Colliers' consultants believe that the outlook for the real estate market in the region remains quite strong, with environmental, social and governance (ESG) criteria becoming increasingly relevant in the decision-making process of real estate investors, banks and tenants.

Overall, total investment volume in the six CEE countries fell by 15% compared with the first quarter of 2023, to around €1.2 billion, in line with the dynamics in other regions of Europe and many other parts of the world. The Czech Republic became the region's new leader, with investment volumes accounting for 46% of the total of the six largest CEE countries, overtaking Poland, which had a cumulative share of 30% of the volumes traded in the first quarter of the year. However, performance varied significantly across the region, from a 94% drop in activity in Slovakia to a 69% increase in Romania.

From another perspective, Romania's performance is quite encouraging, especially compared to other more developed markets such as Poland or the Czech Republic, considering the pre-pandemic period. For example, in the first quarter of this year, our country accounted for 16% of the region's total investment volume, compared to 5-7% in the pre-pandemic years. However, there are still various challenges in the short and medium term, points out  Laurențiu Lazăr, Managing Partner & Head of Investment at Colliers Romania, although the long-term potential remains solid, given that Romania contributes more than 18% of the gross domestic product of the 6 countries in the region.

“There remains a disparity between the price expectations of buyers and sellers. Various factors affect returns and liquidity, including interest rates, maturity, loan terms, and ESG compliance, among others. However, the primary challenge persists in the cost of financing, currently ranging between 5% and 5.75% for all-in loans, influenced by persistently high interest rates. Compared to Western European markets like Germany, the CEE region has not undergone significant price corrections in the past 12-18 months. This could contribute to slower transaction activity in 2024. Economically, with external demand growing slowly, the responsibility falls on capital, investment, and private consumption to propel growth in the CEE region in the near term. However, countries like Romania, Poland, and Hungary are expected to face higher inflation rates than desired by central banks, even by 2026. Consequently, monetary policy will likely need to remain tighter than usual. Without such measures, the relatively inexpensive labor and the substantial wage-productivity gap, coupled with relocation trends, will continue to drive long-term growth in the CEE-6”, explains  Laurentiu Lazar, Managing Partner & Head of Investment at Colliers Romania.

The retail sector dominated the Romanian real estate market in the first quarter of 2024, representing approximately 66% of the total commercial real estate investment volume. Following closely behind was the hotel sector, comprising around 21% of the total volume. On a broader scale, at the CEE level, retail emerged as the primary leader, capturing 43% of transaction volumes in Q1 2024. Hotels followed with a share of 20%, while industrial and logistics (I&L) accounted for 15% of the total volume. However, office investment volumes experienced a continued decline in the first three months of this year, contributing only 13% to the overall CEE investment volumes. Notably, Bucharest stands out with one of the highest investment returns in the region for industrial, office, and retail sectors, boasting returns of 7.5% for prime industrial and office assets and 7.25% for retail properties.

“The outlook for real estate in CEE remains strong, although the region is not immune to external influences and macroeconomic factors that can affect markets and industries, particularly in relation to key trading partners. As a result, many sellers are reassessing their portfolios and strategies to avoid distressed sales in an environment where buyers have a harder say, focusing on securing income, operational efficiency and upgrades to bring buildings up to ESG standards. While some buyers see opportunities in distressed asset sales, lack of liquidity remains a concern. Although banks are willing to lend, especially for prime, efficient buildings, the high-interest rate climate is a challenge and the return of international capital is essential to bring volumes back to higher levels”, concludes  Laurentiu Lazar.

Colliers only considers completed transactions where payment and transfer have occurred. Therefore, a significant transaction valued at approximately 170 million euro — the sale of Globalworth's industrial assets to CTP — could be included in the second quarter if both parties adhere to the agreed timetable. With this transaction and others in various stages of completion that may be finalized by year-end, there are indications that 2024 could surpass 2023 in terms of market performance. This upward trend could be further reinforced if the European Central Bank begins to ease financial conditions by reducing the monetary policy rate. In light of these developments, Colliers experts anticipate a transaction volume of at least €600 million for the entirety of 2024, compared to around €476 million in 2023.