For many market players, 2020 was a year in which investment plans were changed to keep more liquidity in the company. Mihai Zaharia, Head of Investments Romania and Group Capital Markets Director at Globalworth, tells us about the effects of the COVID-19 pandemic on the investment market but also about the future of the Romanian and Polish markets.
You said in the past that the Romanian real estate market is much more prepared to face a crisis now than it was in 2008. The pandemic hit all of us, and some major changes are happening. How do you see the real estate market in 3- 5 years from now?
The Romanian real estate market was better prepared to absorb shocks in 2020, compared to the previous cycle. Even if the global health crisis caught us all off guard, we were still able to adapt and still see transactions in the local real estate market, both in terms of leasing activity and in terms of investment deals, where the office sector remained as the leader.
The future of the real estate sector and the office market, in particular, are fairly much dependent on the availability and the implementation of the mass vaccination against COVID-19. In 2020 yields and head-line rents were stable and, our expectation is that this will be the case across 2021 as well.
I am confident that both Poland and Romania, as two of the fastest-growing economies in Europe in the past years, will be able to recover quickly from this crisis. The importance of the office space was reaffirmed by investors and occupiers. We believe that the fundamentals of the two markets where we operate will further provide long-term sustainability and growth to our business.
How is the Polish market prepared for the effects of the pandemic?
The Polish economy, as the largest economy in CEE, has seen the biggest contraction in the 21st century, as most economies did. However, the resilience of this economy, backed by strong fundamentals, will most probably allow to recovery from the losses this year and further growth starting in 2022. After a slowdown of the investments and a slight yield decompression, we have seen transactions being closed in the second part of the year with yields starting to compress again. The fact that 2020 was in the top three years in terms of investment volume in Polish history, further increases our confidence in this market.
Yields in Romania have not undergone a compression as in other markets in the region. How long do you think they will remain at a stable level? Can we expect any change this year?
Yields in Romania were stable for the last couple of years and were able to remain stable across 2020. As we noticed in other countries in the region, yields decompressed between 25 bps to 75 bps, however, in more mature markets, some compression already started in the second part of 2020. For Romania, we believe the current levels will be maintained, and depending on how the health crisis will be put behind us, we may see some yields compression after 2022.
Does Globalworth plan to enter other markets?
We are operating in two of the largest economies in the CEE and we believe there is enough space for us to grow and diversify our portfolio in Romania and Poland.
Do you think the pandemic will reduce banks' appetite for lending? Which sectors do they prefer to finance?
Banks still hold enough liquidity and continued to lend during the pandemic. In Q2 and Q3 2020, we were able to increase the secured financing both with local banks and international financial players at terms comparable to pre-COVID-19 levels. Banks are now more focused on sectors that proved to have better resilience during the pandemic and are lending more selectively, looking very carefully at the projects and the sponsors behind the projects.
Some of the Globalworth projects in Romania and Poland have been postponed. When do you think you will resume them?
Our investment plans are directly linked to how the global economies are recovering and how the health crisis is managed. The COVID-19 vaccine availability and the implementation of mass vaccination that will allow people to return to the offices could create some good investment opportunities in the market. In this respect, we are holding significant liquidities in our balance sheet so that we are prepared to capture any opportunity that could arise in the future.
What is the biggest challenge on the market right now?
The biggest challenge we have is the COVID-19 pandemic that changed the way we work and the way we operate. As the office sector reaffirmed its important role, going forward the format is changing to a more hybrid structure with larger spaces per employee and more collaboration areas.
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