You have nurtured Cushman & Wakefield Echinox into its present day shape and witnessed Romania’s real estate industry take numerous turns along the way – what are some takeaways?
Looking back to the early ‘90s when we first set up the business, the real estate market was totally different, business was growing organically, at a very slow pace, as there was simply not much going on. As soon as the ‘00s hit with plans to join NATO and the EU, the market grew and in 2002 Echinox partnered with the multinational company DTZ, becoming DTZ Echinox, which in 2017 turned into Cushman & Wakefield Echinox, after a global merger between Cushman & Wakefield and DTZ. Thus runs a 28 year long history and I must admit I still enjoy my daily work and find satisfaction in it after all this time. Along the way, there were many moments of uncertainty and adversity, apart from the 2008 crisis and the current context generated by the pandemic. The period between 1993-2002 was like the Wild West of real estate, for us and everyone else. I witnessed as retail and office, two major segments of the market, laid their first bricks and really took off.
Fast-forwarding to 2020, wherein do you believe lies most opportunity and what has been hardest hit, looking at the residential, commercial and industrial spaces alike?
In this unprecedented context caused by the pandemic, the only segments that are doing well are residential and logistics, for obvious reasons. Retail had begun to struggle even pre-pandemic, as malls were shifting their focus from shopping centers to entertainment and dining venues. The pandemic negatively impacted this already shaky balance by reducing the footfall, and nowadays a big question mark hangs over the post-pandemic retail.
Among them all, the office sector was by far the hardest hit. After a steady and fast paced rise in the last years, office buildings that would normally now be operating at full capacity with tenants waiting round the corner, are mostly empty or operating at a very reduced capacity. Developers with projects planned pre-March are facing rising debt and no clear prospects.
According to recent figures the office leasing space surpassed 3 million sqm and had an occupancy rate of around 10% at the start of the pandemic, shyly rising to 12% at present.
How have you adapted your own office to the new circumstances, and how have you noticed other companies behaving?
Most companies are adopting the work from home policy, particularly IT giants, who find the model well suitable for their business. Some of them, such as the big IT and e-commerce companies even thrived in this context. Our Cushman & Wakefield Echinox team has worked from home only at the beginning of the lockdown period; after implementing the Cushman & Wakefield international “6-feet office” concept at our workplace, we adapted to a 50% hybrid system, by which around half of the employees are at the office at a given time. Our two-meter distance rule has been working well, ensuring the necessary social distancing.
Many large companies are reluctant to take risks and have health issues reported at the workplace, therefore they prefer the remote working environment for the employees, opting for the wait-and-see strategy, to avoid making any decisions until circumstances dictate it. This contrasts to the pre-pandemic time, when companies used to lease office spaces proactively, anticipating the staff increase and trying to secure a better deal, but now private and state companies alike are unsure on how to proceed further on.
The prevailing sentiment is that everything has changed, in an irretrievable way – what legacy do you believe the pandemic will leave upon the property sector?
The reality is that the real estate business is a physical business – if we put photos and virtual tours aside, people still need to be able to see, touch and smell properties before committing to a purchase or a lease. As long as people still need dwellings to live, work and run errands from, the real estate business needs to somehow adapt and move forward. We see as trends the lower density of employees per square meter in offices, with a combination of partial work from home and further physical distancing between work desks. The new and flexible offices are likely to appear closer to people’s homes, with adapted mandatory priorities for sanitary reasons.
2020 saw Romania’s two largest office transactions of all time - what is the Romanian property landscape like from investors’ positions?
Real estate has always been treated like an excellent investment opportunity and Romania has received growing interest, starting with the Greek or Israeli investors, followed by Austria and Western Europe, the United States, Belgium and France. In the mid ‘00s South Africa started investing through one man with a particular vision, Martin Slabbert, the founder of NEPI Rockcastle. Once the road was paved several other South African funds followed.
Romania suffers from poor marketing. It is no different from the Polish or Hungarian markets, except in its (false) reputation for being riskier. And with (perceived) higher risk come higher yields, making it a very appealing prospect indeed. As opposed to 2008, now there is excess global capital, and Romania will likely continue to attract smart investments.
What are the main challenges standing in the way of real estate development in Romania, and where do you see most room for improvement?
The number one challenge is the authorities’ lack of planning and coherence – by this I mean infrastructure, public transportation and urban planning. There is still no adequate logistical frame, a basic ring road around Bucharest, nor a highway through the mountains and this reality negatively impacts the real estate industry. Some cities such as Oradea or Cluj are lucky to have better public administration, however Bucharest is, for the most part, a beautiful mess.
Apart from the infrastructure and utility, the office buildings offer an identity to each city. Bucharest needs its own skyline, made up of landmark buildings (other than the overly photographed Sky Tower). It is the administrators’ job to give incentives to investors and developers to embark on such projects, through height guidelines, tax incentives, architecture contests, you name it.
No road is without its hurdles. All things considered, what message do you have for investors eyeing Romania’s real estate sector?
In many ways, Romania’s weaknesses also trigger its main current strength – it is still a hidden gem, a land of opportunity, for those who know how to seize it. It is a fantastic place to do business, as the largest country in SEE, with a stable governance and very attractive fiscal system.
The government and public administration have a fantastic marketplace to promote – they just need to do a better job at letting the world know about it.
