2022 Real estate market Residential sales hit new

2022 Real estate market: Residential sales hit new records, inflation remains top threat

This year is likely to end with new records on the Bucharest residential market, certainly in terms of units sold but possibly also in terms of the number of dwellings delivered, according a market report released by real estate consultancy SVN Romania, which is based on official statistics and the company’s own research.

By Aurel Constantin

Home sales have increased by over 53 percent over the last three years

Over 52,000 homes were sold in Bucharest and its surroundings in the first ten months of 2022, up 9.16 percent compared to the same period of 2021, according to data published by the National Agency for Cadastre and Land Registration. 2021 was the best year in the local residential market’s modern history, with a 37 percent annual increase in home sales in the region, after 2020 had also ended with a 5.3 percent advance on the previous year.

At the same time, over 27,000 new homes were under construction at the beginning of this year in Bucharest and its surroundings, according to SVN Romania’s research, this being the biggest figure of recent years. 2022 could therefore also bring a new delivery record, as the most recent data published by the National Institute of Statistics showed that deliveries had increased by 14.7 percent in H1 2022 compared to H1 2021.

“2022 was another very good year for the local residential market, despite the generally unfavourable context, the constant rises in inflation and interest rates, and the relentless negative forecasts. 2023 will most likely bring a lower number of deliveries in Bucharest and the surrounding areas, and implicitly fewer transactions, considering the fact that the reporting base is represented by absolute records. Overall, home sales have increased by over 53 percent over the last three years, so 2023’s results must be analysed with this context in mind,” said Andrei Sarbu, the CEO of SVN Romania.

This year’s results were recorded in a context in which the accessibility of buying a new home maintained a satisfactory level, according to the profile index calculated by SVN Romania based on average prices and national statistics.

In September, the most recent month with available official data regarding wages, 103.8 average national wages—or 8.6 years’ worth of incomes—were needed to buy a new one-bedroom apartment in Bucharest with a net surface area of 50 square metres. For comparison, one year earlier, one would need 102.3 average wages (8.5 years) to buy a similar apartment. That’s only a 1.5 percent decline over the last 12 months, during which general economic conditions have deteriorated to a significant extent.

The research took into account a 16 percent annual price increase on the new segment, while the national average wage has risen by 13.8 percent in the last year and the RON-EUR exchange rates remained stable. The current value of the SVN index is still almost four times smaller than its 2008 peak, when buying a one-bedroom apartment in Bucharest required 393 average wages or a working period of almost 33 years. Official statistics also show that over 50 percent of home sales in the region are cash-based, with no mortgage loans.

EXPANSION PLANS REMAIN INTACT

Real estate investors and developers operating in Romania argue that inflation, the rising costs of financing and construction, and the geopolitical situation are the main macroeconomic factors that may impact the Romanian real estate market, as they are expected to put pressure on both demand and rental levels. However, despite all the above-mentioned issues, investors maintain a positive outlook and their expansion plans in Romania are mostly intact, according to the first edition of Cushman & Wakefield Echinox’s “Real Estate Investor Sentiment Barometer.”

Cushman & Wakefield Echinox surveyed the top management of 45 local, regional, and global investment companies with a com-

bined real estate portfolio of more than EUR 10 billion in Romania, reaching a share of approximately 50 percent of the local real estate market. The survey was conducted between October 1 and November 1.

Inflation was almost unanimously (93 percent) indicated as the top macroeconomic risk for the Romanian real estate market, which will also be affected by increasing financing costs (based on 86 percent of responses) and the geopolitical situation (76 percent).

Despite the challenges the market faces, a clear majority of the responding investors (71 percent) said they were looking to expand their portfolios. The remaining 29 percent aimed to maintain their existing portfolios over the next three years. None of the respondents had plans to downsize their operations.

“The results of the survey conducted among real estate investors and developers in Romania reveal the level of maturity that the local market has reached, as the vast majority of players, whether local and foreign, are making long-term plans, fully understanding the cyclical evolution of the market. 2022 is likely to reach transaction volumes of more than EUR 1.2 billion, despite the fact that a number of investors have decided to be more cautious in a highly volatile context. 2023 will be influenced by the evolution of inflation and by that of financing costs. Once these are on a downward trajectory, the appetite for major real estate investments will return to high levels,” said Cristi Moga, Head of Capital Markets at Cushman & Wakefield Echinox.

Bucharest remains the preferred destination for future real estate investments, while secondary markets (cities with a population of over 250,000) are also popular targets among investors and developers. In the survey, 63 percent of respondents indicated Bucharest as their key location for new investments, while only 20 percent were actively targeting tertiary locations (cities with less than 250,000 inhabitants). Almost 50 percent of investors also saw secondary cities as attractive investment targets. INDUSTRIAL SEGMENT DEVELOPMENTS

As for market segments that will attract new investments in the next 12 months, only 5 percent of respondents expected more development activity on the office market. The explanation for the low appetite for this segment has to do with the bureaucratic issues in Bucharest and the uncertainty surrounding the authorisation process pertaining to new projects. A special mention also goes to the Private Rented Sector (PRS), which is forecast to see more investments than the office sector in 2023.

A vast majority (64 percent) of respondents foresaw more developments in the industrial segment, while 18 percent expected new investments to be made in retail projects.

Most respondents predicted an upward movement for rents in the office (58 percent) and industrial (55 percent) segments, while the share of those indicating a rise in rental levels for retail assets was only 38 percent.

Inflation (86 percent) and construction costs (79 percent) were indicated as the main factors that could influence rental levels. Other notable factors were the level of competition on the market and the lack of new supply for the office sector in particular.

Questioned about the evolution of demand, most investors expected medium-term stability for all types of spaces. On the other hand, 30 percent of interviewed companies indicated a worsening occupier demand on the office market, while expectations were more optimistic when it came to industrial and retail spaces.

The top five factors that may influence demand (either positively or negatively) are overall inflation, the geopolitical situation, the growth of e-commerce, the emergence of new companies on the market, and the lifting of pandemic restrictions. Some investors were also concerned by the deterioration of economic activity/recession and also by the unclear status of employees returning to offices.

Most investors believed that their portfolio values would remain unchanged in the following 12 months. By asset class, 30 percent of respondents estimated an increase in value for retail properties, while 23 percent of them indicated a further appreciation for industrial and office projects.

In terms of the general business conditions in Romania, among the most appreciated were the quality of the IT infrastructure, the labour market, the tax framework, and the country’s macroeconomic stability. The least appreciated aspects were related to the quality of the transport infrastructure and bureaucracy.

Investors were found to hold quite positive views about the Romanian economy and its short-term evolution, with 45 percent of survey participants expecting the GDP to increase, 38 percent predicting a stagnation, and 17 percent foreseeing a decline.