Chris Bell, Managing Director of Knight Frank Europe: “Bucharest will not be one of the major beneficiaries of Brexit, but rather Frankfurt or Amsterdam, and the big wave of investors expected on the local office space is struck by the lack of liquidity, which maintains the size of the local market at a low level, despite the very attractive yields. In 2018, the only possible scenario remains the growth and consolidation of the country as a back office hub at European level.”
Prime office yields in Romania are around 7-7.5% per year, compared to an average of 4.8% on European level, according to the Knight Frank index, making them very attractive to large investors in the real estate sector. However, low liquidity of the local real estate market limits the probability of an easy exit and, despite quite compelling yields, the expected wave of investors has been delayed in recent years, estimates Chris Bell, although many investors have continually prospected our country for placements.
Managing Director of Knight Frank Europe, says also that there are many misconceptions among foreign investors about Romania, compared to what actually exists here. “I was pleasantly surprised, on my first visit to Romania ten years ago, to discover an impressive country with people full of life and a high quality education. There are often erroneous preconceptions about Romania, which is one of the important barriers to foreign investment. Thereby, although investors have turned their attention, attracted by the higher yields, to emerging countries in Central and Eastern Europe, such as the Czech Republic, Hungary or Poland, most of them are not yet ready to step in Romania.
Chris Bell: Romania needs time
“I thought the wave of investors could come since last year, but for the moment they did not take this step. In the following years the high yields in Romania will become a more compelling argument. I would be very surprised if it does not happen in the next period. I think it’s inevitable, but Romania still needs some time. It’s a huge difference. Why not buy or build an office building to rent 7.5% yield in Bucharest, compared to 5% in Warsaw, at the same value of the investment? This is one of the arguments we offer to investors from Austria and Germany, for example” says the manager.
At the same time, Chris Bell considers that what has happened on political and social levels in Romania in recent months has not been seen as a major problem, but “investors don’t like the shocks and uncertainty. It is important to have a stable economic and political environment.”
Bankers prefer Frankfurt or Amsterdam
Even though more and more investors are prospecting our country as an investment destination, Chris Bell does not believe that Romania will be a big beneficiary of Brexit. “The cities where I saw interest in Brexit are Frankfurt, Dublin, Amsterdam or Paris. On the other hand, Bucharest will never be a destination for London headquarters, but rather for IT firms, BPO (business process outsourcing) or SSC (shared service centers). The local market does not have a big financial hub profile, but rather a regional back office and support center. It would be foolish for Romania to expect a massive wave of bankers.” says manager Knight Frank.
As the economy continues to grow, both the IT and back office sector will follow the same trend, but ultimately it can happen that the stock of skilled personnel is exhausted, which will stimulate the profile companies to look for other markets. “I think the inflection point will come at some point. The key is to ensure that Romania will be able to maintain the flow of skilled labor for a longer period of time. Currently, it exists and that’s why many investors are looking to expand their business constantly.”
In this context, says Chris Bell, the supply of modern office space hardly manages to keep up with new demand. “There is a shortage of modern office space in Bucharest, similar to what happens in other major cities in Central and Eastern Europe. In turn, the developers also understood that the office space must have a certain level of quality in order to attract important tenants. Building quality is fundamental”.
In his opinion, “the pace at which many office buildings become obsolete or outdated has accelerated, compared to 30 years ago, for example. It is a trend that we see in Europe. Buildings of 10-12 years begin to lose in the tenants’ competition. Most of the time they get to be reconverted into residential projects”, said Chris Bell.
Chris Bell has been Managing Director of Knight Frank Europe since June 1999, having previously been the Managing Director of Knight Frank Espana SA for three years and heading the National Offices Development team in London. Knight Frank’s Commercial European business currently numbers some 1,000 staff in 27 offices in as many countries.
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