Demand for renting and buying real estate should remain decent over the longer term in Romania and its neighbors, despite 2023 most likely being a bit more challenging than a regular year, according to experts of Colliers.
Colliers’ report including predictions for 2023 points out that CEE and the six major economies of Bulgaria, Czech Republic, Hungary, Poland, Romania and Slovakia remain some of the most dynamic in the world, attesting to the fact that investments, job creation and wage growth are still taking place.
The agency and financial institutions like the IMF foresee a slowdown, not a recession, with economic convergence still ongoing. Still, inflation will remain a major challenge, significantly above what should be considered a normal level, which means that monetary policy will remain tight (or continue to tighten) at least this year.
On the geopolitical front, Western capital will flow more abundantly into countries which offer a stable backdrop for investing at much lower costs than those in developed economies.
Green and efficient buildings will remain in focus, and we might see greater differentiation in the rent/value of a building based on how green/efficient it is, for all countries in the CEE-6 group. This should apply to all real estate sectors, but particularly to offices and industrial.
The sharp increase in inflation and construction costs will have an impact on CEE-based property markets in the long term. Indexing rents to inflation will mean a sharp increase in current rents and service charges. Meanwhile, the higher construction costs will lead to fewer deliveries and higher funding costs. All in all, fewer deliveries of commercial real estate projects will mean increased pressures on rents over the medium term, provided that real estate markets continue to see robust demand.
In the office segment, tenants in good buildings are encouraged to extend their current leases, while some tenants in older buildings are looking to relocate in more efficient projects. The strategy of workspaces is also changing and some companies (like Telekom Hungary) have introduced a 4-day workweek. In Romania, legislation has been drafted in the Parliament (yet to be adopted) that would allow for four 10-hour workdays per week.
On the industrial and logistics side, the stock in CEE remains below the average in Western Europe which means that there is still room to grow in the medium term.
In the retail segment, the line between brick-and-mortar stores and e-commerce is blurring, as more and more players have integrated both into their business models. With the exception of Hungary (which has a smaller share), around one in two people in the CEE-6, if not more in some countries, will not shop only online because they would rather see the product before they make the purchase. Nevertheless, this (possibly) cultural reluctance to shop online is exactly why a BOPIS (buy online, pick up in-store) may work quite well in the CEE.
In the investment market, Colliers’ consultants point out that market participants would expect yields to continue to move north, at least slightly in some submarkets, as major central banks (particularly the ECB) are not yet done with tightening.
For the residential market, Colliers estimates that over the next few years, prices should not drop too much, even as higher interest rates reduce the number of potential buyers; this is because residential prices in the region are much closer to fair value than they were in the past. The private rental sector will also expand in CEE-based cities and fewer people will purchase homes.
