8 “secrets” for Commercial Spaces and 2 Tips for Potential Investors
It was the summer of 2008 when the owner of a commercial space located at Magheru boulevard asked me for a rental price of 250 Euro / sq.m. "non-negotiable". His approach made me curious and I started collecting feedback regarding rental prices in several areas of Bucharest. It was the second half of 2008 and the figures were still remaining at high levels. During 2009 the reduction of prices was now clearly visible and I decided to work on a new project: A market report that presents the rental prices of commercial spaces in several areas of Bucharest. It covers the entire 2009 and the first half of 2010 (June). This report benefits from the expertise of More Real Estate Services, which strategically focuses its efforts in high yield income properties, such as: commercial spaces, office buildings, supermarkets etc.
In this report, you will find invaluable information for 40 commercial zones, the so-called "high street" of Bucharest and many more. The wealth of information gathered by analyzing over 500 properties and contacting approximately 1.000 people during the last two years, enable us not only to simply collect the information for prices in these zones, but also to identify the bigger picture of the current Romanian real estate market. As a snapshot of this, we developed a list of eight "secrets" for commercial spaces and 2 tips for potential buyers that will be of interest for investors wanting to purchase or rent a commercial space:
8 Secrets for Commercial Spaces
- The prices collapsed in all the areas of the city. Exceptions confirm the rule (there is always a crazy owner somewhere, ready to ask for double the price than others in the area) but the direction is clear: Aggressive contraction.
- The only area with higher demand is the historical center, Lipscani. This is also visible at the rental prices, which had the smallest rent reduction of all areas (and in some cases even price increases).
- Location, location, location. The properties with the best location continue, once again, to be the leaders of each area, reaching higher rentals comparing to the competition.
- The higher the rent, the deeper the contraction. Rental prices of 50 – 60 euro / sq.m declined by an average of 35 – 45%, while rentals at the "top" areas fell by more than 50%, even 60%.
- The larger the surface, the smaller the rental price. Large surfaces, suitable for super markets or showrooms, never reached the "rental ceiling" of a property suitable for e.g. a bank, with a surface of e.g. 80 – 150 sq.m..
- The larger the surface, the more difficult to replace the tenant. Especially if the property owner still "dreams" of pre-2008 prices and the property is not suitable for e.g. a super market.
- From the end of 2009 till now, it is clear that tenants demand rental prices that can be sustained by the local market. This means forecasting the current levels and expected growth of the market in order to develop reliable estimates for the expected profitability of the rented property. The period when many retailers simply rented spaces and "hoped for the best" is history.
- Owners became more "flexible". In several cases the owners accepted lower prices while offering better conditions to their tenants. This is probably as a result of having their properties empty for over 1 – 1,5 year without being able to replace the previous tenant.
2 Tips for Potential Investors:
The demand for investments in commercial spaces and income generating properties is growing. The future investors should always remember to:
- Carefully evaluate the realistic sustainability of the rent, based on which the expected annual return (yield) is calculated. If a commercial space rented for 50 Euro / sq.m. is in an area where 3 similar properties are vacant and available for 35 Euro / sq.m., then realistically, the lower price will end up being the "future price" of the first property too. Investors need to carefully evaluate not only the property that they are about to invest, but also the surround ones, in order to avoid any nasty future surprise.
- Check the breaking option term in the rental contract. Most of the contracts (signed during 2006 – 2008) were focused only on the rental price, omitting to include strict breaking options. This is why they are vulnerable and potentially devastating for a current investment. In 90% of the cases, property owners were solely focusing to achieve the highest possible rental price (short-term benefit), failing to capitalize in the security of the contract. This is why these contracts can break just with a 3 – 6 month prior notification.
For more information regarding the Real Estate Market Report, please check here.
If you are interested to invest in any type of income properties, don't hesitate to contact us. We have a portfolio of many good properties, available today.