Colliers International Romania Research & Forecast Report - Soft landing path ahead
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
20
18
Colliers International Romania
Research & Forecast Report
Soft landing path ahead
Accelerating success.
1
Content
TOP 10 Economic Industrial Retail
Predictions 2018 Overview Market Market
p. p. p. p.
04 06 10 14
Office Green Investment
Market Co-working Buildings Market
p. p. p. p.
18 22 24 26
Land Hotel New tax provisions New rules for commissioning
Market Market in the Real Estate of construction works. Novelties
Industry and practical difficulties.
p. p. p. p.
28 32 34 36
2 Colliers International Romania
Research & Forecast Report | 2018
Dear friends and partners,
Ilinca Paun Those who don’t change their mind, never change Your real estate project must be multilocation, virtual
anything. It is Sir Winston Churchill who made this accessible, multifunction and highly accessorized by
Member of the Board
phrase famous in his impossible situation as the comfortable services offering memorable experiences.
Colliers International
Kingdom’s Prime Minister of deciding between peace
ilinca.paun@colliers.com And we are here to help you.
talks with Hitler or going ahead risking many hundreds
of thousands of lives of the British army. Luckily, we are
We will invest more in the professional and personal
in a safer place and our market situation is not as bad as
education of our people and we will continue to work
Europe’s war zone in 1940.
on our promise to be the most loved and respected
The lesson to learn from is that of flexibility and leaving consultancy company on the market. Some of the best
room for doubt. We get wise because we have doubts. senior experts joined our core teams in 2017, and new
Don’t make assumptions and instead have a good services were launched or scaled up. We now have a
command of deep and broad information. Learn before great balance in terms of business lines and resources
Colliers International is a leader in
thinking you know. Because the mind that produces a spread and our top priority is to consolidate our
global real estate services, defined achievement.
problem cannot be the mind that solves that problem, too.
by our spirit of enterprise. Through
a culture of service excellence and Today you wonder what soft landing means, how hard Colliers International Romania has had its best year since
is ‘soft’, and how you can make your investments strong 2009, with a business revenue growth of 50% in 2017,
collaboration, we integrate the compared with the previous year. The Office leasing,
enough to resist the wind of change. While many say
resources of real estate specialists Industrial leasing and Investment Sales services brought
you should follow your heart and do what you do best
worldwide to accelerate the success of and things will be all right, I say this is exactly what you a sustainable revenue growth aligned with our focus.
our partners. We represent property should be doubtful about.
I do hope our research papers will make your lives as
investors, developers and occupiers in investors and developers in real estate easier and our
It is best to follow your reasoning systems and have a
local and global markets. Our expertise strict reality check process. Be your worse critic and advice will make your returns higher, while keeping a
spans all property sectors–office, let others appreciate you, if. Don’t build what you build focus on creating a better and happier way of living and
industrial, retail, residential, rural & best, the same product, but create diversified, multi-use working for people.
agribusiness, healthcare & retirement spaces instead and enhance technology like never before.
I wish you a successful 2018,
living, hotels & leisure. A project takes 2.5 to 3 years to build and digitalization
and artificial intelligence might evolve exponentially and Ilinca Paun – Member of the Board
surprise you. Just as an example, is your project equipped
for self-driving cars? Real estate is an old school type of
business and it needs a real revolution. Online retail and
‘work from home’ policies are demonstrating that the
old criteria “location, location, location” does not work
anymore. It is much more complex now.
3
TOP 10
1
Romanian economy to
slow down, still outperform
most EU countries
After 2017’s stellar GDP expansion of over 7%, Romania
was the fastest growing country in the European
Union. It was mostly a private consumption story, though
3
Migration (internal and
external) becoming ever
more relevant
Internal migration patterns are already suggesting a
growing preference for Romania’s major “magnet cities”
– Cluj-Napoca, Timisoara and Iasi – at the expense of
exports held up quite well amid an unexpectedly robust Bucharest, with surveys further supporting this. With both
Predictions
Eurozone economy. Barring “black swan”-type risks, GDP labour and living costs lower outside the capital, companies
growth is set to slow down to a more sustainable level might be rather inclined to expand/establish offices outside
in 2018 (around 5%), given the limited room for fresh Bucharest; such patterns would also boost other segments
2018
fiscal stimulus and expected monetary policy tightening. (especially retail). A key development we will be watching
Romania will remain among the top performing European out for is if Romanians working in other countries are
economies. Consequently, the outlook for office, retail starting to return home in larger numbers.
and industrial spaces remains quite rosy.
the show
2
Investment scene to steal
After 2017’s investment volumes of just under EUR 1bn,
the potential pipeline for the office segment alone could be
larger than this level. Though some deals could be delayed
for next year (as we have seen in 2017 as well), we expect
4
Industrial segment to
continue delivering very
strong results
Despite 2017’s record deliveries of storage spaces
(around half a million sqm), the vacancy rate remained
at an all-time low of close to 5% nationwide and 2%
near Bucharest. We view the strong tenant demand as
to see overall market turnover move well north of EUR fundamentally sound given the boost in e-commerce
1bn, with both currently active players and new entrants and room to catch up CEE peers. Vacancy could climb a
to drive up demand. Among the arguments supporting the bit amid potentially more speculative developments and
real estate investment scene are: attractive yield spreads some larger tenants moving in self-developed facilities.
versus neighbouring CEE peers, good macro performance Meanwhile, big land banks ensure that deliveries could
and strong appetite from banks to back deals (other continue to be elevated in 2018 (likely higher than
funding alternatives also available). 2017’s pace).
4 Colliers International Romania
Research & Forecast Report | 2018
5
Infrastructure constraints
to remain in place
After 2017 saw the delivery of 24km of highways
nationwide, nearly four times below the year-start estimate
from the government, pundits are warning 2018 could be
7
Labour market becoming
quite stretched
The rate of unfilled job openings has been hovering around
post-crisis highs, while unemployment is at record lows.
Furthermore, central bank data suggest that the supply-
9
Online retail, still no
immediate threat for brick
and mortar schemes
Shopping centres are still set to deliver solid results for
tenants as Romanians have a higher predisposition than
regional peers to actually look at a certain product before
similar. For this year, the minister is promising at least demand mismatch on the labour market has been on purchasing it. Still, in order to improve footfall, malls will
156 km. Given the limited fiscal room in the state budget the rise, while new bachelor graduates with a technical need to cement their status as actual destinations to
and poor track record of EU funds absorption, we do not background are proving too few in comparison with spend one’s free time. This means more space for the
expect to see a material acceleration in infrastructure employers’ requirements. This extremely competitive food court and other services like cinemas or children’s
developments. That said, any positive surprises could labour market could limit the companies’ ability to playgrounds (so entertainment spaces of at least 20-25%
bring a flurry of deals/interest. expand both in Bucharest and in other parts of the country of total GLA). A smaller per capita retail stock than in
(thereby impairing office market activity – leasing and neighbouring CEE countries could also act as a buffer for
new deliveries), though a potential buffer could come from brick and mortar schemes versus online sales. All in all, a
6 8 10
external migrants returning to their native country. “retail apocalypse” looks like a minimal risk for Romania.
Bucharest office market to Balanced Bucharest retail Residential segment to
focus on new hotspots scene, ample room for remain the all-star driver
smaller schemes nationwide for land demand
Deliveries look set to accelerate quite a bit in 2018 after For now, no new large projects have been announced for Given the higher wages and elevated intentions to
disappointing in 2017. Amid an expected slowdown in Bucharest in the upcoming years, just some extensions. purchase homes, residential projects are still likely to
terms of employment growth, vacancy is likely to move That said, the consumption-driven growth has improved remain the key drivers for land, though at the time of
slightly higher. The new/developing hotspots (Centre West, household spending appetite throughout the country, so writing, it is still too early to judge the impact of the start
Piata Presei/Expozitiei) can likely be digested organically investments will continue to focus on improving the of a new monetary policy tightening cycle. As we have
to a large extent, though developers are becoming much nation-wide coverage of modern retail, including via seen in the past, new office projects will likely draw
more cautious, with the pipeline for 2018 already one third medium to smaller schemes in the less populated cities demand for residential projects in neighbouring areas.
lower than we would have thought 2-3 quarters ago. (below 100,000-150,000 inhabitants). Otherwise, the retail Since 2018 is likely to see a large number of housing units
market remains highly competitive, as the very low vacancy reach the market, players might turn more cautious and
suggests (in single digits for big shopping centres). new developments could focus on smaller projects, albeit
in prime locations when possible.
5
Economic overview
This suggests that Romania might manage to grow its way
verheating fears
O
Landing path ahead, out of trouble to a certain extent. The external backdrop
gearing for a soft landing
remains largely supportive, with German business morale exaggerated, higher inflation
close to all-time highs early 2018 after Eurozone GDP
growth hit a 10 year high of 2.5% in 2017, with 2018 also
to help out for now
seen above 2%. Overall, we expect the good export demand, With Romania seeing such robust activity data, it is
DP growth over 7% -
G solid rise in disposable income (both past and expected only normal to question whether or not the economy is
for 2018) and potential loan growth to keep economic overheating. One way to look at things is to keep in mind
the CEE tiger is back activity expanding at a nice pace. The material risks to our that current consumption looks much more sustainable,
Defying cooldown expectations and surpassing even the bullish growth forecast for 2018 (5.2% versus 4.1% market as it is based more on wages and less on consumer loans
most optimistic forecasts from the start of last year, the consensus as per Bloomberg surveys) derive from a erosion compared to 2007. The monthly average of consumer
Romanian economy likely expanded by over 7% in 2017. of companies’ morale or consumer spending due to elevated loans (adjusted to inflation changes) for 2017 was little
This was by far the best growth rate in the EU. It was political noise and uncertainties related to fiscal policy. over half of the level seen in 2007/2008. Furthermore,
mostly a consumption story, while supply side numbers
2012 2013 2014 2015 2016 2017E 2018F
showed a balanced picture, as a vibrant services segment
was enhanced by quite good results from manufacturing GDP growth (%) 0.6 3.5 3.1 4.0 4.8 7.2 5.2
and agriculture; the latter was especially robust and
GDP per capita (EUR) 6,700 7,200 7,500 8,100 8,600 9,500 10,300
suggests Romania might shake off previous historic
patterns with regards to agricultural results (a good year Private consumption (%) 2.1 0.7 4.7 5.9 7.4 9.1 6.6
followed by a bad one). Right off the bat, there are a couple Industrial output (%) 0.1 3.6 7.4 7.0 -3.2 8.0 7.1
of aspects worth noting: the exceptional performance was
achieved in spite of an unchanged budget deficit compared Unemployment rate (%, year end) 6.8 7.0 6.6 6.6 5.5 4.6 4.3
to 2016 – no new stimulus via lower taxes, though the Current account balance (%/GDP) -4.8 -1.1 -0.7 -1.2 -2.1 -3.4 -4.0
fiscal profile was different. Secondly, despite the economy
Net FDI (%/GDP) 1.6 1.9 1.6 2.2 2.7 2.9 3.2
expanding well above its so-called sustainable growth rate
(the potential GDP growth rate is estimated at around 4%), Budget balance (%/GDP) -3.7 -2.1 -1.4 -0.8 -3.0 -3.0 -3.0
the external imbalances have not ballooned to dangerous Inflation rate (%, year end) 5.0 1.6 0.8 -0.9 -0.5 3.3 3.6
levels indicative of an overheated economy; yes, the
current account deficit (net hard currency outflows from ROBOR 3M (%, year end) 6.1 2.4 1.7 1.0 0.9 2.1 2.8
the economy) likely swelled past -3% of GDP, but this is a EUR/RON (average) 4.46 4.42 4.44 4.45 4.49 4.57 4.65
far-cry from the nearly -14% of GDP level seen in 2007.
Data Source: INSSE, Eurostat, Colliers International
6 Colliers International Romania
Research & Forecast Report | 2018macro fundamentals are also looking well better than a in state wages) alongside a tightening labour market (tilting Productivity and labour costs as
decade ago. As things stand now, we believe the economy the balance in favour of employees) have underpinned the % of Germany’s
is poised for a soft landing, with several factors set to strong wage growth. The key question here is whether
45
depress household disposable income towards more or not wages turn out to be sustainable in the longer run.
40
“normal” levels: i) accelerating inflation (headline rate While the current situation is not ideal – it would have been 35
could move towards 5% in the first semester, with state better to see wage growth driven more by job creation 30
policy changes weighing a lot); ii) expected monetary policy rather than state policies – we believe that companies can 25
20
tightening; iii) weaker RON to pressure import goods’ digest the increase. This is due to the fact that Romania 15
prices and those of goods/services denominated in hard has a higher gap between productivity and labour costs 10
currency; iv) slowdown in nominal wage expansion as state than most neighbouring peers. We also want to point out 5
0
policies turn less generous (towards 10% from 14% last a chart we feature in our retail section, which shows that Bulgaria Czech Hungary Poland Romania Slovakia
Republic
year). Furthermore, empirical evidence like surveys that today’s average wage can purchase over 70% more goods
suggest a higher appetence for saving make us believe that and services than 2007’s average, so people are buying
Labour costs (business economy) GDP/capita
consumers may have acquired some improved measure much more with their own money, as they can afford it.
of foresight this time around and may have not been as A glass half-empty approach would focus on the swelling
Data Source: Eurostat, Colliers International
reckless in their spending as a decade earlier. In the long imports weighing much more on GDP growth and on the
run, there are some reasons to maintain a cautiously fact that capex has been quite subdued, expanding by 3.4%
optimistic approach to Romania relative to CEE peers. in 1Q-3Q 2017. IT&C, BPO/SSC
While the economic cycle does seem in a mid-to-late-ish
phase, there might still be some room to run if, for example, growth rate to cool down
investments start picking up (including absorption of EU As expected, private services were the main driver on
funds, which started accelerating end-2017) or if structural the supply side, though 2017 saw a much more balanced
reforms are adopted, thereby unlocking untapped potential. Unemployment rate by education level picture. Overall, in the first three quarters of 2017, IT
For Romania, even fairly simple structural changes like (%, 4Q rolling average) and BPO/SSC added around 1.3ppt to Romania’s 7%
building highways would go a very long way and probably GDP growth rate (the full year figures will be available in
lead to a sharp and sustainable pick-up in activity. 9 March). In the last decade, Romania has been one of the
8
7 top beneficiaries of relocations from other EU countries
rivate consumption
P 6
5
in IT&C, for instance. Still, employment growth for higher
value-added services is likely to be constrained in the
underpinned by robust wages 4
3 upcoming quarters by the lack of employees. For instance,
2 the ratio of unfilled job openings for IT&C is considerably
At the time of writing, we lacked the numbers for 4Q 1
higher now than it was a decade ago, highlighting that
2017, but in 1Q-3Q 2017 period, private consumption 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 employers are finding it increasingly difficult to find the
was up by 9.5% while the overall level is, in real terms,
right qualifications. Moreover, the jobless rate for people
some 21% higher than the pre-crisis peak, reached in 3Q Primary Secondary Tertiary
with tertiary education stands close to all-time lows,
2008. The double-digit wage growth (around 14%) was
around 2%, while the majority of jobseekers are those
the main reason behind the spike in household spending. Data Source: Eurostat
with low to medium qualifications. This mismatch between
Government policies (minimum wage hikes and increases
supply and demand on the labour market is bound to yield
a few of unfavourable effects:
7• slow down the job creation pace, a negative for the
office segment;
Favourable outlook for 2% by early 2018 and might close in on 3% by year-end).
Of course, a sharper economic slowdown than we pencil
• pressure employers to be more generous with wage manufacturing in might mean lower inflationary pressures and limit the
hikes in order to keep attrition rates at tolerable levels; need for key rate hikes, but this is not our main scenario.
External demand has helped Romanian factories increase
• a consequence of the previous point: erode one of Meanwhile, the consumers’ solid spending appetite has
their output significantly last year (c.9%), overperforming
Romania’s major competitive advantages: its labour cost swelled imports and dented Romania’s external balances,
greatly compared to initial estimates. The auto segment
competitiveness. but it is important to note from the start that the country
remained a major driver, with exports growing by close
Thankfully, besides the generous “competitiveness is in much better shape than a decade ago. Still, the RON
to 8% compared to 2016’s record level. As over 20% of
reserve” we mentioned earlier, Romania also boasts a size might continue to underperform regional peers this year due
Romania’s total exports head to Germany, a closer look at
advantage relative to most peers and has seen the second to several factors:
Europe’s largest economy could shed some light about the
fastest labour productivity rise in the EU in the last decade, domestic manufacturing segment. The good news is that • the current account gap looks set to widen further
after Ireland. The caveat here is that we cannot discount towards -4% of GDP in 2018;
optimism regarding Germany’s economy will continue to
for a factor that could materially change the status quo: spill over as the widely followed Ifo Business Climate Index • higher central bank flexibility towards RON weakness –
the potential return of Romanian migrants to their native is hovering around a record high. Still, we cannot be overly also helping out in keeping inflation in check;
country. Fast rising wages have improved domestic living confident regarding manufacturing as, on an aggregate • the political backdrop is expected to remain noisy;
standards quite significantly over the last years, especially level, Romania still has a lot of slack, as industrial capacity • elevated policy uncertainty with potential negative
for those with higher qualifications, so people with utilization is around 78%, some 5 percentage points below surprises if the fiscal gap cannot be kept within the -3%
university degrees might start thinking about returning the 2007-2008 average; as such, an investment boom is not of GDP level.
to their native country provided that the political situation around the corner. Another negative news, in our view, is
returns to normal. the fact that infrastructure developments nationwide might hanging fortunes for
C
still continue to disappoint in 2018, as history has shown
A balanced picture: manufacturing, that governments in Romania tend to sacrifice capex when Romania’s regional cities
confronted with a tight budget. And indeed, this year’s state With just over a quarter of the country’s GDP generated by
agriculture and tertiary sector all expanding budget has quite limited space and the Fiscal Council has Bucharest, the distribution of Romania’s economic results
warned risks for fiscal slippages. places it in the middle-ground between Hungary (whose
GDP breakdown by sector, 2017 estimate capital makes up almost half of the country’s output) and
Financial markets gearing Poland (with Warsaw’s GDP share at below 20% of total).
0.5 We believe that over the medium term, Romania will move
2.2
up for the higher inflation towards the Polish model rather than Hungary’s, meaning
1.2 we expect a material overperformance of the major regional
Now that the tax cuts that depressed consumer prices
Retail Sales, Logistics
are behind us and private consumption has had a banner cities (Cluj-Napoca, Timisoara, Iasi, Brasov). We believe this to
Agriculture
year, inflation has returned with a vengeance, ending 2017 be the case as Bucharest has become overcrowded by many
Manufacturing
IT&C, BPO/SSC at 3.3%. As such, the central bank has started last year a standards and this is starting to weigh on quality of life: for
Other Sectors
new tightening cycle, at first by closing the gap between instance, it has one of the most congested traffic in Europe,
money market rates and the key rate, then by hiking the according to TomTom, while, at the same time, it is in the top
1.6 1.7
policy rate at the start of 2018 for the first time in a decade. 10 most polluted major cities in the EU. And as some studies
Given the inflation outlook, this is just the start and relevant have shown, millennials – probably the most important age
Data Source: INSSE, Colliers International money market rates are likely to climb further (relevant 3M group for employers – tend to be less materialistic, prioritizing
ROBOR moved from a low of 0.7% in September 2017 to experiences over “stuff”. This thesis is validated by changes
in both migration patterns and intentions.
8 Colliers International Romania
Research & Forecast Report | 2018We would normally expect this shift towards a more has nearly halved versus pre-crisis highs, to just over What is even more impressive is that when asked “which
balanced regional growth pattern to happen both gradually 11,000 persons in 2016, whereas the number of people city, different than the one you live in now, would you
and without negative economic consequences for moving to Timis, Cluj and Iasi counties has accelerated most like to live in”, Cluj-Napoca actually came first in the
Bucharest – we do not see a contraction of economic steadily, to over 19,000 persons in 2016. While empirical answers, with a share of 15.3%, followed by Bucharest
activity due to the new reality, rather a much faster growth evidence might suggest that migration numbers are actually with 14.5%. Timisoara (11.9%) and Brasov (11.5%) were
rate for Romania’s “magnetic cities”. Since we expect the a bit higher, we would emphasize the change in dynamics. fairly close in migration intentions, while Sibiu (5.2%) and
majority of people looking to change their home to be of Iasi (4.3%) were behind by a wider margin. That said, Iasi
A World Bank report published last year found that among
prime working age and with good job prospects (as they is a special case as it already benefits from a big pool of
Romanians, a vast majority chose “quality of life” as a main
expect to afford the moving costs), this will mean mostly external migrants from neighbouring Republic of Moldova.
point when looking at a potential new home, with the “job
an acceleration of the services segment, offering a good To put things into perspective, the five regional cities with
situation” the second on the list. Gone are the days when
outlook for almost all real estate segments. Looking at hard the best chances to attract migrants have a much smaller
the capital would draw in scores of Romanians from other
data, the net positive flow of people settling in Bucharest population in total than Bucharest, but they might manage
parts of the country solely on higher wages.
to attract over three times more migrants as Bucharest over
Internal migration survey (%) the medium term. Furthermore, the people placing these
towns on their number one spot for a potential home change
National survey: which city, is nearly five times larger than their current population.
different than the one you live in With the World Bank expecting some 1.7 million persons to
now, would you like to live in? move from one city to another within the next five years,
Current residents living in 15.32%/2.34% a validation of these internal migration patterns would
4.3%/2.06%
functional urban area, definitely spice things up for these major regional hubs
share in national population
(especially Cluj-Napoca, Timisoara, Iasi and Brasov). To
Iasi summarize, out of 100 people due to move in a different city
in the next years, 48 will chose Cluj-Napoca, Iasi, Timisoara,
11.88%/2.52% Cluj-Napoca Brasov, Sibiu and just 14 Bucharest.
11.53%/2.27%
Besides the migration patterns, there are other arguments
5.16%/1.34% supporting our view. For instance, given that labour
costs and other operational costs (such as office rents or
local taxes) can be materially lower outside Bucharest,
Timisoara Sibiu
Brasov 14.46%/13.43% we believe companies will want to embrace the change
wholeheartedly. On the other hand, out of Romania’s over
10,000 IT&C graduates per year, Bucharest generates
almost 2,700, whereas Timisoara, Cluj-Napoca, Iasi and
Brasov stand at 5,900 together; another aspect worth
highlighting here is that only a minority of these are
BUCHAREST willing to relocate for a job, according to local recruitment
company Brainspotting. As talent seems less willing to
move nowadays than, say, a decade ago, companies will
surely have to adapt to this new reality.
Data Source: World Bank, Colliers International
9Industrial Market
Supply Turning to the nationwide developments, we note that
Timisoara, Cluj-Napoca, Pitesti, Oradea, Sibiu, Brasov,
A notable investment event last year was the purchase
of Logicor by CIC, China’s sovereign investment fund, for
The Romanian industrial market has had a banner year Turda, Bacau are also acting as current areas of interest over EUR 12bn in a transnational deal. This also means the
and it is only about to get better. Around half a million for developers and companies seeking warehouse spaces. Chinese company now owns Logicor’s several properties
sqm in new modern warehouse spaces were delivered Bucharest and its surrounding areas account for close to in Romania.
last year, an acceleration of over 40% versus 2016, taking half of the total stock (1.7 million sqm). Fresh developments continue to be constrained by a poor
the grand total to 3.5 million sqm nationwide. Despite
Due to a lack of readily available information, our estimates infrastructure and, in certain areas (especially in the
the record-pace of deliveries, vacancy remained quite
of modern stock cannot fully take into account logistic/ western part of the country and near Bucharest), by an
subdued (below 5% nationwide and under 2% in the
warehouse centres developed by companies for their own ever lower workforce supply. Turning to the first factor,
Bucharest area). Overall, this is very much a landlord
use, though these make up for a significant part of the
market, though as developers have acquired good land Vacancy rate and industrial stock
market. FMCG companies used around 700,000 sqm in
banks, things could start changing as soon as end-2018,
storage spaces, owning around 400,000 sqm and leasing in Bucharest
in our opinion.
the rest. A small part of the spaces that they own are sub- 15.4% 15.3%
The goldilocks market for developers/landlords is caused leased, but these might grow in the future, making them 14.5%
13.7%
by several factors, in our view: i) increased nation-wide even more a direct competitor of “traditional” operators. 2,100,000
coverage of brick-and-mortar retail schemes requiring It is also important to note that some large tenants might
improved logistics spaces; ii) e-commerce growing seek to build their own warehouse spaces in 2018 due 10.2%
1,700,000*
sharply; iii) companies seeking a better regional coverage to an attractive cost/benefits ratio (for instance, Dante
in CEE; iv) ongoing favourable momentum for the International, the company operating the largest online 1,150,000
manufacturing segment. store in Romania - eMAG.ro - is developing near Bucharest 910,000 920,000 940,000 940,000 940,000 940,000
a 120,000 sqm facility to be opened around mid-2018). 5.0% 5.0%
Almost two thirds of last year’s deliveries were in the
Bucharest outskirts; CTP and WDP were the most The trend in Romania among big companies is to buy/
2.0% 2.0%
active developers, each adding around 200,000 sqm to develop and hold, with CTP and WDP being the most
their portfolio. These developers are also the biggest in significant examples of this. Other large players have indeed
Romania, with CTP heading last year towards 800,000 changed owners over the last years, but these were part of 2010 2011 2012 2013 2014 2015 2016 2017* 2018F
sqm in storage spaces, WDP – around 400,000 sqm, transnational deals.
while the third place belonged to P3 – with around Stock (sqm) Vacancy rate (%)
370,000 sqm concentrated in a single park. * 2017 stock figure updated to include around 200,000 sqm in storage
spaces previously unnacounted for in Bucharest
Data Source: Colliers International
10 Colliers International Romania
Research & Forecast Report | 2018just 45 km of highways were delivered between 2015 leasing deals between landlords and tenants, of which we sqm and 35,000 sqm respectively) in different locations
and 2017 (compared to 250 km promised by authorities) believe there are quite a few. in the western part of Bucharest. The third place belongs
and given the strained public-sector budget, no material Underpinning the very robust market is net take-up to a 31,000 sqm deal by NOD (a distributor of electro-IT
changes should be expected in 2018 at least. Besides the corresponding to over 85% of all leasing deals, to which products), also in the outskirts of Bucharest.
substandard highway network, the low labour force mobility we would need to add direct deals between landlords and
for blue collar workers (Romanians have one of the highest
home ownership ratios in the EU) also suggests that areas
tenants. Rents
with a higher potential number of employees, like the north- From a sectorial perspective, logistics remains the largest Despite the ultra-low vacancy rates, headline rents for
eastern part of the country, remain untapped. A highway source of demand, having a share of 47% of all leasing class A warehouses have remained roughly unchanged
bridging either the southern or eastern part of the country transactions; it is followed by the retail segment, which for most of last year, around 4 euro/sqm nationwide.
to Transylvania is still not being built, though completing it amounted to nearly 17% of all deals, and automotive Still, it is noteworthy that while the headline for modern
would unlock huge potential. – 9%. It is important to note that the importance of warehouse spaces in prime locations (north, western
e-commerce is likely much higher that the c.6% of leasing Bucharest) previously started from 3.8 euro/sqm, this has
transactions, as some operators likely turn to third party ticked up to 4.1 euro/sqm in 4Q 2017. As the supply had
Demand logistics/distributors. Plus a lot of retailers pursue a mixed good land banks and could quickly adapt, price swings are
approach to “traditional” and online sales. unlikely to be material if current conditions hold. Besides
Out of the nearly half a million sqm in industrial leasing
In this context, with vacancies at ultra-low levels (below the developer market that could push for higher rents,
transactions recorded last year (almost 40% above 2016’s
5% nationally), a large part of the demand is covered via larger operational costs (labour and, potentially, taxation)
level), just over half were in the Bucharest area (around
built-to-suit schemes, with some companies even resorting alongside increases in land prices could also exert some
52%), followed at a significant distance by Timisoara
to building warehouses themselves. upward pressures on rents. In fact, the 5 to 10% increase
(14.6%) and Pitesti (12.4%). We want to underscore that
in construction costs over the last year has yet to make its
due to the opaque nature of the market and given the The biggest leasing deals were two transactions by the
way into the rents, so this could change this year.
current low vacancy, we cannot fully account for all direct Danish transport and logistics company DSV (55,000
Take-up by location in 2017 (%) Take-up by sector in 2017 (%)
Forecast
3.8%
6.5% 52.0% 4% 4% We expect the leasing market to accelerate in 2018, but an
5% 47% increasing part of this could be the result of relocations.
4.1%
Bucharest 6% Logistics As such, we forecast vacancy to move a bit higher in 2018,
6.6% Timisoara Retail especially as the developers’ plans point to a potential
Pitesti Automotive
8% acceleration of new deliveries compared to 2017’s record-
Roman Manufacturing
Oradea (without auto) setting pace. In this context, it is worth pointing out that
12.4% Cluj-Napoca E-commerce major players also have adequate land banks to cover such
Other 9% Distribution plans and more might seek to develop speculative logistic
FMCG
14.6% spaces amid current market conditions.
17% Other
Looking at the major players, CTP wants to build close to
250,000 sqm near Bucharest alone. WDP wants to more
than double its portfolio by 2020, after just having acquired
Data Source: Colliers International Data Source: Colliers International
11Modern storage spaces
in Romania (sqm, 2017) 3,500,000 UKRAINE
Bucharest 1,700,000
Timisoara 370,000 Satu Mare Botosani
Ploiesti 280,000 Baia Mare Suceava
Cluj-Napoca 213,000 Bors
HUNGARY Salaj
Brasov 170,000 Oradea Bistrita Iasi
MOLDOVA
Piatra Neamt
Arad 90,000 2017 Cluj-Napoca A8
Targu Mures
M43 Vaslui
A11 Miercurea Bacau
2017, 2018 A10 2017 Ciuc
in 2017 a 44 hectare plot north-west of Bucharest. Arad
Nadlac A3
P3 wants to add more than 100,000 sqm to its park Alba Iulia
near Bucharest in the next two years while also
2017 Sfantu
Gheorghe UKRAINE
looking at other new parks in the central and western Timisoara Deva
Sibiu Brasov
areas of the country. Focsani Galati
A6
Consequently, we believe we will witness an A1 Buzau
Resita Braila Tulcea
acceleration in terms of new deliveries, with our call Targu Jiu
of 700,000 sqm nationwide (risks seem skewed Ramnicu Ploiesti
Drobeta Valcea
towards a higher number). Turnu Severin Pitesti Targoviste
2017
Slobozia
Demand is likely to come mostly from 3PL, though A2 A4
a closer look at the economy would suggest Slatina Calarasi BLACK SEA
e-commerce and FMCG will be at the heart of this. SERBIA Craiova
BUCURESTI
Constanta
Alexandria Giurgiu Port
While no major infrastructure developments are
anticipated, Bucharest is likely to remain at the
Legend
forefront of deliveries in 2018, though we note BULGARIA
an increased appetite for the central and western Low stock
parts of the country that can ensure swift access to Medium stock
neighbouring Hungary’s highways. If our outlook is High stock
proven wrong, the prospect of material improvements
in the rail/road infrastructure networks on the north- Existing highway
Under construction highway
south or east-west axes could unlock significant
Planned highway
untapped economic potential in certain parts of
the country, which would also generate a boom in A6 (Bucharest-Alexandria-Craiova-Calafat), A11 (Arad-Oradea) -
storage/production facilities. routes to be determined
12 Colliers International Romania
Research & Forecast Report | 201813
Retail Market
Supply Pascani Commercial Centre and B1 Retail Park in Bistrita
– Mitiska REIM, each with a total GLA of 10,000 sqm
It is also notable that developers have been increasingly
looking at regional cities and even smaller towns, including
Little over 100,000 sqm in new modern retail spaces were or a little below this level). Extensions for two of the those with a population below 100,000 (like Bistrita or
delivered in 2017 (versus around 240,000 sqm in the Bucharest’s most representative schemes – AFI Cotroceni Pascani, as mentioned above) amid elevated spending
previous year), making this one of the poorest years in the and Sun Plaza – were completed in 2017. appetite in all parts of the country. This is a trend we see
post-crisis period. Nevertheless, this was in line with our extending over the medium term.
expectations. No big new projects were delivered.
Bucharest saw just a couple of extensions, which
Deliveries of new retail spaces by
amounted to less than 20% of the total new GLA (versus city population (sqm) Demand
more than 40% in 2016’s total deliveries of 240,000 sqm).
800,000 The cocktail of loose fiscal policy, stimulative monetary
As such, Bucharest has been seeing a period of relative
policy (for most of 2017) and various state measures
equilibrium between supply and demand, a favourable 700,000
aimed at boosting wages have led to very robust private
moment for the large schemes delivered in 2016 to gain 600,000
consumption, pushing GDP growth in excess of 7% in 2017.
traction and settle in the domestic retail scene. That 500,000
In fact, consumer sentiment (as measured by European
said, Bucharest still features a considerably smaller per 400,000
Commission surveys) reached an all-time high early 2017,
capita retail stock than Warsaw and Prague (though it is 300,000
while purchase intentions for bigger ticket items also
comparable to Budapest’s), so we believe there might be 200,000
moved north by quite a significant margin. In fact, looking
room for Bucharest to absorb some new large schemes 100,000
at consumer price adjusted wages, we found out that the
over the medium term. 0
average net wage from a decade ago would purchase just
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
With the exception of the larger shopping centre in around 1,400 RON of goods and services versus 2,500
Ramnicu Valcea Mall (28,000 sqm) and a significant RON presently; in effect, this means a growth of over three
250,000 (except Bucharest) Bucharest
GLA) – both owned by NEPI Rockcastle, last year saw more sustainable consumption than before the crisis, as
mostly the delivery of smaller schemes and retail parks lending also plays a greatly diminished role. Overall, barring
(Prima Shops Oradea – developed by Oasis Development, Data Source: Colliers International
14 Colliers International Romania
Research & Forecast Report | 2018the year-end jitters in financial markets, with money In this respect, the food and beverage segment is New entries in 2017 were from a fairly wide variety, as
market rates increasing sharply, it was a frantic year with benefitting quite a lot from the strong consumer appetite, well as different price ranges. From fashion (Armani
exceptional results following a strong 2016. Another detail with turnover up by close to 14% in the first 10 months of Exchange, Superdry, Ninewest, INCI, Funky Buddha, AC
underscoring this is the fact that the inflation indexed 2017 after increasing by 15% in 2016. McDonald’s remains & CO) to sportswear (Sport Loft, Under Armour) to F&B
turnover volume index in the non-food retail trade was the largest player on the restaurant market, though (Pizza Sbarro, Taco Bell). It is worth pointing out that Taco
one third above its pre-crisis peak, reached in 2008, while the other players (KFC, Pizza Hut, Starbucks, Subway, Bell made its first step in the CEE region in Romania.
printing a growth of over 13% compared to 2016. Spartan, Mesopotamia) have been quite active. Companies
are also exploring new formats – like Starbucks opening
The fashion segment was a great beneficiary of the solid
demand. Since the supply consisted to a wide degree
its first drive-through unit in Romania; another trend Rents
worth underscoring on the F&B segment is an increased
of retail parks in smaller towns, we noticed that the Rents have been more or less unchanged through 2017,
appetite for larger surfaces (500 sqm or even larger).
most active tenants were still those from the budget to despite the low vacancy rates (mostly in single digit
Food anchors have also had a terrific 2017, with double-
medium range (Pepco, Deichmann, CCC, Jysk, TXM). It is territory for bigger schemes). That said, the rents which
digit growth in revenues for some in a like-for-like basis,
noteworthy that H&M, one of the strongest fashion anchors include a variable component saw quite an increase amid
something quite rare for them.
on the domestic market, has taken its first steps into the vibrant consumer spending – retail sales for non-food
smaller retail schemes outside Bucharest; other brands goods jumped by close to 13% last year. We also want
normally seen in malls are moving to retail parks as well. Wages versus retail sales to point out that differences in rents between Bucharest
Higher-end tenants remained focused mostly on Bucharest and the major regional cities are not as big as they used
with a limited presence in the large regional cities, at most. 2500 180 to be, highlighting the fact that spending frenzy has been
Otherwise, vacancy is likely at cyclical lows (virtually non- (3 month rolling averages) quite widespread throughout the country. Last, but not
160
existent for a lot of the successful shopping centres). 2200 least, retailers which pay a rent with a variable component
An important aspect to note is that shopping centres are 140
seem content to pay higher rents now to compensate for a
still delivering solid results for brick and mortar stores as 1900 potential future slowdown.
Romanians have a higher predisposition than regional peers 120
Romania Shopping Centres Average Rents
to actually look at a certain product before purchasing 1600
100
it. Still, in order to improve footfall, malls will need to City Asking Rent (€ / sqm /month)
cement their status as actual destinations to spend one’s 1300 80
free time. This means more space for the food court and Bucharest 55-65
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
other entertainment services like cinemas or children’s Cities with more than
playgrounds. Aiming to allocate close to a quarter of the 30-40
250,000 inhabitants
Net wage (RON/month, constant 2017 prices, left scale)
total GLA could be important to improve catchment. We
also expect this trend to help out malls in their battle against Non-food retail sales (2007=100, right scale) Cities with less than
15-20
online retail, though given the current state of the Romanian 250,000 inhabitants
market, we expect both segments (online and offline sales)
Data Source: INSSE, Colliers International *Average rents obtainable for prime spaces in good performing centres
to thrive alongside over the medium term. for 100 sqm occupied by good brands;
**This represents the market average; there are big differences between
the cities depending on the level of competition;
15Projects to be delivered in 2018
Project Baia Mare Value Centre Project Bistrita Retail Park Project Roman Value Centre
Developer Prime Kapital/MAS REI Developer Element Development Developer Prime Kapital/MAS REI
GLA sqm 22,500 GLA sqm 15,000 GLA sqm 15,000
Forecast Project Shopping City Satu Mare Vaslui Strip Mall
Project
(extension)
The pipeline for 2018 has some 175,000 sqm in new Developer NEPI Rockcastle
GLA sqm 28,700 Developer NEPI Rockcastle
retail spaces pencilled in (we do not take into account
Satu Mare GLA sqm 2,800
standalone schemes smaller than 5,000 sqm), with Baia Mare
Bucharest accounting for less than 20% of this, with a
Bistrita
single project in the outskirts. No new big schemes are Shopping City Sibiu
Roman
Project Focsani Value Centre
Project
currently in the pipeline for Bucharest or throughout the (extension) Vaslui
Developer Prime Kapital/MAS REI
country for that matter, though we would not exclude Developer NEPI Rockcastle GLA sqm 6,400
such an announcement sooner or later. GLA sqm 16,900 Sibiu
Focsani
It is noteworthy that developers are turning their attention
more and more to smaller towns (population below Project
MIOVENI Mioveni Project Slobozia Value Centre
Comercial Centre
100,000 inhabitants), with some small- to medium- Slobozia
Developer Prime Kapital/MAS REI
Developer Mitiska REIM Ilfov
sized schemes. In the same vein, some FMCG chains Craiova GLA sqm 10,200
GLA sqm 8,800
are moving into even smaller towns, with just a couple
of tens of thousands of inhabitants. As such, it is worth
pointing out that while deliveries for the market overall Electroputere Craiova Project DN1 Balotesti
Project
remain a far cry from pre-crisis levels, the ones in (extension) Developer Prime Kapital/MAS REI
towns smaller than 100,000 inhabitants are set to be Developer Catinvest GLA sqm 28,000
comparable to 2007. GLA sqm 21,200 Data Source: Colliers International
The partnership of Prime Kapital / MAS REI, the most
active developer in 2018 based on current plans – with
new GLA close to 100,000 sqm – wants to add retail
its Electroputere mall in Craiova by adding new 21,200 established positions might try to woo clients with improved
parks and extensions in cities like Slobozia, Roman, Baia
sqm in new retail spaces, as well as an office component. shopping experiences. In fact, as the retail market matures
Mare. It will deliver one of this year’s large new additions:
A new retail park in Bistrita, by Element Development, and and expansion is no longer the primary focus, we should
a retail park just north of Bucharest, near Balotesti, with
one in Mioveni (Mitiska) round up what looks like a busier expect to see both malls and tenants seeking refurbishments
28,000 sqm in new retail GLA. Satu Mare will also attract
year in terms of deliveries than 2017. and adding a higher emphasis on client experience, also
a new mall by NEPI Rockcastle (28,700 sqm), with the
developer also seeking to extend its current schemes in On the demand side we expect to see new players trying to by incorporating more tech elements. For the moment, this
Sibiu and Vaslui. French developer Catinvest will expand enter the market (Polish, Turkish brands), while tenants with trend mostly applies to Bucharest.
16 Colliers International Romania
Research & Forecast Report | 201817
Office Market
relocations from non-competitive stock, an increase of close
to 10% and possibly the best post-crisis result.
The IT&C segment was again the single biggest driver,
generating over 40% of total leasing activity: 140,000 sqm,
an impressive growth of over 80% compared to 2016. The
outsourcing segment was also robust, so it is still safe to
assume that IT&C plus BPO/SSC operations for companies
in other sectors account for at least half of the activity in
the office market.
Looking at a geographic distribution, the established prime
ucharest
B Demand
locations, namely Floreasca/Barbu Vacarescu and the
office market Leasing activity cooled a bit in 2017, with total take-up for
class A office buildings at just over 320,000 sqm, down by
CBD, took centre stage, each accounting for over 19%
of total deals. Another impressive dynamic was that of
Supply some 10% versus a year earlier, though this was still the Piata Presei/Expozitiei, set to become a new hub in the
second best post-crisis result, after 2016 of course. This is Bucharest office market amid a hefty pipeline for the next
Last year saw the delivery of 123,000 sqm of new
also some ways below our initial estimate, but it is still quite couple of years. The decrease in activity for Centre-West
modern office spaces, taking the total stock to nearly 2.3
a feat in itself if we take into account the increased labour region is bound to be temporary, considering the large
mil. sqm. This is lower than we had anticipated and also
force availability constraints that emerged during last year, projects planned in this area.
below 2016’s 230,000 sqm deliveries, though the latter
limiting employers’ ability to expand. The better news is that
coincided with the best post-crisis pace and was double Overall, market conditions in Bucharest are fairly neutral,
net take-up for class A buildings actually accelerated last
the average seen in the post-crisis period. Some delays with vacancy at just under 10% at the end of last year.
year, amounting to over 150,000 sqm in new demand or
were recorded due to both an overstretched construction
segment and some developers seemingly pushing back Bucharest leasing activity peaking Gross take-up by area (% of total)
their projects as they seek to improve the pre-lease
400,000 25
percentage before the actual delivery. This coincides with (sqm)
the tight overall labour market, an issue we have touched 350,000 2016 2017
20
upon in the macro section. The trend we highlighted 300,000
last year continues to hold water, with half of the total 250,000
15
expected deliveries coming from just two projects (the first
200,000 10
phases for Globalworth’s Campus and Forte Partner’s The
Bridge); Vastint also delivered over 30,000 sqm in two 150,000 5
new buildings in its Timpuri Noi Square. 100,000
0
Underpinning the newer hotspot in Centre-West, the two
Barbu Vacarescu
CBD
Pompeiu
Centre-West
Pipera
West
Timpuri Noi
Other
Piata Presei/
Dimitrie
50,000
Expozitiei
Floreasca/
projects delivered here in 2017 accounted for over one 0
third of total, while Timpuri Noi and Dimitrie Pompeiu each 2011 2012 2013 2014 2015 2016 2017 2018F
had a share of just under a quarter of total. Gross take-up Net take-up
Data Source: Colliers International Data Source: Colliers International
18 Colliers International Romania
Research & Forecast Report | 2018Total take-up by sector in 2017 Bucharest Rents & Vacancy Rates
(% of total)
9%
44%
10%
IT&C
Consumer goods Baneasa
Professional Services 11-13 8-10
11%
Finance / Banking /
Insurance
10% 33%
Energy / industrial Pipera
Other
15-16 D. Pompeiu
12% 5%
11-13
Piata Presei/Expozitiei
14% 8%
16-18
2% 14-16 Floreasca
Aviatorilor 3% Barbu Vacarescu
Data Source: Colliers International
16-18
11%
Still, developers have acquired a good land bank for future Victoriei
projects by 2020, that are set to yield well over half a million P.Poenaru 14-15 Romana 13-14
10 9%
M
10%
sqm if constructed. Otherwise, the same mantras are still Grozavesti
Pacii 4% Eroilor
true: good access to the public transport infrastructure, Universitate Piata Muncii
higher quality buildings, an interesting mix of amenities. With Politehnica Izvor Unirii 12-14
companies having ever more difficulties in maintaining good 14-15 14%
15% Vitan
attrition rates and in attracting new talent, the workplace
Timpuri Noi
itself has become a differentiating factor. As such, given the
heavier delivery calendar announced for the next couple of
years, we consider that higher tier properties might see less Eroii Revolutiei
11-12
downward pressures on rents than lower tier ones, as some 21%
companies might be willing to shell out a bit more money to Piata Sudului
keep their employees happy.
Rents
Rents were broadly stable throughout 2017 and we expect
this trend to continue in 2018. Still, as vacancies start
climbing a bit and planned deliveries remain significant,
we could start seeing some downward pressures on rents
towards the end of the year (it could also mean showing
n Average headline rent (€/sqm)
similar headline rents and more flexibility regarding
n Vacancy rate
incentives for tenants).
19Forecast migrated in previous years, offering a boost to the office
market. Due to labour market constraints, we would expect
of mixed-use projects with an office component). Overall,
currently announced projects (most with construction
We expect to see some 185,000 sqm in new class A office the Bucharest leasing market to cool down a bit this year: works yet to commence) add up to half a million sqm,
spaces this year. It is worth highlighting that developers we forecast total take-up at around 300,000 sqm, with net mostly in Centre-West and Piata Presei/Expozitiei.
are turning a bit more prudent, as the figure is over one take-up at 135,000. This would take overall market vacancy
third smaller than the figure we would have estimated
for 2018’s pipeline some 2-3 quarters ago. Currently,
towards 12% by end-2018.
Regional cities in focus
New large-scale projects offer opportunities for companies
companies would love to hire more people, but their demand We have been arguing that it is high time for regional cities
with a large domestic footprint to consolidate their offices
cannot be matched by the current workforce supply, as to steal the limelight from Bucharest, supported by internal
in Romania and developers might be pressed to offer the
unemployment for people with tertiary education is close migration patterns (see pages 8-9), and developers seem
new tenants options for both expansions or downsizing in
to all-time lows. We also cannot take into account potential to be gearing up for this. Though the current modern office
the future.
disruptions stemming from unforseen fiscal changes as stock in the major regional cities altogether (Cluj-Napoca,
the government’s limited budget room might yield some With the public transport infrastructure stretched to its Timisoara, Iasi and Brasov) is currently some 3.5 times
unpopular measures. The tight labour market suggests that limits in the northern part of Bucharest, developers are lower than in Bucharest, the pipeline in these cities for
activity may have peaked in 2016-2017 on the Bucharest expanding the Centre-West’s stock and exploring new 2018 stands at almost 150,000 sqm versus Bucharest’s
office market, but there are a couple of footnotes here. For hotspots in Timpuri Noi or Piata Presei/Expozitiei. The 185,000 sqm.
example, we cannot say precisely what will happen with latter still offers material untapped alternatives given the
Taking a closer look at these cities, Cluj-Napoca has been
external migration patterns, as higher domestic wages might plans for a metro line extension in that area, as well as still
rivalling Bucharest in terms of complexity of the services it
actually start drawing back some of the Romanians that holding large swaths of unused land (potential for a couple
can cover, based on workforce competence. The north-
western region of Romania, led by Cluj-Napoca, has been
2017 deliveries and pipeline by area (sqm) recently crowned by the Milken Institute as the fastest
growing in the EU in terms of hi-tech services expansion
75,000
in recent years. The city’s university is ranked as the
best in Romania by several institutions, while start-up
2017 rates among youths are comparable to Bucharest’s, even
50,000 2018 though its population is well smaller. Innovation, growing
entrepreneurship culture and skilled graduates make
Cluj-Napoca highly attractive for IT rather than lower-tier
BPO/SSC services. Cluj’s very low vacancy on the office
25,000 segment (below 5% end-2017) makes this very much a
developer market and land availability constraints mean
a limited pipeline over the medium term, even though the
town would be the most interesting proposition in Romania
0 other than Bucharest. Still, a solid pipeline for 2018 (47,000
sqm – mostly from UBC Riviera and Hexagon’s project)
Centre-West
Pompeiu
Barbu Vacarescu
CBD
Timpuri Noi
West
Piata Presei/
Dimitrie
Expozitiei
Floreasca/
should alleviate these pressures a bit.
Timisoara remains an interesting alternative due to its
mix of opportunities. Firstly, its proximity to neighbouring
Data Source: Colliers International Hungary’s infrastructure means it has attracted quite a lot
20 Colliers International Romania
Research & Forecast Report | 2018You can also read
