite healthy in H1 2021, as Romania still has some of the most attractive yields in the region. Looking ahead, yields are forecasted

to remain stable this year for standard properties, while a compression is expected for premium properties in landmark locations, which attract a larger pool of potential buyers,” said Mihnea Serbanescu, General Manager at Cushman & Wakefield Echinox.

M&A MARKET REMAINS DYNAMIC

Romania’s mergers and acquisitions (M&A) market recorded 54 transactions in the first half of the year, compared to 42 for the same period of 2020. Deloitte estimates total market value for both disclosed and undisclosed transactions at around EUR 1.2 - 1.4 billion, while the value of disclosed transactions totalled EUR 485 million. In comparison, the

total transaction market value in H1 2020 was approximately EUR 1 - 1.2 billion, of which EUR 572 million were disclosed transactions.

“We note investors’ focus on companies that have excelled during the pandemic, whether they were operating in the technology field or they adapted and developed new technologies to maintain or increase performance. Besides technology companies, the industries in which we expect investors to continue to be very active are renewables, real estate, and healthcare. An increasing number of investors are factoring in the ESG (environmental, social, governance) impact of target companies and therefore M&A activity may see surprising developments in this regard, also resulting from the multiple angles from which investors will look at those companies. 2021 looks promising from an M&A perspective, given the wave of enthusiasm surrounding the local business environment,” said Radu Dumitrescu, Financial Advisory Partner-in-charge at Deloitte Romania. Four transactions with a disclosed or estimated value of at least EUR 100 million were announced in the first half of 2021. A similar figure was recorded in H1 2020.

“Although the covid-19 pandemic has had an unprecedented humanitarian impact, a surprising level of optimism is currently governing the M&A market. The flooding of money markets coupled with the pressure on strategic capital decisions are favouring a dynamic M&A situation. We expect a positive future evolution amid increasing certainty,” said Iulia Bratu, Corporate Finance Director at Deloitte Romania. The largest deals of H1 2021 were: London-based Novalpina Capital acquired MaxBet Romania for an estimated value of EUR 250 million; Glovo’s acquisition of Delivery Hero operations in the Balkan region for a disclosed value of EUR 170 million; Hungarian private equity fund Adventum bought Hermes Business Campus from Atenor, a deal estimated at EUR 150 million; Hidroelectrica’s takeover of Crucea Wind Farm and Steag Energie had a EUR 130 million disclosed value.

The most active sectors by volume of transactions were real estate (including construction), technology, and the financial sector. Together, they generated 24 transactions. From a deal value point of view, the most active sector was real estate, followed by energy and financial services. RETAIL PARKS PROVE RESILIENT

Retail parks were not among the most attractive investment targets in the first half of the year, even though they were some of the most profitable.

Retail parks in Romania proved to be much more resilient during the pandemic than shopping centres, with the turnover of companies that owned such properties decreasing by 9.5 percent during 2020, compared to a 20.6 percent decline in the case of shopping centres, according to an analysis by Cushman & Wakefield Echinox, which took into account the financial results of over 60 modern retail projects. The results illustrate an average turnover drop of 18.5 percent compared to 2019, the last year with no operating restrictions, from EUR 607 million to EUR 495 million – therefore the pandemic had a negative impact of EUR 112 million on the revenues of retail projects (shopping centres and retail parks) in Romania.

The pandemic’s stronger impact on shopping centres can be explained by the long lasting shutdown of indoor non-essential stores, as well as that of cinemas and restaurants, two categories of tenants that usually have a strong presence in shopping centres.

Preliminary data from the Finance Ministry shows a turnover decrease of around 35 percent for restaurant operators, while total cinema attendance decreased by 75 percent in 2020, according to the Romanian Film Centre. The two segments have therefore been among the most affected by the government’s restrictions, which subsequently impacted shopping centres’ results.

“Our analysis confirms the market sentiment regarding the performance of modern retail projects, more specifically that of retail parks, which have managed to significantly reduce the losses caused by the pandemic and by the measures adopted against it. Moreover, if we look at projects that are currently under construction or in various planning stages, we’ll notice that retail parks will continue to dominate the market, as this type of development is preferred due to lower construction costs and to the type of tenants it attracts, as they are generally less affected by special economic or health situations,” said Vlad Saftoiu, Research Analyst at Cushman & Wakefield Echinox.