“We will see deals on the office space market this year. German, American, Austrian funds will enter the local market if the ‘products’ (office buildings i.e.) are big and important enough,” says Robert Neale, founder and managing director of one of the largest real estate developers in Bucharest, Portland Trust.
Portland Trust itself seeks to sell its buildings to institutional investors in Germany or Austria such as pension funds, the Briton added. He is one of the first foreign investors that began development of office space in Bucharest in the late nineties and his first building was Opera Center. Portland Trust is now working on the Oregon Park office buildings in northern Bucharest, where Oracle has rented 20,000 square meters.
Pension funds buying real estate would not be a first time for the Romanian market. Last year for instance, Austria’s CA Immo sold the largest logistics park near Bucharest, Europolis Logistic Park, to Czech Republic’s P3. P3 is held by US private investment firm TPG and real estate company Ivanhoe Cambridge, a subsidiary of Caisse du depot et placement du Quebec, which manages tens of billions of dollars of Canadian retirees’ money.
“Other players have started looking at the Romanian market. If you call an investment fund in Germany, they will no longer hang up on you when you tell them you are from Bucharest,” Silviana Badea, head of capital markets with real estate consultant JLL says.
“It looks like there is sustainable economic growth, we have an exchange rate that has not fluctuated that much, inflation is stable, we’ve got everything we need to say Romania is ready to take new investments.”
The significant decline in interests is making pension funds look everywhere in the world to find assets to invest their tens of billions of euros or dollars. Office buildings with long-term tenants are a target because they generate higher yields than bank deposits or government paper.
Portland Trust’s Robert Neale says he is interested in buying more land for future investments, but only in Bucharest as other cities are not on the company’s list of priorities and only plots suitable for office developments.
The investment Portland Trust is developing right now, Oregon Park office complex, amounts to about EUR90 million and Neale expects the first two buildings to generate some EUR8 million revenue from rent a year.
“The office space market is recovering, statistics are very clear about it.”
He expects number of office space deals to increase in 2015, after having noticed an increase thereof from international groups mainly, which are upgrading from old office buildings. That is happening because management wants staff to work in as pleasant as possible an environment with various amenities, such as space to park their bicycles in, Robert Neale says.
Under the circumstances, a number of older class B office buildings will lose their tenants. Some buildings do not have a future, they will probably be bought and demolished. A series of demolitions will follow especially in the Dimitrie Pompeiu area (Pipera, northern Bucharest), he added.
The Briton says the office space market in Bucharest is much different now from when he started investing in it almost two decades ago. Back then, the market was much more difficult, there were fewer tenants.
Portland Trust has about EUR250 million assets in Bucharest.
(English version by Loredana Fratila-Cristescu)