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As we look ahead to 2025, the outlook for Romania remains cautiously optimistic. The country’s economic prospects are buoyed by significant infrastructure developments, including the anticipated full membership in the Schengen Area and the inclusion in the US visa waiver program. These milestones are expected to spur a new wave of manufacturing endeavors and enhance Romania’s external position. Additionally, the expansion of high-speed roads is set to alleviate regional disparities and support long-term economic growth. Despite the ongoing geopolitical uncertainties and economic risks, the overall sentiment towards Romania’s future remains positive, with a focus on leveraging these developments to drive sustained progress.
1.
Economy struggling with headwinds
Growing at a sluggish rate of around 1% in 2024 (estimates at the start of the year were pointing to over 3%), the bar to surprise is not particularly high in 2025. And yet, the Romanian economy still faces many headwinds: from the weaker external demand (mostly related, but not limited, to the German economic story) to the higher internal risks amid a bloated fiscal deficit and a problematic current account deficit. The latter complicate the situation much more, as these elevate the sovereign risk and place Romania in a difficult position should the external economic backdrop deteriorate sharply; in other words, in case of an external crisis, Romania faces, much like in 2009-2010, a much more painful adjustment than its regional peers. Overall, with the help of some investment and a still decent consumer sector, we believe growth in 2025 will print a bit over 2%, but risks remain skewed to the downside.
2.
Mind the political noise
In an unprecedented turn of events, the Constitutional Court plunged Romania into unknown territory by cancelling the presidential elections and ordering an election rerun. This will likely take place sometime in the spring of 2025; alongside a shaky governing coalition that’s shaping up after the elections, made up of several parties (united rather by a pro-European stance) and a strong opposition (made up of 3 Eurosceptic parties) as yielded by the late 2024 general elections, we expect political noise and uncertainties to remain elevated going forward. This is also problematic as the new government will have to tackle the biggest structural fiscal deficit in the EU. Together with external events, this is a less-than-ideal scenario and makes Romania vulnerable to sudden shifts. Social tensions are not on the horizon but cannot be excluded going forward.
3.
Geopolitics remain in focus
“Never a dull moment” seems to encapsulate the global geopolitical scene. The new Trump presidency in the US, the spectre of fresh trade tension between the major economic blocs in the world, the softening of the economic backdrop in China, the ongoing war in Ukraine, the Middle Eastern events and uncertainties regarding some countries in South-East Asia make up a challenging global backdrop, with many moving pieces to keep track of. Expect the unexpected seems to be the norm for the last years and 2025 is likely to be no exception. Surveys indicate that Romania, based on popular sentiment, is anchored in the EU/US bloc, but that being a small open economy means that it can do little to influence the course of events, just move with the winds.
4.
Testing the new infrastructure prowess
The news as of late 2024 show that Romania should be set to join the Schengen terrestrial borders in 2025, while the US should also include the country in the visa waiver; at the time, Romania is ranked 7th in the world in terms of the power of its passport, tied with the likes of Canada, Singapore and the UK. Even more relevant to the economy, we would expect the Schengen full membership kickstart a fresh wave of manufacturing endeavours over the medium term. Furthermore, Romania has almost reached 1,200 kilometers of highs speed roads as of early December 2024, with around 700 kilometers under construction and a further c.700 kilometers where works should start sooner or later. We view these developments as a key factor underpinning our longer-term optimism about the Romanian economy, which should also help alleviate some of the discrepancies between the country’s regions.
5.
Sluggish office leasing demand, the tale of two markets
Given the weak external growth story throughout much of the Western world, internal uncertainties and a somewhat unfavourable momentum carrying over from 2024, we would expect 2025 to bring more of the same for the local office scene. This means that new leasing demand may be rather akin to the previous years (maybe even set new record lows for the recent cycle) rather than 2017-2019 highs; the saving grace for landlords is that there are no major office buildings due in 2025 in Bucharest (except for the fairly small One Gallery, a mixed-use project) and a light calendar elsewhere. This means that vacancy for good office buildings ought to still continue to inch lower, widening the gap between competitive projects (when it comes to energy efficiency and their position) and the rest. This is creating the story of two markets: one where leasing activities is performing quite decently and one which is struggling to attract or even maintain tenants.
6.
Industrial market softening a bit on external demand
Before looking at the near-term slowdown, we need to acknowledge that the ingredients for Romania’s long-term expansion of its I&L scene remain intact: the wage-productivity gap is still very attractive for companies looking at re-shoring, while Romania’s structural undersupply relative to regional peers still has not been closed. Furthermore, the infrastructure developments we mentioned earlier will fuel I&L operations in different parts of the country for many years to come. That said, news coming from the German industrial scene (particularly, but not limited, to the automotive sector) are far from encouraging and hence, we would expect a bit more caution from both developers and tenants in Romania. Hence, we look for a mild softening of I&L leasing demand, coming a bit down a bit more from record highs seen in the post-pandemic period (2021-2022), but we still expect to see much better activity than in 2017-2019. Rents will likely remain broadly unchanged.
7.
Retail expansion picking up pace
After a period of softer years in terms of retail expansion, things kicked into a higher gear over the last couple of years and 2025 is following in the same vein. Based on preliminary estimates, over 200,000 sqm of new modern retail schemes are set to be delivered this year, up from c.160,000 sqm in 2024. Furthermore, big schemes and deliveries are seen picking up further in 2027 with some large malls on the horizon. The biggest investments are coming from a handful of companies like NEPI Rockcastle or the Prime Kapital/MAS REI JV (with the addition of British M Core following the acquisition of Mitiska’s portfolio in late 2023), we note that there are also smaller/local developers trying to fill in gaps in smaller cities via retail parks and strip malls.
8.
Investment recovery likely to continue
It looks like a difficult year to call for investment. We see different themes acting in opposite directions in 2025/over the medium term. On the one hand, we have the recovery story in European real estate (with yields likely peaking in 2024), we have some momentum coming from a successful 2024 year as far as transactions go in Romania. On the other hand, we have the soft economic growth story throughout Europe (including Romania), the internal risks facing Romania and the uncertain external backdrop. Overall, we believe that the country’s long-term potential will likely outweigh the short-term risks, particularly as commercial real estate yields in Romania look fairly attractive from a historic standpoint. That said, for some buyers, it may be difficult to justify these yields amid Romania’s fairly elevated sovereign risk cost and regional tensions, meaning that it will still be a somewhat difficult market to close deals.
9.
Looking for residential prices to kick it into a higher gear
The residential scene is at a crossroads: should the negative economic news transpire into a deterioration of the labour market (a sharp increase in joblessness would be especially damning), we could see residential prices pull back a bit and sales plunge. It is noteworthy that prices aren’t that out of touch with reality like they were back in 2007-2008, so we do not see reasons for a major correction. That said, assuming no major negative scenario were to come to pass, given the fairly decent labour market, decreasing interest rates and given that consumer confidence is consistent with record highs seen in 2007-2008, we would think that another fairly strong year could follow. Furthermore, if supply remains subdued and if the overall economy improves just a bit (of course, barring any major negative impact from potential tax changes), could very well see prices accelerate down the line over the medium term. Amid this prospect, we will be seeing more and more thoughts (from both customers and developers/investors) given to PRS (private rented sector) schemes going forward.
10.
The return migration becoming visible
Anecdotally, we are seeing some hints that increasingly more Romanians that migrated to other countries (particularly in Western Europe) are starting to come back to Romania (or are at least considering it). Media outlets regularly run stories on this topic, but we also see some actual statistical sources that are starting to point to a slight net positive migration flow. Two factors are contributing to this: the economic wobbles in Western Europe in countries like Germany and the rising living standards in Romania. We need to recall that Romania’s resident population has been decreasing constantly for decades before scoring a shy increase in 2023. As such, we will be closely watching this theme as it could very well be a major source of further economic growth for the country down the line if the trend accelerates.