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«The Market Report issued by BNP Paribas Real Estate Romania for year end 2008 offers realistic, accurate and updated information, analyzing the office, residential, retail, industrial, land and investment segments.
The office market is experiencing the negative effects of the economic downturn manifested in declining rents and leasing activity. Although this segment performed remarkably well during the first semester of 2008, market fundamentals have been softening at a moderate pace especially since the last quarter of the year.
The current real estate market situation creates demand coming from companies that are currently paying rents already indexed for several times, thus exceeding the current rental market value. These tenants are trying either to renegotiate their ongoing lease or obtain a better quality for the price they pay in other buildings.
Despite cost cutting policies, tenants remain willing to secure quality office accommodation at a lower more competitive price and are trying to speculate the contraction of demand in the circumstances of increasing availability of office spaces.
Tenants have a more global approach of cost savings looking to increase efficiency of their office use, while reducing overall occupancy costs (energy savings, low maintenance costs, flexibility in partitioning).
In addition tenants with expiring leases prefer to renew the contracts as they benefit from substantial discounts proposed by landlords rather than incurring costs associated with relocations.
Over the past few months the market has obviously recorded a downward correction in asking rents and greater flexibility of landlords in negotiation process. Especially owners of newly completed buildings have significantly lowered the rents in order to achieve a certain level of occupancy.
The level of the total occupational costs, building quality and efficiency will become the most important decision factors in detriment of location. As the cost building policies are affecting the demand characteristics, on the long term the proposed supply should adapt to an emerging new trend, the development of green buildings.
In 2008 the increasing trend of supply initiated in last two years continued on the residential segment. In the second half of the year, the first challenges appeared for developers, due to the worsening of the local and international economic situation. As a result, many projects experienced slow construction works, while others have been postponed for 2009 or even later.
The retail market has experienced a remarkable evolution in 2008, characterized by significant increasing of supply and diversification of retail type of properties.
The industrial segment continued to perform remarkably well during H1 2008 as the leasing activity corroborated with the development process contributed to a further market expansion. However, starting with H2 2008 the worsening of the international and local economic context led to the slight decrease of demand, while the launching of new projects was virtually non-existent.
During 2008 the land segment has recorded a fundamental change, from a vendor to customer market, this trend becoming more visible in the second half of the year. Despite the evident downtrend in prices, the number of transactions has severely decreased while significant transactions have been virtually non-existent.
The global financial and economic turmoil strongly corroborated with the softening of local real estate market fundamentals have negatively impacted the property investment market. In addition to the specific factors of the local real estate market, the investors’ restrain was induced by the less favorable country risk indicators and fear over a prolonged economic slowdown.
As a consequence of the market evolution, the profile of investors has changed. Opportunistic equity investors became the most active market players during H2 2008, outstripping the heavily leveraged investors that dominated the market in previous years.
The investment market is experiencing a price readjustment across all segments. Starting with the end of 2007 the average prime yields increased in all sectors after five successive years of compressing evolution, as a result of general market uncertainty doubled by limited availability of finance and diminishing market capitalization of some international companies.
Equity opportunistic investors will continue to represent the main driving force of the demand in 2009, being attracted by the investment products coming to the market. In addition the worsening investment environment creates new opportunities, as distressed transactions are occurring and large investors intend to increase the efficiency of their portfolios and consider implementing exit strategies» (CS della Società).
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