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Analysts forecast modest improvements in real estate

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Claudia Ariton
While most segments of the local real estate market saw either a decrease or stagnation in 2009, this year the real estate experts indicate a possible improvement of the investment sector, although they refrain to predict whether 2010 will be a much more profitable year than 2009.
According to Tim Wilkinson, Joint Managing Director for DTZ Echinox, “the majority of the real estate international consultancy companies suffered from a 50 per cent or more decrease in their turnover in 2009, depending on the slice that some of the most affected market segments owned from the total volume of their activity.”
Wilkinson anticipates some improvement in the transactional market segments and expects some growth in demand for evaluation and analytical services, due to the needs of developers and banks to have up-to-date benchmarks. “It is still probable that the real estate market segments won’t record the expected growth and they will maintain the same level as in 2009,” he added.
According to Catalin Maruntelu, Senior Research Analyst, BNP Paribas Real Estate , the local real estate market is currently passing through a re-assembling stage, which is determined by a significant adjustment in the expected rental/sales prices, outturns and profits. All of these factors are taking place against the background of a real lack of liquidity and a reserved attitude from market players. Moreover, the negative effect of the economic crisis is amplified by some market segments’ low level of maturity and by the strongly speculative aspect of some periods from the market’s evolution. “In the actual context, the local market has to deal with a strong competition coming from the Western European developed markets or even from the regional ones, which are fighting to attract the already limited financial resources. Therefore, the chances of a clear and positive comeback in the next 12 months from the domestic market are being reduced,” said Maruntelu.
The senior research analyst also told Business Arena Magazine that the market compression was most strongly felt on the residential and land segments. Therefore, in spite of the blatant decrease in prices and augmentation of offers, the number of land transactions has dropped significantly, with major transactions almost non-existent. Taking these aspects into consideration, investors today are most likely to invest in office and commercial spaces, which are perceived as lower-risk investments. “The investors’ preference for this type of space confirms the degree of maturity they have reached and the optimistic perspectives we have on their future evolvement,” concluded Maruntelu.

Retail projects to be continued in 2010
Bucharest’s market for commercial space is experiencing a current high rate of availability, according to Aura Voiculescu, Head of Retail Department, DTZ Echinox, but not to such an extent as other centers located in ’s secondary cities.
The most affected are the new developments located in the capital’s decentralized areas. “The total surface waiting to be delivered in 2010 comprises a net 389,446 rentable sqm, representing 31 per cent of the total stock predicted for the end of 2009,” explained Voiculescu.
Costel Alecu, Manager of the Commercial and Industrial Department at Regatta, believes the retail market won’t experience a positive trend in the first six months of this year. “We will see new space delivery this year, but it will consist of extensions or commercial complexes and galleries whose construction commenced the previous years. I don’t expect new, far-reaching retail investments to be announced anytime soon,” stated Alecu, adding, “as with last year, the only retail segment to maintain its expansion trend will be the supermarkets or hypermarkets. In particular, the discount supermarkets, such as Plus or Penny, are expected to expand.”

Office rents continue their downward trend
DTZ Research indicated that in the first four months of 2009, the level of office rents dropped by approximately 18 per cent for prime locations, by 21 per cent for semi-central areas and by 25 per cent for suburban projects. The current value for monthly rents in prime areas is 21 Euro/sqm, while rent for decentralized areas varies between 10 and 19 Euro/sqm.
According to Mihaela Raducanu, Manager of the Office Department, Regatta, “the percentage of unoccupied office space is expected to go up in 2010, reaching to a level of 15 per cent. Therefore, rents will drop between 15 and 17 Euro/sqm for A class offices in the downtown area, between 10 and 14 Euro/sqm for A class offices in the north and between 8 and 10 Euro/sqm for B class offices.”
According to DTZ experts, the total office-space stock in Bucharest at the end of the first half of 2009 reached approximately 1.38 million sqm of total built area. The total built area of office space for 2009 reached 410,000 sqm, while in 2010 some 170,000 sqm of total built office area are expected. The total stock of built office space anticipated at the end of 2010 is 1.77 million sqm.

New apartments versus old apartments
Last year dashed any residential investor’s hopes of making a profit. Prices followed a descending path all year long, with a slight stagnation towards the end of 2009. The expectations for 2010 will not rise much higher, says Mihaela Pana, the Manager of the Residential Department for DTZ Echinox. “While the newly built apartments’ prices seem to have reached the bottom line, there are still prospects of a better situation starting with the second half of 2010. For some months, though, the new apartments saw no price changes, with the owners showing no signs of a willingness to negotiate. As for 2009, we are talking about prices adjustments of 20–25 per cent for the luxury segment, which will definitely not be repeated in 2010. We are close to bottom line prices and it’s probable that the first half of this year might bring some changes, even if not very consistent ones, followed by a stagnation period and a possible slow rise in prices by the end of the year,” she explained.
Pana’s views are also shared by Robert Teodorescu, the Manager of the Residential Department for Regatta, who declared that “in 2009, because of the ‘First Home’ program, the old apartments’ prices rose as much as 30 per cent. Once the program is modified and oriented towards new and thermally restored apartments, we expect the demand and, implicitly, the prices for old apartments to stagnate or even to drop, while the demand for new apartments to rise, generating an increase in sale prices up to 10-15 per cent.”
Maruntelu, from BNP Paribas Real Estate, holds a different view. He explains that while two years ago the demand was headed mainly towards apartments located in new residential compounds, currently we are experience an effectively small demand for these dwellings. “We assist to a reorientation of the demand towards the old apartments, for reasons connected to prices and localization,” he said.
According to a Colliers International study, the total stock of new apartments delivered exceeded 11,000 units, while last year 6,000 new units were delivered in Bucharest . This year, the Colliers International representatives anticipate some 5,000 new apartments to be delivered.

No significant distressed assets in the land segment
The land segment was, according to experts, the real estate segment most affected by the present credit crunch. “The strong land market compression is first and foremost the result of the decline in other real estate segments,” said Catalin Maruntelu. In turn, Ionut Ciocan, Head of the Land Department for DTZ Echinox, stated that “at the moment, due to the significant drop in land prices, the banks have admitted that their former exposure on projects, which went as far as 70 or even 90 per cent, is too high to be covered up in the event of selling an asset, such as a land. This is the reason why we don’t see any distressed assets on the market – because such transactions mean wasted money for the banks and they can’t afford the risk.” He added that there is still a high interest for centrally–located land inside the capital, but “this interest is translated into the desire to acquire very good properties at very small prices, as compared to the price levels reported in 2008.”

The logistics and industrial sectors count on economic revival
The evolution of the logistics segment is directly related to the level of consumption. Once the demand in consumption dropped, due to the economic crisis, the demand for storage space dropped, leading to a decrease in prices. “Once the economy will turn positive again, we will help with the revival of the logistics sector, but this will likely not happen before 2011,” said Costel Alecu.
Alecu anticipates that the first six months of 2010 will continue the downward trend of 2009, but “the decrease will be milder - around five per cent compared to last year’s 25 per cent drop. We estimate a slight uptick in the logistics sector in the second half of this year, even though it won’t be a spectacular comeback.”
Also, according to Rodica Tarcavu, Head of the Industrial Department for DTZ Echinox, the development in the industrial segment was blocked as far back as the second half of 2008. “Many developers were reticent and postponed their projects,” she said. “This tendency was recorded in Europe due to a growth in vacant spaces, the reduction of exports and stocks and the difficult financing conditions. Still, has great potential for development, being one of the countries with the lowest renting space available (only 1.3 million sqm), as compared to (1.6 million sqm), The Czech Republic (3.5 million sqm) and (6.3 million sqm). The investors in the industrial segment are also attracted to due to the fact that it’s a young market, with dynamic demand and outturns of 11-12 per cent,” she added.
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