Sergentu also said the decreasing purchasing power may also affect retailers’ sales, causing the increase in demand for warehouse spaces to fade out. He added the office sector will be more resilient, as current events can only affect the market if they persist on the medium and long term.”
The Cushman & Wakefield Echinox analysis shows that energy price volatility could accelerate the companies’ process of relocating in green, energy-efficient buildings where ESG standards have been implemented.
“In a market in which the annual inflation rate was 14.5% in May, a rate fueled by rising prices for electricity, gas and central heating (over 40% year-over-year), tenants will be more concerned with finding energy-efficient solutions in order to carry out their activities,” according to Cushman & Wakefield Echinox consultants.
The current global real estate market has seen developers struggling due to the lack of building materials and also due to increasing land acquisition costs, while asset managers have to deal with unstable operating costs, as investors are facing uncertainty regarding financing costs.
“Office space occupiers are directly impacted by the current record level of inflation which will lead to increasing occupancy costs that now account for up to 10% of a company’s operating expenses,” the analysis shows.
It should be noted, however, that the office rental levels are largely determined by the market conditions which means that an increase in rental rates is a phenomenon related rather to the local market fundamentals and vacancy rates than to the inflationary trends.
A very important element for office tenants pertains is the early establishment of the number of required workspaces and thus of the leasing strategies, given the impact of increasing fit-out costs, and also of the changes in the way employees work.
Companies active in the retail market recorded turnover increases given the present inflationary context, a matter which renders the rent stable as a percentage of the turnover. However, the increasing utilities’ costs could not be countered.
Although retail sales have generally increased as a result of rising prices, this trend may change in the near future as buyers become more price sensitive due to the higher costs for gas, food and other essential products. In order to maintain in-store traffic and to maximise the sales conversions, retailers will need to consider the clients’ changing shopping habits and adapt their entire omnichannel strategy to these particular changes. In terms of costs, the increasing operating expenses will significantly reduce the operators’ profitability in this inflationary environment.
The industrial sector has been the best-performing real estate market segment in the last few years, but tenants occupying industrial spaces are facing pressures related to the operational, workforce and real estate costs.
However, the inflationary pressure will manifest itself differently on the industrial and logistics market, given that some three million square meters of such spaces are owner-occupied in Romania, in addition to the approximately 5.6 million sqm available for lease, with retail chains and automotive companies being the most active in this regard, in line with the analysis.
This means that a higher share of occupiers of industrial and logistics spaces are vulnerable to the market instability compared with other real estate sectors. In fact, the occupiers whose strategy is to acquire or build their own spaces have to deal with an increase pertaining to land prices and construction costs. Moreover, they also have to counter the construction workforce shortage. The unexpected increase in occupying costs is the main challenge for the tenants in industrial and logistics spaces. All in all, the occupiers of such spaces will be equally affected by the rising inflation, even if differently, regardless of whether they are tenants or owners of the spaces where they operate.