"Everybody faced the same problems, but we had more guts." This is how the official of a big foreign company explains the somehow paradoxical situation on the Romanian real estate market. The Bucharest market of office buildings provides some of the highest yields in Europe, but foreign investors have not been rushing to build here so far.
Perhaps surprisingly, analysts estimate that bigger investors will start coming in the next period, when yields are expected to go down. According to a survey of real estate company Colliers International, investments in Bucharest office buildings provide a 15% yield, slightly lower than in Kiev (which offers the highest profitability in Europe, Middle East and Asia - 19%) and Belgrade - 16%. Sofia and Bucharest share the same level, significantly higher than other capitals in the area, such as Warsaw or Prague.
Therefore, an investment in a Bucharest building can be recovered faster than the money invested in a similar construction in the Czech or Polish capitals, for instance. The 15% profitability rate accounts for a seven-year period needed to recoup the investment. Compared to Prague, Budapest or Warsaw, where the important buildings were traded by investors for prices exceeding the equivalent of ten years' rent (10% yield), Bucharest is far more appealing.
Also, Bucharest is among the top ten markets for construction activity, but the total stock is rather small.
Still, why are there so few big investors on the Romanian market and why is Bucharest one of the east-European capitals with the smallest office area?
"On the one hand, the market is still young and not very stable and, on the other, the economic conditions have not been very favourable, either. Realty investments are usually long-term, so that it will be another two or three years before the results of the past two years' good economic performance start showing," says Bogdan Georgescu, general manager of the Romanian division of Colliers.
"We have noticed that, once a certain area is branded a certain way, it takes a long time for this image to change. Investors come here with outdated information on the market and the legislation. On the other hand, there are legal problems, related to the procedures needed to obtain the construction permits and to the land acquisition," says Laura Popa, sales manager with Immoconsult Romania.
On the other hand, many of the transactions closed on the developed real estate markets are conducted by investment funds, which invest big money in buildings, mainly because the stock exchanges have been going down for years.
bogdan.neagu@zf.ro
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