ESG and flexibility among the main trends in the real estate market

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The accelerated implementation of Environmental, Social and Governance (ESG) criteria in real estate projects, the rise of residential programs for rent, the expansion of commercial parks and the focus on mixed-use projects are among the trends the most significant on the market. the Romanian market today. Some of these changes were already gaining traction locally before the pandemic forced real estate players to act quickly on emerging changes in the way we work, live, shop, and spend our free time.

By Ovidiu Posirca

When it comes to ESG, the lack of consistency and transparency in benchmarking and measuring energy performance continues to plague the sector, according to the Emerging Trends Europe survey conducted by professional services firm PwC.

“Building certification remains the most widely used tool for measuring and reporting on issues such as energy efficiency and reduced carbon emissions, but its usefulness is being questioned when it comes to tracing the cost environment of operating assets,” the report notes.

Nevertheless, the need for a more energy independent Europe will result in smarter and greener policies and developments.

“As the rapid expansion of technology pushes other aspects of our society forward, at a time when the real estate market continually faces new challenges, the need for diversification will grow, with alternative assets becoming more attractive, even to less sophisticated investors,” says Ilinca Timofte, Head of Research at Crosspoint Real Estate.

The growth of flexible office apartments, the emergence of logistics warehouses in the city and the birth of the build-to-let niche are all expected to be part of a new wave of investment in Romania. The developers will seek to gain market share in regional cities such as Timisoara, Cluj-Napoca, Iasi and Constanta.

Representatives from real estate consultancy CBRE suggest that projects developed according to ESG principles are seen as a long-term investment by developers and tenants, as sustainability also leads to lower costs.

ESG construction is an evolving trend in the Romanian market, especially in the logistics sector. Developers are keen to invest in retrofit or energy-saving solutions as their tenants’ interest in sustainable solutions grows. Over the past two years, we have also witnessed urban regeneration projects such as retail parks or mixed-use developments on former industrial platforms, as well as the refurbishment of retail formats. These are some of the trends that are only gaining momentum.

“Investments in modernization could generate up to 175 billion euros per year in the European Union. In Romania, 69% of the modern retail stock was delivered before 2013. Out of a total stock of 4.03 million m², only 0.53 million m² has been renovated in the last 3 years, which indicates that redevelopment projects, rather than new developments, will become the norm,” says Daniela Gavril, head of research at CBRE Romania.

The hybrid work system is dominating the office segment, forcing companies to reshape spaces, rethink their relationship with the workforce, and invest in change management processes. Whether it’s a move to buildings that meet these new needs or a reorganization of existing workspaces, this trend is already a reality on the market and it has turned into an employer brand strategy. , in which real estate advisers play a major role.

At the same time, custom-built developments and built-to-own projects are emerging as a preferred solution for a growing number of corporate tenants in the industrial and logistics sector, CBRE consultants add.

Occupants want more flexibility

The pandemic period has created a need for real estate companies to explore the process of organizational transformation.

Almost two-thirds of respondents to the PwC survey agreed that this would be a priority over the next five years. Real estate as a service, changing customer demands and the ESG agenda are seen as key drivers of this transformation.

“At the heart of this trend is the fact that occupiers and consumers are demanding greater flexibility and shorter contracts to meet their rapidly changing needs, often combined with a desire for a higher level of convenience, services, health and well-being and digital connectivity. “says the PwC report. One of the developers quoted in the report points out that the DNA of real estate is “changing radically”, with more and more short-term arrangements. In the office sector, this will generate increased demand for coworking and remote working solutions.

Moreover, proptech has a greater influence on the operational parts as well as the management of the assets and property of the industry. This can translate into apps that provide a closer connection between landlord and tenant, automated business processes, or machine learning and data collection to improve property management, according to the PwC report.

Repurposing buildings remains a challenge

The Emerging Trends Europe report also shows that individual buildings are likely to be repurposed to provide a mix of uses. For example, some office buildings that do not meet sustainability targets will be blocked by post-pandemic market developments.

Over the next five years, the most common repurposing will move from retail to mixed-use (41%), and from office to mixed-use (61%).

Diversity is gaining ground

Most respondents remain confident that many workers will return to their offices once the pandemic is under control. However, an overwhelming majority of respondents also expect a sustained increase in remote working. Moreover, with the emergence of new working methods, mixed neighborhoods could become more important. “It’s not about the right office, retail or residential location, but rather locations within the urban fabric that attempt to combine different uses. It won’t be fully mixed use, but there may be offices next to retail, with some integration of leisure activities,” says a pan-European investment manager quoted in the analysis. of PwC.

The focus on mixed-use developments is also becoming more visible in Romania, as people want to spend less time in traffic jams to get to work or to the mall. Massive investments in projects including offices, retail and residential components are being implemented on the former factory grounds of Bucharest and major regional cities. Having the office closer to home is becoming a competitive advantage in the race for talent, as some players outside Romania already see the office of the future in the digital cloud. Locally, the office market is starting to see a recovery in investment in the flexible and co-working segment, while compact workspaces rented via an app are also starting to appear.

Large office developers are also looking to design their own coworking spaces, as opposed to renting space to operators specializing in this area as was the case before the pandemic.

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