04.02.2025
Yitzhak Hagag, Co-founder and Chairman of Hagag Development Europe
What are the main challenges & opportunities for the real estate market in 2025?
As we look ahead, Romania’s real estate market poses positive long-term prospects, with promising opportunities both in Bucharest and across its secondary markets. On the other hand, when looking at a short- and medium-term timeframe, our industry faces more than a fair share of significant challenges. Inflation, economic uncertainty, the cost of financing, the lack of predictability, fiscal changes happening overnight, rising development costs, and stricter environmental regulations are just some.
Nonetheless, there is some degree of optimism about the long-term growth potential, primarily supported by the latest investments in infrastructure, the recent Schengen accession, tourist volumes that are close to surpassing the numbers from before 2020, and the still favorable productivity-cost gap in the labor market. Moreover, statistics point to a net positive migration flow generated by the Romanians that have previously migrated to Western Europe and are now relocating back into the country. And this is something that will generate demand and stimulate the market, and even encourage the further development of the PRS segment.
What were the main business results for 2024?
All turbulences considered, our company performed quite well. Especially taking into account that most of our investments are concentrated in Bucharest – where we all aware what the urbanistic situation is. On the commercial side, in terms of leasing dynamics, we wrapped up 2024 with a 96% occupancy rate across our entire office portfolio, 85% for H Private – our serviced offices product, 75% of H Stirbei Palace pre-leased, and ongoing discussions with several potential tenants interested in the commercial component of H Pipera Lake – soon to be completed.
Pre-sale results for our middle market residential developments are, too, looking good, with close to half (45%) of the 728 residential units currently available for sale in H Pipera Lake (buildings 6-10) and H East Residence (phase I) either reserved or pre-contracted. Furthermore, when it comes to our two upper-premium projects to be developed in Primaverii neighborhood we are proud to say that we have quite an impressive waiting list. But last year marked yet another important milestone for us, as we reprised our plans to diversify into hotels and started working on the concept behind our first project dedicated to this segment.
What are the company’s business targets and plans for 2025?
We entered 2025 with ambitious plans but with a cautiously-optimistic forecast about the timeline of our developments in Bucharest. We estimate that we will receive the building permit for phases II and III of H Pipera Lake over the following months, then break ground on the first five residential buildings that are currently in marketing. By the end of Q2 we will finalise construction on the commercial building in Pipera, and we plan to reprise works on H East Residence – where 48% of the apartments in phase I have already been pre-contracted. Moreover, we are focused on completing H Stirbei Palace, and move forward with the reconversion of the old office maze on 5-7 Vasile Lascar which will mark our fifth renovation/redevelopment project in central Bucharest.
On the other hand, with Bucharest indefinitely on hold, we are now more determined than ever to expand to regional cities, and we are currently looking into Brasov, Timisoara, and Cluj.
How will anticipated economic conditions, government policies or EU funding programs influence the residential real estate market in Romania?
From fiscality, government policies, and EU directives that are already putting pressure on budgets causing an increase of at least 15% in development costs, to VAT adjustments, and the cancellation of tax incentives for certain industries that could lead to future layoffs, all will largely influence the dynamics of the residential segment.
When talking about Bucharest, the zone planning and permitting situation has already led to a pipeline downfall that will most probably make prices skyrocket over the next couple of years. Likewise, this urbanistic blockage is now topped by the ungrateful situation with the traffic commission within the General City Hall which makes it even harder for developers to complete ongoing projects. Therefore, all investor-developers activating in the capital city will not only need to cope with all taxes and regulations, but are obliged to pay higher taxes, in an era where local authorities are not fostering a stimulating environment for future real estate developments. As consequence, we see ourselves forced to look for opportunities outside Bucharest. For some of us regional cities are an option, though some might move their capital abroad.
How will Romania’s economic outlook, labour market trends, and regulatory changes affect office space absorption rates and new project launches in 2025?
Compared to before the pandemic, new demand is still low. Most of the transactions signed over the course of last year were either expansion, either relocation deals. In the context of hybrid work and fiscal instability, companies tend to cut down costs. This new paradigm is reshaping the market’s dynamics, highlighting an increased appetite for smaller surfaces (up to 500 square meters), or serviced offices – demand that led to a very good performance of the serviced offices segment and to a growing occupancy rate in modern, boutique buildings from central locations. And although tenants will continue to look for quality, services, and modern office spaces in ESG compliant buildings that are well-positioned and well-connected, given the current economic climate, the price/square meter, the value of the service charge and the incentives offered by the landlords will be the holy trinity to guide the decision-making process.
