Romania experienced a similar dynamic to other CEE markets and the outlook remains quite mixed. While there is more clarity on inflation, central banks will not reduce the cost of money at the same speed as they have raised interest rates over the past year and a half.

Overall, many market participants remained on hold as high interest rates, the economic slowdown and increased uncertainty about the global economy affected markets. The biggest deal of the year by far, and also the biggest retail deal in Romania in the last decade, was between Mitiska REIM and the UK fund M Core, which is the most important new name seen in the local market lately, especially considering that many Western European funds have been trying to make a move in Romania, but without materializing any deals.

The year's second biggest transaction was the sale-and leaseback of FM Logistics industrial portfolio, purchased by CTP, the leader of the local I&L market, for an estimated value of around €60 million. The third largest deal saw the sale of One United's One Herastrau Office to a new name for the local market, Latvian group Vincit Union, for around €21 million.

“A notable transaction in 2023 was related to a capital source largely absent from the local investment market: domestic institutional investors. In 2023 the asset management arm of the largest local bank, BT Asset Management, bought the real estate properties of Amethyst Romania in a sale-and-leaseback deal of 12 million euro. It is important for the local real estate capital markets that this sector grows in the future”, explains Robert Miklo, Director | Investment Services at Colliers.

Over the past year and a half, the limited availability of financing, coupled with higher interest rates, has caused prices to fall and yields to rise across much of the world, including Romania. However, Colliers' consultants point out that Romania missed much of the downward yield movement over the past decade and is now seeing less of a correction than others. So, in the absence of major benchmark deals to really show where the market is, they are currently quoting yields in a range. As a result, prime office yields in Romania were between 7.25% and 7.75% at the end of last year (compared to 6.75% at the end of 2022), prime retail yields were between 7-7.50% (compared to 6.75% at the end of 2022) and prime industrial yields were between 7.25-7.75% (compared to 7.50% at the end of last year).

“Looking at the financing terms, there are some changes from a few years ago. Firstly, availability is far from a sure thing, as certain aspects are more important than in the past, such as who the borrower is or how viable a property is in terms of its ESG credentials. In addition, banks' appetite for certain property sectors, particularly office, is quite limited, although again much depends on the financier and exceptions can be made. Industrial is much higher on the banks' list, followed by retail and residential, where decisions are made on a more case-by-case basis. Lending spreads are around 300-350 basis points for a prime asset when a loan is offered, but it is important to note that two years ago the market was 100 basis points lower”, highlights Anca Merdescu, Director Investment & Debt Advisory at Colliers.

Further, Romania's I&L sector, with rents up by around 30% over the past two years, offers particularly good long-term opportunities. Robust growth prospects for the local market amid re-shoring should see industrial yields compress slightly over the next two years, and it could be the first major sector to see favorable pricing. Colliers' consultants anticipate that a major influence on long-term transaction volumes is likely to come from what they call the "primary market" for prime office buildings, i.e. those delivered by companies with a "build, lease, sell" business model. Given that few buildings are likely to be delivered in the next few years, this could have an impact in the future when/if the appetite for office space returns. Otherwise, the pressure on some yields, particularly office and, to a lesser extent, retail, remains upwardly biased, and Colliers consultants believe that there is a high probability of a slight increase in the market.

“It's quite difficult to say where the market will end up in the short term, and despite our optimistic outlook for Romania's overall economic performance, we remain cautious about the year ahead. Rather, there is room for the second half of the year to look a little better and for financing conditions to ease a little. Meanwhile, the pipeline of major transactions at the beginning of this year that are likely to be completed by the end of 2024 is actually slightly larger than the full year 2023 commercial property investment volume of around €500 million. As in previous years, a single transaction (Globalworth's industrial portfolio) accounts for a significant proportion of the potential pipeline (around half), so how good 2024 looks depends largely on this single transaction. This is also an important transaction in terms of benchmarking interest in the local industrial scene, where large developers tend to be long-term holders. It would also be the largest industrial platform to be the subject of a local ownership transfer”, concludes Anca Merdescu.

All in all, 2023 was a rather weak year for the CEE investment scene as a whole, with all markets in the region recording year-on-year declines in volumes ranging from 18% to 68%. More specifically, the investment volume registered by the six largest economies (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia) dropped by 54% last year compared to 2022, reaching 4.9 billion euros, the lowest level since the result of around €4 billion in 2012, reveals Colliers in its latest  "The CEE Investment Scene 2023/2024" report. The sharp increase in the cost of money and less favorable outlook for certain real estate sectors sapped investor demand, though the decline is more or less comparable with other European markets. Yields moved higher almost across the board in the CEE-6 region, which is also in line with similar dynamics in the advanced economies.  Poland remained a leader in the region, with investment volumes accounting for 38% of the overall CEE6 total, followed by the Czech Republic, with a 23% share in 2023 volumes.

“The 2023 geopolitical events propelled much of Europe and beyond into a whole new chapter of economic uncertainty. This inevitably affected the Romanian investment landscape as well. However, despite 2024 being an election year in Romania, one should look beyond temporary structural difficulties into an improved market at the end of this economic cycle. We see 2024 in Romanian real estate as a year of potential reset in terms of interested players, pricing, and availability of quality products. For many long-term investors, real estate is a solid choice with less volatility than other assets. While governments and central banks take actions against global recession, as lawyers accompany developers, investors and financial institutions, we believe that opportunities still lie ahead”, says Oana Bădărău, Partner and Head of Real Estate & PPP at the PeliPartners law firm.