By Mihai Dinu
Although a more mature commercial real estate market in Romania is being talked about, developers of and investors in this segment still face many challenges, most of them related to the economic climate, legislative changes, labor market shortages, and a lack of specialists in some key categories. Thus, as a developer, one can have a well-defined development plan, an analysis of risk factors as well as of opportunities, and established partners and still be unable to control or fully anticipate the impact that certain factors, especially those of a legislative nature, may have. In Romania, repeated and unplanned changes in legislation hinder the process of building authorization, as well as the legal steps required at the time of completion. In some cases, changes in legislation require redesigning, and they also affect planned investment budgets.
An example of legislative impact, Government Emergency Ordinance No. 114/2018, which was issued in December of last year and concerns the establishment of certain measures in the fiscal and the public investment sectors, the modification and the completion of some normative acts, and the extension of some deadlines, has had a strong impact on the real estate industry, especially in the field of construction. Certain normative acts of this ordinance, such as the increase of the gross minimum wage for construction workers and the tax imposed on the financial assets of banks, affect the entire industry.
Regarding the current state of the local construction market, it is essential to mention some important aspects. There are many projects under construction that hinder the selection process of a constructor and, together with the latest legislative measures, put pressure on the construction budget, raising construction costs from year to year. Therefore, additional attention must be paid to the cost-effectiveness of one project, that is, to overall construction costs versus the rents that can be sustained by retail tenants. The effect of the legislative measures stipulated in Ordinance 114 is felt in the banking environment as well. Now, banks analyze loans granted to this sector of activity with even greater prudence. Banking costs have recently increased and are expected to continue their upward trend under the current market pressure and due to regulatory changes.
Despite all of these challenges, we must, however, realize that, in Romania, the industry has a special particularity due to its extraordinary degree of adaptability to change, and this can be revealed via the completion of a simple and short examination of the market that covers the period of economic crisis up to now, observing how much the market has evolved and diversified as well as the increased interest of investors to further develop new projects.
Retailers are well represented, both locally and nationally, and their experiences during the previous crisis ensures that they now pay more attention to costs and are selective in terms of further developments. In conclusion, we cannot talk about challenges without seeing opportunities as well. Despite all of the challenges that we have to face, the market must follow its own course. As far as we are concerned, we decided to invest carefully and develop a commercial project in a period of higher purchasing power and retail brand expansion in order to serve a residential area of the city in continuous development with a reduced offer in terms of retail spaces. So, against all odds, I believe the retail property sector will remain the king of real estate investment for many years, offering full service to a much more sophisticated and informed end consumer.