Andrei Vacaru
Head of Capital Markets
JLL Romania

04 March 2021

Jones Lang LaSalle (JLL) is a global property consultancy, services and investment management company, founded in the United States of America with offices across 80 countries. 

At this point in time you have worked on several landmark transactions on Romania’s property market – tell us about what it is you are focused on?

My share of the pie in JLL are commercial transactions, including the sale and purchase of office, retail, hotel and logistics buildings, as well as all matters surrounding financing and consultancy. More often than not we focus on EUR 10 million+ projects, but there is some diversity. The company is fully owned and very aligned at a global level (we have weekly calls with our colleagues in the region, and even worldwide), which gives us quite the edge because we can connect the dots internationally.

From than angle then, how does Romania fare compared to the region, looking at market attractiveness?

I would qualify market attractiveness through two indicators: transactional volume and prices. Regarding the former, Romania is still well below the level of Poland, Hungary, or the Czech Republic, the group of countries we have most similarities to. As for prices, there is also a significant difference in yields, with ~4-5% in the Czech Republic compared to ~7% in Romania. This does not make Romania less attractive, it is merely a consequence of a few leading players choosing to avoid Romania for (perceived) macro-economic and political reasons. Which in turn leaves the door open to savvy investors who know what to look for.

Which of the avoidance reasons do you believe to be well founded and which a consequence of skewed perception?

There are some reasonable ones, but most are blown out of proportion – we are talking political risk, regulatory and economic stability. Rating agencies also mark Romania as higher risk, so there is a dose of objectivity. There are two main advantages that the country has in this context – more varied sources of capital (Eastern & Western Europe, United States, Lebanon, Israel, South Africa etc.); and secondly, out of all five countries in the region Romania is the only one where transactional volumes grew in 2020, and did so by a substantial 30%. I believe it is a matter of time until the gap is bridged, and there is both better liquidity and better prices.

How challenging is it to access capital for the Romanian real estate segment?

It depends entirely on the project and investor profile. There is decent access to capital, though the terms are slightly harsher and lenders more cautious, as in every crisis. Even in high risk projects, though, certain banks are willing to lend money for the right price. Five years ago it was far more challenging to access capital in Romania as opposed to the other four CEE nations than it is nowadays. Many investors have preferred using bonds or international financing, though.

Which of the four property segments do you see pushing transactions further, after the rocky year 2020 was?

Last year was indeed quite atypical, the office segment accounted for 85% of all transactions, and I believe this year will be similar, if a bit more balanced. In the medium run there will be more diversification, and industrial is on a steep and certain rise.

No one is selling in logistics though, with a few players dominating the market and showing no intention to sell. Offices will remain liquid, and hotels and retail will make a comeback, though no sooner than 2022-2023. Residential has also been faring well – at JLL we actually firmly believe that it can become an attractive vehicle for institutional investors, for buy-to-buy or long term buy-to-rent. This is still at an early stage in Romania but all signs are pointing to its growth, including consumer behavior.

Retail has been particularly hard hit though, do you estimate it will go back to pre-pandemic levels anytime soon?

Retail was going through changes even before the infamous pandemic year hit, true, however it is also the most dynamic segment. Tenants come and go, products change from one month to the next, and consumer demand sets the tone. I am certain that malls are here to stay, though some retail projects will become obsolete. It is an industry of adapt-or-die, and new projects will not be showing up anytime soon, with the exception of smaller, proximity shops.

Have you noticed a drive towards private public collaboration to revitalize urban areas?

As a matter of fact, yes! We have assisted public authorities on various projects and see that they are increasingly open to working with consultants. In other countries JLL even has specialized divisions for the public sphere.

Do you have a final message for potential investors eyeing the Romanian markets?

Sure, stop eyeing it and come on over for a visit. Rarely – if ever – have we had a business show up and not be pleasantly surprised by how things are done here, and the potential the property sector actually has. There is a form of “heard mentality” in real estate – but sometimes you need to sway from the beaten path and embrace novelty in order to find a truly great opportunity.

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