Increasing construction costs, the biggest challenge of 2022 for real estate companies
The increase in construction costs represents the biggest challenge of 2022 for 90% of the real estate companies in Romania and in other countries in this region of Europe, according to the Deloitte Real Estate Confidence Survey for Central Europe 2022, conducted in the second quarter of this year in Romania, Poland, the Czech Republic and Hungary. At the same time, more than 50% of respondents assume that debt financing will become less available in the region during the months ahead.
The participants in the study believe that the war in Ukraine caused disruptions in supply chains, accelerating increases in the costs of construction materials and energy. This concern, together with that related to widespread inflation, the shortage of land for developments, and market uncertainty are reflected in the sentiment around developer’s profit margins, 90% of them reporting negative expectations regarding this indicator.
The residential and industrial sectors remain the most competitive in developers’ perception (33% each), with a focus on private-rented residential sector, which is becoming increasingly attractive. Investors also prefer the same sectors (over 40% residential and 36% industrial). At the same time, the number of developers and investors interested in the retail sector has increased for the first time since the outbreak of the pandemic, exceeding even pre-pandemic expectations for this sector. This might suggest that investors and retail chains have regained confidence and the market is now ready to absorb new retail spaces. In contrast, the study shows that there is no appetite for real estate investment in tourism (hotels, other accommodation units or leisure facilities) in the near future, and interest in the office sector is still far below pre-pandemic levels.
"The real estate market in the region has demonstrated a high ability to recover after unexpected events, such as the COVID-19 pandemic. However, the increase in the construction costs is worrying and it remains to be seen who will absorb it, and to what extent. On the other hand, it is encouraging that, in a period dominated by so many uncertainties, developers and investors continue to have expansion plans (e.g. in the retail sector) or are looking for new markets. Romania is following the regional trend, with developments in the residential and industrial sectors, which can also represent a form of protection against inflation – real estate assets can retain or even increase in value over time, unlike other investments that are eroded by inflation," said Alexandra Smedoiu, Partner, Deloitte Romania, and Real Estate Industry Leader.
Deloitte has been conducting Real Estate Confidence Survey for Central Europe since 2019 to find out how professionals in this field perceive the market. This year, as in 2020, the year of the COVID-19 pandemic outbreak, the survey was conducted in two rounds, in the first and in the second quarter of 2022, to also capture the impact of the conflict in Ukraine on the real estate market. Three groups of stakeholders participate in the survey - developers, investors and market advisors.