S IMMO AG is an Austrian real estate company listed on the Vienna Stock Exchange since 1987. It has operated in Romania since 2006 and put its mark on iconic projects like Sun Plaza shopping centre, Novotel Hotel or The Mark office building.
S IMMO has developed landmark projects in Bucharest, such as THE MARK or Sun Plaza . How relevant is the business you do here within the company's international portfolio?
FW: Approximately one third of our portfolio is based in the CEE and the remaining two thirds in Germany & Austria. Since it’s still in a transition process, the Romanian market has massive room to catch up with western standards and this is why it occupies a special place in our portfolio.
DB: S IMMO was already investing in the Romanian real estate market in 2006, before the country joined the EU. A general characteristic of the local portfolio is its diversity: 4-star hotel Novotel, Sun Plaza shopping center, Sun Offices and THE MARK office project. We are a long-term loyal investor, in fact in December 2020 we acquired two more assets here: Campus 6.2 and 6.3 office buildings from Skanska.
The office sector is suffering from some disruptions on the background of the global pandemic. How are these changes impacting you in Romania as well as in the CEE?
FW: This sector has been subject to change even before the pandemic hit, so these disruptions didn't come as a surprise for us. Renting an office takes up only 5-10% of the entire budget of a company, so it’s not difficult to allocate funds for it even in times of crisis. In this respect, we didn’t register important financial losses, but we did see fewer new leases. Our portfolio consists of office buildings situated in great locations that are leased at moderate prices, so we are still attractive and affordable for our tenants even in these challenging times. Companies in the CEE are much more used to being resilient during tough times, mainly due to their communist background that forced them to overcome difficulties through innovative measures.
DB: At the beginning of the pandemic we braced for impact and we were happy to find out that the occupation rate dropped only by 10%. We expect it to grow back by 3-4% in the near future - some companies will be pressured to reduce their costs, but overall we managed to bite the bullet and mitigate most of our losses.
When do you expect the market to truly recover and what do you think the office sector will look like in the aftermath?
FW: Unfortunately, we don't have a magic crystal ball so we can't say for sure when things will pick up again, but I have a positive feeling regarding the office sector in CEE. Only 33% of jobs can be done from home and after one year of trying a hybrid model, I think we can agree that this is not exactly feasible in the long term. Looking at other crises in the past, there was a big downturn for a short period of time and a reasonable recovery came right afterwards. Overcrowded offices will be replaced by larger common spaces, where employees can keep a safe distance and still be able to cooperate.
DB: Teamwork and corporate culture can survive only if employees come to the office so this segment will continue to exist as long as companies exist. Remote work was already happening before the pandemic but working from the office keeps the balance between our personal and professional lives.
We've seen how enthusiastic you are about the Romanian real estate market, but there surely are some challenges to be found. What is the number one issue that keeps you up at night when doing business here?
F.W.: I have been doing business in Romania for many years now and I sleep quite well. Even though there's still a long way to go, a lot of things have improved since 1996, when I first arrived here. Problems are easily solved through communication and palpable examples of how things can be done better. For example, infrastructure was a notorious problem of the Romanian real estate market, but fortunately the odds have been changing in the past few years.
DB: Looking back at how the real estate market looked like 10-20 years ago, important improvements have been achieved. The bureaucracy is less convoluted, infrastructure develops at a fast and steady pace and the relationship with local authorities has become more open. However, predictability is still an aspect that needs to be addressed, especially in the eyes of foreign investors.
Based on your experience here, do you have a final message for investors that are eying Romania’s real estate market?
FW: A long-term approach is the key to success and the fact that we have been doing business on the Romanian real estate market for more than 13 years is the best example. Resilience and trust can lead to great accomplishments. I am familiar with most of the markets in the CEE and Romania is definitely one of my favorites, thanks to its great investment potential and rapid growth.
DB: The improvements made here greatly surpass the challenges that still remain, and this is why the Romanian real estate market is appealing and ready for new investors.
