Bucharest service-driven economy among most insulated in Europe

The Bucharest economy stands as one of the most insulated service centers in Europe to the negative fallout related to the COVID-19 outbreak, according to Colliers International consultants, who analysed scenarios for various segments of the real estate market.

This is largely due to Bucharest’s heavy reliance on IT&C activities as well as scientific and professional services, on par with European capitals like Dublin, Paris and London.  That said, Romania’s high integration in global value chains means that it will face significant headwinds given negative developments in the global economy.

On the other hand, Romania’s status of a fairly small and quite open economy means that real estate markets will not remain immune to global trends. Given that manufacturing has been quite significantly impaired by the Chinese factory shutdown in recent weeks and also taking into account Romania’s heavy reliance on the automotive sector, it means that the impact for the warehouse market should be more significant, but a lot depends on how long this situation will extend.

While the full impact of COVID-19 regarding the broader economy and the real estate market is highly uncertain, a certainty is that retail and leisure sectors are among the most impacted over the short-term, as per Colliers’ analysis.

Globally, a best-case scenario would see neutral economic growth over the year following a negative dip in Q2/Q3, with real estate shocks limited primarily to hotels/hospitality, discretionary/experience-led retail assets and logistics/production dependent on non-essential goods, or the China supply-chain.

A mid-case scenario will not see a recovery until Q1 2021, with broader impacts felt in office markets dependent on the most exposed firms (e.g.  airlines, tour/ events operators, banks/ insurance/ investors and energy companies).

Capital markets will see a hiatus in activity, but long-term core players continue to make moves in safe-haven markets, especially around more defensive retail, industrial and logistics, office and residential assets.

Depending on whether it will be a best or mid-case scenario, value-add and opportunistic players will take a ‘wait and see’ approach until pricing and availability/cost of capital becomes clearer. For cross-border investors, Q2/3 FX rate volatility and inability to physically visit/check assets will lead to a push-back on activity.

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