According to the latest analysis conducted by Colliers, the year 2024 looks better than 2023 for the real estate market, with prospects of increased activity in the investment market, more affordable housing prices, and continued good results for the industrial sector.

High potential

The real estate market in Romania continues to be one with high growth potential, even though the pace may be somewhat slower in 2024 compared to pre-pandemic developments in certain aspects, predict Colliers consultants in the Top 10 forecasts report. However, this year is likely to be better than 2023 for several segments.

For example, general trends are favorable regarding industrial and logistics operations, considering strategic relocation decisions globally, labor availability and costs, and recent or anticipated infrastructure improvements.

Additionally, 2024 will remain challenging for the local investment market, although there is a chance of market conditions improving due to interest rate cuts starting from the second quarter.

Other trends for the year include the transition in the retail market from predominantly retail park developments to large commercial projects, as well as growth in both demand and accessibility in the residential market. Colliers consultants point out that this year will also be dominated by significant political noise, given the presidential, parliamentary, local, and European parliamentary elections.

The year 2024 is shaping up to be a promising one for Romania's economy and, consequently, for the real estate market. Among the main reasons for optimism are numerous infrastructure projects, substantial capital inflows expected through European funds, and Romania's emergence as an increasingly important regional distribution and production hub, especially in southeastern Europe.

Additionally, the labor market remains relatively tight, which will favor employees, there is a better external context for Romania's main trading partners, and inflation is decreasing.

All these indicators suggest that 2024 should be better than 2023, underscore Colliers consultants, who also highlight Romania's estimated economic growth in the range of 3%. However, there are concerns both domestically, such as the country's huge fiscal imbalance, and externally, where uncertainty persists, especially regarding geopolitical aspects.

A Good Year for Infrastructure

2023 was a good year for infrastructure development in Romania, with 80 kilometers of highways and expressways put into operation, well above the annual average over the past 33 years (27 km). The major infrastructure transformation process continues in 2024 and beyond.

The approximately 1,000 kilometers of high-speed roads in the country could double, as currently, about 800 kilometers are being executed, with work soon to start on other sections.

Significant modernizations are also planned for railways in some parts of the country. The prospect of a more business-friendly transport environment, combined with a potential entry into the Schengen area for land borders, attracts investors' attention, especially for areas with lower wages and better labor availability, according to Colliers consultants, which will lead to a better distribution of economic growth and resources.

Romania's geographical position and its specific economic advantages - particularly the high gap between labor costs and labor productivity, a gap comparable to that of China, for example - support the idea that our country will become an important center for logistics and production activities amid the "friend-shoring" trend (relocating activities to friendly countries).

Confirmed Trend

External reports also confirm this trend, as, according to the National Institute of Economic and Social Research - the oldest British think tank, Central and Eastern Europe (CEE) will become the engine of European economic growth.

While companies cannot ignore Asia or certain areas of South America for production, they can diversify their operations to reduce risks, and CEE, including Romania, is well positioned to attract such investments in the coming years - a trend that Colliers consultants have observed over the past two years.

Politics will be in the spotlight this year, with Romanians expected to vote four times. For the first time in the country's recent history, the president, mayors, and parliamentarians end their terms in the same year. This means there will be local, presidential, parliamentary, and European parliamentary elections.

The main scenario that political experts suggest is a continuation of the current governing coalition after the elections, a socialist-liberal pro-EU/pro-Western coalition, but surprises are still possible. On the other hand, with no elections starting in 2025, a favorable context is created for less popular but necessary reforms.

The office market will record the lowest deliveries in the last two decades. Only one major project, around 16,000 square meters, could be delivered this year in Bucharest, for example, making 2024 the weakest year since at least 2004-2005, when the office market was in its early stages, note Colliers consultants.

Similarly, regional cities will not record significant deliveries either. Meanwhile, new demand will remain moderate, and the vacancy rate will be at the level of last year's average. However, well-positioned buildings compliant with ESG standards are much more sought after, tilting the market towards a landlord's market in certain submarkets/zones in Bucharest. This situation could further drive rent increases, after rising by about 10% last year.

The industrial sector remains attractive

The industrial and logistics sector remains active, especially compared to pre-pandemic levels, although the unprecedented rental growth, of over 10% per year, both in 2022 and 2023, influences the attractiveness of storage spaces in Romania for international companies.

The prospects, however, remain encouraging, as Romania ended 2023 with less than 7 million square meters of modern storage space, a relatively limited supply compared to European countries, especially in the context of continuous infrastructure improvements and anticipated demand growth due to re-shoring.

After several years in which retail parks were the stars of the sector, Colliers consultants see increasing interest in large projects, both standalone and integrated into large mixed-use projects, and expect many such projects to continue or start development nationwide in 2024.

In parallel, on the consumer side, decreasing inflation and substantial wage increases should continue to fuel spending desires, and sales volumes could accelerate compared to 2023. However, after the inflation spike in recent years, Colliers consultants anticipate that discounters will be back at the top of preferences.

Colliers consultants anticipate growth in both demand and accessibility for the residential market. Many of Romania's dynamic cities and economic areas are affected by overcrowding, which supports long-term demand for affordable housing.

Additionally, the anticipated relaxation of the central bank's monetary policy, expected in mid-2024, along with substantial wage growth, should support high interest in such acquisitions. Otherwise, housing affordability relative to salaries has slightly deteriorated in recent years, but since 2023, the trend has reversed, and this favorable dynamic for consumers is expected to continue.

Decreasing interest in land market

In the land market, Colliers consultants have noticed a slight decrease in investor interest in 2023, considering the number of new requests recorded, and this trend is likely to continue in 2024, as many developers already have land for future developments.

However, several large transactions that have been in preparation for some time could be completed in 2024, which would help make it another year with solid results. Good land continues to benefit from a price premium, and if longer-term uncertainties diminish considerably, land prices could start rising again on a more widespread basis.

The situation could improve in the local investment market, as the European Central Bank and the US Federal Reserve are expected to start cutting interest rates starting from the second quarter, even though the rate cuts will come at a much slower pace than the rate at which they have risen.