10% lower real estate investment yield this year

The annual yields derived by real estate investors on the Romanian market range between 15 and 35%, but are set to drop by 10% this year, according to the real estate company Regatta.

“Given the deeper instability of business domains, of constitutive elements and the rising prices of land and construction materials, the profit developers derive from the real estate market stands at 15-35%.

Higher profits can be registered in the case of large residential and retail projects,” considered Alexandru Nitescu, head of the investment and land department of Regatta.

The slump in the annual yields offered by real estate investments stems from the ripening of the Romanian real estate market.

Owing to the rising development and operating costs linked to real estate projects, and implicitly the increase of final prices, the Romanian market is beginning to display the characteristics that are specific to similar markets in Central and Western Europe.

The drop in gains derived by real estate investors on the Romanian market has also been highlighted by real estate company Colliers. The company”s representatives stated at the end of last year”s third quarter that the average derived yield decreased to about 10% in euros per annum in the first half of 2005, down from the level of about 12% posted in the same period of 2004.

The Romanian real estate market continues to offer investment yields that are superior to mature markets in the European Union and North America. In the Czech Republic, Poland and Slovakia, annual yields for real estate investments last year fell to 7.25%-7.5% for office and retail spaces, according to real estate company CB Richard Ellis.

On more developed markets, these yields are likely to fall to below 7%, all the more so as the first half of last year saw deals worth less than this value.

The highest yields are related to investments in Russia, standing at 12.5% in the case of office buildings and about 13% for commercial projects.

In Prague, Budapest and Warsaw, the annual yield of investments in offices amounts to 7.5-8% in euros, with the figure standing at 6-7% in cities such as Vienna, Madrid, London, Barcelona, Rome and Berlin, according to CBRE.

“Some institutional investors have embraced a different strategy, sealing partnerships with major developers, financing their projects and imposing a series of conditions for acquisitions. Such investors are getting annual yields of 8-10%, possibly rising to 15% for projects located outside the capital city,” Nitescu also specified.

Currently, all the segments of the real estate market are characterised by a lack of projects that could be acquired by large foreign investors. alexandru.cerchez@zf.ro