A popular meme these days is “<<2020 is the year I am going to…>> 2020: <<Hahaha. No.>>”.
Over EUR 1 billion in ongoing office real estate-related deals was reported at the end of 2019 alone, yields were compressing, and everyone was busy solving traditional transactional issues, such as “will the project be delivered on time,” “how is it secured,” “how do we tackle residual title issues,” “urban planning lacks planning,” and so on. Predictions for the 2020 Romanian economy were optimistic, and in terms of the investment market, the heavy election calendar was expected to be more of a timing nuisance in fulfilling conditions precedent which required input from local authorities than a serious concern for acquisition intentions.
Then Brexit fever hit. The market was concerned less about a direct or significant impact (given how real estate investments are structured in Romania), than it was with “little things” such as title insurance policies that were governed by English law. Insurers seeking to ensure contract continuity were required to invest significant resources in reorganization, to ensure business processes were not disrupted, and to make policy beneficiaries comfortable with the new set up.
And then another kind of fever hit. Focuses shifted rapidly from looking for assets to buy to preserving value and liquidity, while activity in entire sectors stopped and everyone was concerned about personal safety.
For many weeks, real estate owners were in the middle – between tenants refusing to pay rent on one side (either on account of the total shutdown or mass remote working), and banks still demanding loan reimbursement on the other side.
This was more visible in retail, but no field escaped unharmed. Authorities attempted to help, but any overnight solution found (and often changed again overnight) while trying to keep many balls in the air is imperfect.
As always, parties sitting down at the same (virtual) table and negotiating the best compromise for their specific relationship helped more than any legally prescribed off-the-shelf solution.
Surprisingly, and despite certain issues along supply chains, activity on construction sites continued at a fairly good pace. Considering the 450,000 square meters of office under construction in April 2020 in Bucharest alone, this was one of the outcomes making the whole situation slightly more bearable. It seems that landlords will be able to meet delivery obligations to their new tenants … but will the new tenants be able to keep their (minimum) 5-year deals?
Investment activity has obviously slowed, as uncertainty is a considerable disincentive. While the short-term impact of the crisis is still unraveling, everyone is trying to anticipate the long-term impact. Will recovery be fast (and full) or will we see major changes in paradigms affecting the transactional market on the long run?
The last three months showed us that work-from-home is bearable only in the short term, that online shopping is less satisfactory than strolling through malls, that logistics is a critical sector whether we admit it or not, and that everyone is eager to travel – so traditional office, retail, logistics, and hospitality industries are not going anywhere.
Recovery may not be fast, and we have probably not seen the end of the medical crisis, but with some adapting to a new normal, we will be back to discuss Brexit, fire permits, restitution claims, and urban planning in no time.
By Oana Badarau, Partner, PeliPartners