BUCHAREST REAL ESTATE CLUB

 3.04.2025

What are the company’s business targets and plans for 2025 in Romania?

In 2025, our primary goal is to expand Yellow Tree Real Estate’s portfolio in Romania while diversifying the asset classes under our management. We remain committed to maintaining our strong occupancy rate of over 90%, a standard we’ve consistently upheld both pre and post-pandemic. Additionally, we are starting this year our first construction project in Bucharest – Aria Shopping Center, a pilot project that we are very excited about. In parallel we will continue with several asset management projects that will add value to our properties through upgrades and improvements that will increase the overall efficiency and sustainability of our buildings.

What key factors make Romania an attractive market for Yellow Tree Real Estate’s buy-and-hold strategy, and how do you evaluate investment opportunities in capital cities like Bucharest?

Romania continues to stand out as an attractive market for our buy-and-hold strategy. Despite the fact that we initially had a freeze of investments for two years due to the high levels of inflation, the war at the border, the fact that the country has experienced sustained GDP growth, and still has its position as one of the most cost-effective and efficient labor markets in the EU adds to its long-term appeal, made us unlock partially certain investment budgets for Romania.We only invest in capital cities or large gateway cities, therefore all our investments in Romania concentrate in Bucharest. The same factors that initially made Bucharest attractive still stand from our point of view, more precisely – low unemployment levels, steady annual inflow of population moving to the capital, the presence of all major multinational companies that have continued investing in the city throughout the years, the level of skilled personnel and the fact that tourism in Bucharest is more and more popular.

What are the biggest challenges in Romania’s real estate sector for long-term investors, and how does Yellow Tree Real Estate navigate regulatory, financial, and operational hurdles?

The Romanian real estate market, while promising, comes with its share of challenges—particularly rising operational costs that directly impact both landlords and tenants. Increases in property taxes, minimum wage, and service expenses related to property maintenance can place pressure on profitability and affordability. The cost of energy which is amongst the highest in the EU has not helped with the financial burden either. All of these together has galvanized us to constantly look at optimization, at digitalization and at new providers that can deliver the level of quality that we expect at more accessible costs.More so, as a long-term investor, we seek stability in all the markets where we invest. The lack of fiscal predictability has been an increasingly concerning factor for us, having new fiscal changes done within days and communicated overnight is extremely disruptive. The constant change in fiscal systems and costs associated with these systems in order to comply with new fiscal legislation is also a challenge, both from an adoption perspective, but also from the perspective of training our staff fast enough to meet what sometimes seem unrealistic deadlines, especially for a group of our size with hundreds of tenants and providers and quite a significant number of companies within our group.

Nonetheless we have successfully adapted all our workflows and implemented all of these changes as they came, however by paying the price of putting immense pressure on both our inhouse and outsourced teams and also by hiring new staff.  In addition, FDI, while essential for growth, has recently become more complex due to the new regulations implemented. These changes introduced additional steps we are now obliged to follow, which complicate the procurement process, extend acquisition timelines, and result in extra costs. This adds yet another layer of compliance that long-term investors like us must navigate carefully. Last, from a regulatory standpoint, one of the most persistent issues we face involves delays and inconsistencies in the permitting process, especially when trying to update or obtain new approvals for works. At Yellow Tree, we proactively manage these challenges by fostering open communication with stakeholders and local authorities to ensure compliance and minimize delays. We involve the authorities very early on – from presenting the concept, then submitting all the relevant documentation to the completion stage, and throughout the lifetime of the project we continue collaborating and updating the authorities with our progress, aiming to constantly ensure that we are as much as possible in sync and don’t risk having surprises later on.

How does Yellow Tree Real Estate balance risk and reward when selecting properties for long-term investment in Romania, considering economic trends, rental demand, and market evolutions?

Our investment focus is and has always been on well-located buildings with strong fundamentals and long-term tenant appeal. While we are not averse to rehabilitating properties to bring them up to modern standards, our core selection criteria centers around location, total acquisition cost, tenant quality, and the reliability of building and its systems. In general, we do expect higher returns from renovation projects as we expect from ready-made fully up to standard projects. We are a very factual and data driven group, and as a consequence the decision making is also based solely on data, therefore the decision of taking on more risk is determined and decided upon very early on during our viability analysis process. If the numbers make sense, then we are willing to expose ourselves to renovation risks and authorization/reauthorization risks, if not, then we do not pursue that opportunity and do not start the due diligence process. Each asset has a 12 year business plan and we follow it pretty religiously in order to ensure property longevity and tenant satisfaction. We have had several asset management projects where we improved dramatically the desirability of our buildings, and we shall continue these investments as per the business plans in order to make sure that our products remain relevant. This disciplined approach enables us to deliver stable returns while maintaining a very good standard of quality across our portfolio.