A brief look into the domestic office, retail and industrial markets

Last year showed a much-expected revival of the domestic economy, whose advance exceeded 2.5 percent, as well as all expectations, mostly supported by exports and the record-high agricultural production. A significant progress has also been recorded in terms of foreign direct investments which went up to the highest level in the last four years – some 2.7 billion euro.

The property market has been one of the most dynamic one based on the volume of completed transactions which amounted to 330 million euro according to estimations stated by a report released by Jones Lang LaSalle.

‘The search for higher returns is motivating private equity investors to expand their target markets to include Romania among their target countries and to move away from core properties. These equity rich investors are looking to leverage their regional presence and have access to debt at superior conditions. While for the past few years, investor interest has primarily been focused on the prime end of the spectrum, this trend means that also secondary products with asset management upside are becoming more liquid, especially in Bucharest. Outside of direct property investment, private equity firms are also increasingly seeking to acquire distressed debt or place new (mezzanine) loans.’, is explained in the report.

IT&C sector accounts for a third of the TLA in the office market

Bucharest’s office real estate market has seen the best improvement in 2013 considering the total amount of leasing activity (TLA) which was almost 300.000 sq m – the highest volume of transactions ever recorded, as per the latest quarterly research report released by CBRE Romania. The IT&C sector was by far the most active considering the total transactions carried out which accounted for a third of the total area leased. Among the largest transaction recorded, there are the pre-lease of Electronic Arts in AFI Park 2 (12.000 sq m), the co-location of P&G in Iride Business Park (6.122 sq m) and the renewal of HP in Novo Park (26.000 sq m).

The office supply completed last year reached about 119.000 sq m, nearly 2.5 times more than in 2012, shows the same JLL report. Of these, Floreasca Park, developed by Portland Trust accounts for about 30 percent, the office building of 37.500 sq m being the only major project carried out in 2013. Thus, estimations indicate that the modern office stock in Bucharest currently exceeds 2 million sq m.

Although most of the recent office projects have been developed in the Northern areas of the city, namely Floreasca – Barbu Vacarescu corridor and Dimitrie Pompeiu, some of the important projects due to completion this year are concentrated in the Central-Western and Central-Southern part of Bucharest – AFI Park 2 & 3, Green Gate, City Offices.

With an average vacancy rate of some 15 percent at the end of 2013, the leasing transactions expected by CBRE for the current year should lead to a decrease of two percentage points to 13 percent at the end of 2014.

‘While we estimate renewals & renegotiations activity to continue at a stable pace in 2014, the biggest change for the office market this year should come from pre-leasing activity. With some large accounts already active since early start of the year, a number of pre-leases should be signed. With rents at close to the bottom-end, tenants can now receive financial deals which will not be possible to receive in the future. Our estimation is that at end of 2014, having in mind the estimated levels of new stock (124,000 sq m) and demand, the vacancy rate should go down from current 15.1% to under 13%.’, Razvan Iorgu, Managing Director of CBRE Romania explained.

His estimation is also confirmed by the JLL report which forecasts for 2014 a pipeline ranging from 120.000 to 140.000 sq m, the take-up being expected to maintain the upward trend, with a more significant weight of net take-up.

Retail real estate market slows down

Unlike the office market, the retail sector will have a much slower evolution this year, CBRE anticipating that the level of new modern retail developments until the end of 2014 will be the lowest in the past ten years: over 56.000 sq m to be delivered, more than 50 percent less compared with 2013 when the retail projects completed totaled 128.000 sq m.

Bucharest accounts for more than 30 percent of the modern shopping center stock in Romania, which comes to almost 2.6 million sq m, as per JLL estimation.

There have been registered many new entries on the domestic market in 2013, retailers bringing in Romania brands such as: H&M Home, Jumbo, La Martina, Tchibo Store, Lego or Kazar. Dolce&Gabbana inaugurated their first shop in Q4 last year in The Grand Avenue, a hotel shopping gallery. Also, Anthony Morato, Ben Sherman, Roberto Bravo or Laduree are new brand entries on the retail market, in high streets, but as most of luxury brands in Romania, the majority of them is being operated by franchisees.

As for new shopping center projects, construction works have already started for Mega Mall, ParkLake, and Immochan’s Ghencea Shopping Centre, all in Bucharest, as well as the first phase of Coresi Shopping City in Brasov, as showed in CBRE’s report.

The industrial market has bloomed

During the past year, the gross take-up activity in Romania’s industrial market exceeded 205.000 sq m, reaching a record-high level given that there has been registered a 20 percent increase over 2012. Bucharest, Oradea, Timisoara and Ploiesti have been the most active cities in 2013, the first one attracting approximately 50 percent of the total demand, according to JLL’s research.

Several industrial facilities have been finalized within the previous year, some of the major ones being: Lufkin Industries Oil Field Division (35.000 sq m) and Coficab’s production unit (11.000 sq m) both opened within Ploiesti West Park, a 27.000 sq m greenfield project inaugurated within Eurobusiness Industrial Park in Oradea, H.Essers – a warehouse of 33.000 sq m at km 23 along the A1 highway and the 10.000 sq m facility VGP delivered in Timisoara.

Currently, there are three other industrial facilities under construction: Lear’s automotive seating plant, some 12.000 sq m which will be delivered by Solo Industrial Park from Letcani, near Iasi and which is due for completion in the first quarter of the year. About 7000 sq m are being built in VGP Timisoara and another 25.000 sq m, in Ploiesti West Park.

‘Romania is becoming an important manufacturing hub, especially for the automotive industry. Therefore, we expect to see more demand for production facilities. The west of the country is attractive due to its proximity to Central Europe, the new highways currently under construction and the well prepared labour force. However, as more and more companies open production units in the west, the eastern and central parts of the country are emerging as interesting alternatives providing a more available and cheaper labour force. Given the restrictive access to credit, most future industrial developments will be built-to-suit.’, the JLL’s report concludes.