COVID-19 impact on CEE markets

“The impact of the virus on the real estate market is increasing and the immediate impact will be felt during Q2. However, slowly, but surely the lockdown procedures in place seem to be paying off in Europe with some indications of the partial reopening of national economies”, said Jos Tromp, Head of Research, Continental Europe, CBRE. Generally, office-based jobs will be less affected than others, such as retail, leisure and hotels, but office vacancy rates are still likely to rise.

Jos Tromp

Head Of Research, Executive Director
CBRE

As Head of Research for Europe, Middle East & Africa (EMEA), Tromp is responsible for CBRE’s research in EMEA. With a total of over 125 researchers in over 40 countries across the EMEA region, CBRE is able to provide high-quality advice on a broad range of topics in EMEA. Tromp’s role is to deliver a world-class research platform for and across EMEA and support the company’s business needs in a broad range of fields. He is a regular speaker at real estate conferences. In previous roles Jos was responsible for running research teams in Central & Eastern Europe (CEE) and was a member of the CEE board of directors at CBRE, Chief Operating Officer (COO) for EMEA Research and Head of Research for Continental Europe. He spent 10 years abroad for CBRE. More »

On the European investment markets, since the end of March, activity has decreased with an increasing number of deals affected, according to CBRE. “Bid-offer spreads have emerged in a number of sectors and countries, with potential discounts of 5-10%. To avoid a stronger impact, all parties in the industry should work together by showing flexibility and build long-term partnerships”, added Jos Tromp.

Romania investment paradigm

New launches of investment product in Romania remain rare, however, CBRE still launched recently the sale of a very large brownfield plot in Bucharest and investor interest was higher than expected. The challenges imposed by limitations in movement will be addressed to the extent possible by organizing virtual site tours.

“We expect overall that investment volumes in 2020 will be roughly 50% lower than originally expected and that only in 2021 we will see a return to volumes in excess of €1 billion, this on the back of our view that demand for property as an investment class generally will not be impaired by this crisis”, stated Gijs Klomp, Head of Investment Properties, CBRE Romania.

Gijs Klomp

Head of Investment Properties Romania
CBRE

Gijs Klomp is Head of Investment Properties within CBRE Romania. Gijs has over 17 years of experience in real estate and was involved in investment transactions worth more than €2.00 billion in Central and Eastern Europe. As a Dutch citizen, Gijs had his first contact with the Romanian market back in 2000, during his internship at "Ion Mincu" University of Architecture and Urbanism in Bucharest. In 2006, he set up the ING Real Estate Investment Management business in Romania. ING Real Estate Investment Management (ING REIM) was bought in 2011 by US company CBRE and became CBRE Global Investors. Starting May 2013, Gijs joined real estate consultancy JLL Romania as Managing Director and in early 2015 returned to CBRE to head CBRE’s Romanian and later CEE capital markets department. In July 2016, Gijs joined New Europe Property Investments (NEPI), the largest retail property landlord in Romania, to become part of their investment team that was expanding its geographical coverage through investments in Croatia, Bulgaria, Hungary and Lithuania. When Gijs was acting on the principal side, at NEPI Rockcastle and CBRE Global Investors, he was involved in well over €1.50 billion of transactions in CEE. More »

Retail context

The food and beverage and entertainment sector was hit the most and might look very different after the crisis with vacancies expected to be higher than 30% by the end of the year. „Overall, collection rates went down dramatically, the April average in shopping centres has been between 10 and 20% until now and May collection is expected to be even lower. As such, beside the short-term measures of cost savings taken, landlords have already started discussions with their banks to defer payments and are treating the talks with retailers very maturely”, declared Luiza Moraru, Head of Property Management, CEE, CBRE.

Luiza Moraru

Head of Property Management CEE
CBRE

Luiza Moraru is one of the most important members of CBRE ROMANIA team in her 14 years within the company. Under her management, CBRE Retail Agency became market leader many years in a row in the last decade. As manager of CBRE Retail Agency since 2003, Luiza has worked with all the major players on the market and her actions were decisive for investment transactions (like sale of Craiova Mall to Sonae Sierra) and exclusive & co-exclusive representation mandates (Parklake, Veranda, Sun Plaza, Arena Mall, Adora Mall, Cora portfolio). She worked for the biggest brands in retail industry - Collective, Zara, H&M, C&A, Cinema City, Carrefour, Cora, Tati. Luiza is also coordinating the Asset Services division within CBRE since 2013, when she built from the scratch the only asset services platform fully integrated with retail leasing and consultancy services, as well as fulfilling the role of Head of Retail. She is overseeing the general management and extension project in Sun Plaza. Luiza is also running the CBRE Property Management business line. Her team manages almost 300,000 sq m, in 8 properties with 1,000 tenants. More »

Property managers play a vital role going forward in taking the right steps to slowly rebuild the consumer trust and give back the shopping centres to the clients. Managers have to implement safety and social distancing measures while not infringing the feel of freedom and excitement and will redefine all areas of the mall.

„The way we do marketing will be fundamentally changed as we will redefine the customer journey, both physical and digital. The level of technology in shopping centres has to increase with a large span of tools available and usable. Operations will change with the integration of technology and new health & safety standards”, added Luiza Moraru.

Office market and virtual tours

Office construction sites of developers like One United, Skanska, Forte Partners or Tiriac move as planned and on time. Regarding the leasing activity, CBRE estimates that 2020 has chances to be at 50 – 60% of the leasing volumes from last year, with renegotiations and take-up having a 50/50 share.

“Real estate is a business of tangible objects, and not having the option of on-site visits and tours is quite challenging for the office market. For occasions when going there in person is not possible, there exist a range of 3D interactive tools enabling users to conduct virtual site visits to visualise how these spaces actually look like in real-world: Floored by CBRE and Panorama – our location intelligence system are tools that exist in our digital portfolio and we noticed a high interest both from landlords and tenants”, said Razvan Iorgu, Managing Director, CBRE Romania.

Razvan Iorgu

Managing Director
CBRE Romania

Razvan Iorgu is Managing Director of CBRE Romania since 2011, with 15 years of growing career within the company. Prior to 2011, Razvan worked for CBRE as COO, starting 2009. As Managing Director, Iorgu coordinates a team of over 160 people in order to improve CBRE’s market leader position in Office, Retail, Industrial and Valuation segments and also for consolidating the proficient project management and property management teams he developed four years ago. Under his mandate, CBRE Romania achieved outstanding results. In 2015, CBRE Romania won four industry prizes of the year in CIJ Awards Gala and this year won all the industry prizes in Europa Property Awards: Best Property Management Company, Best Industrial Agency, Best Retail Agency, Best Office Agency, Best Investment Agency, Company of the Year and Professional of the Year. CBRE Romania is also the real estate consultant with the largest number of retail property management, with seven shopping centers in administration. More »

Looking at the leases that expire this year and next year, there will be approximately 300,000 sqm that will have to decide what to do next. Around half of this will turn to a renewal and renegotiation solution, and the other half might lean towards existing or pipeline projects, according to CBRE. As in Romania schools will not reopen until September, we will continue to see a dominance of remote and flexible working in the next months. „Trends like de-densifying, flexible hours, extended office hours, rearrangement of the office space and health and safety measures are on everyone’s agenda”, added Razvan Iorgu.

Property management and health & safety

On the property management sector, CBRE is working on redefining common areas and their servicing by creating clear traffic corridors, specific health and safety measures such as UV filters, door handle covers, lifts buttons protections, HVAC servicing, natural ventilation.

„We expect that the operating hours of office buildings will be longer going forward. Many tenants will choose to work in shifts as well or have flexible hours. As such, the operational costs of the buildings are expected to rise in a moment when cost efficiencies are essential”, said Luiza Moraru.

While the focus on operational costs will remain relevant in the next couple of years for occupiers, property managers will need to come with creative solutions to incorporate the Health & Safety costs in the current budgets and to make the best use of this opportunity to create the emotional bond between occupiers and their workplace, according to CBRE.

Warehouses like Netflix

All construction sites for the industrial sector are proceeding as normal and while speculative development might register delays, preleases are going as usual. According to CBRE Research, there is approximately 600,000 sqm under construction, out of which 70% is pre-let.

During this crisis, sales companies and production companies have been the most affected, but companies in the middle section – those related to warehouse, stocking and transport (midstream companies) have been privileged.

„Imagine warehouses are like Netflix: production is rather limited, cinemas are closed, but we are all watching Netflix. E-commerce, through logistics, has filled up the void generated by traditional retail being closed, thus giving strong fundamentals for the long-term evolution of the sector. In principle, perspective for this sector are optimistic going further, yet distinctions between the future of each industry need to be made, as future will not be the same for everyone”, stated Razvan Iorgu.