H1 2013 Romania MARKET Overview Review & outlook
Highlights
• The fi rst half of 2013 brought a 12% increase in offi ce leasing activity in Bucharest, compared with the same period of the previous year. New occupation deals (including relocations and new entries to the market) amounted to 55% of the total demand.
• As in the previous four years, demand for retail property has remained primarily driven by food operators and international fashion anchors.
• In H1 2013, land plots for offi ce development continued to be the most sought-after, followed closely by land plots for retail schemes.
• Investors are progressively increasing their activity, encouraged by favorable economic policies, recent market developments and Bucharest prime yields compared to other CEE capitals. H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
2 Contents
1. Romanian Economic Overview 4
2. Offi ce Market 6
3. Retail Market 10
Shopping Centers 10
Other Retail Formats 12
High Street 13
4. Industrial & Logistics Market 14
5. Land Market 16
6. Investment Market 18
7. Residential Market 20
8. Hotel Market 22
9. Property Taxation 24
10. Legal Aspects 26
3 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
“Romania has successfully stabilized its economy after being hard hit by the crisis. […] In the space of three years, Romania reduced its fi scal defi cit by more than 6 percent of GDP, and has exited the EU’s Excessive Defi cit Procedure this year.” Christine Lagarde Managing Director of the International Monetary Fund (IMF) July, 2013
Bistrita Iasi Piatra-Neamt Atlantic Ocean Cluj-Napoca Turda Bacau
Arad Deva Timisoara Sibiu Brasov
Braila Tulcea Ploiesti Pitesti Bucharest Craiova Constanta
Giurgiu Mediterranean Sea 1. ROMANIAN
ECONOMIC Romania is geographically situated level and a record low budget defi cit. OVERVIEW in South Eastern Europe. It is the In contrast, economic indicators such second largest country in Central and as consumption levels and GDP per Eastern Europe (CEE) and the ninth capita still need to be improved in order largest in the European Union (EU) to achieve investment grade status. by area, covering 238,391 sq km. Romania is expected to record GDP In terms of population, it is the second growth of 2% in 2013, according largest country in the CEE area and to IMF forecasts, a signifi cant the seventh largest in the European increase compared with the 0.9% Union with approximately 20.1 million annual growth in 2012. The half inhabitants. Bucharest is the political year GDP growth was reported at capital and most populous city 1.8%, driven mainly by agriculture, (approximately 1.9 million inhabitants) industrial production and exports. in Romania, as well as the country’s principal economic and fi nancial center. However, there has been limited growth in domestic consumption, as a result of After overcoming the political turmoil income levels remaining relatively low. of 2012, Romania has concentrated in Bucharest’s average net salary is slightly recent times on attracting investors below €500/month per employee, to products offering better risk/ while national (individual consumption return profi les than neighboring is 48% of the EU27 average. countries in the CEE region. Romania has low public debt compared Although Romania is placed one level with other countries in the region, below investment grade by rating and its debt-to-GDP ratio of 38% agencies, its economy has made is well below the EU27 average of signifi cant recent improvements, with approximately 85%. Additionally, positive GDP growth, a decreasing debt the sharp decrease in budget defi cit
4 at the end of 2012, below the 3% monetary policy interest rate, from threshold imposed by the Maastricht 5.75% at the beginning of the year to the Romania treaty, has improved the overall record-low level of 4.5% in August 2013. macroeconomic position of the country. This disinflationary measure resulted in is expected forecasts for year-end inflation in 2013 The H1 2013 budget deficit was 1.1% of being decreased to 3.1%. Meanwhile, to record A GDP, in line with the year end target of the unemployment rate for Romania 2.4% of GDP. H1 2013 brought a record was 5.4% at the middle of 2013, lower GDP growth for Romania’s balance of payments than the EU27 average of 10.9%. current account, which showed a of 2.0% in 2013, surplus of €695 million, as compared The absorption rate of EU funds with a deficit of €2.781 billion in the increased significantly in 2013, with according to first half of 2012. The main driver was €735 million entering the country the increase in exports, as the trade in the first half of the year, more International deficit reduced significantly, reaching than the entire non-reimbursable just 10% of the H1 2012 level. funds attracted throughout 2012. Monetary Fund
The Romanian currency bond was In summary, Romania is increasingly forecasts. included in Barclays’ Emerging well-positioned from an investment Markets Local Currency Bond Index perspective, attracting foreign in the first half of 2013, after being investments with strong growth rates, included in JP Morgan’s Government a sustainable national debt ratio and Bond Index in 2012. This has helped improving market perceptions. to create an environment conducive to the increased inflow of foreign Table 1 investment, as well as improving the perception of Romania, which is now part of indices tracking the performance Indicators Romania Poland Czech Hungary Bulgaria of strong emerging economies. Republic GDP/capita indexed, 49% 66% 79% 66% 47% A positive outlook for Romania is EU27=100 2012 also shown by measures of economic GDP growth 2012 0.9% 1.8% -1.5% -1.4% 1.4% confidence. The Economic Sentiment GDP growth 2013 2.0%f 1.1%f -0.5%f 0.3%f 1.9% Indicator (ESI) – a composite indicator Public Debt 37.8% 55.6% 45.8% 79.2% 18.5% published by the European Commission /GDP Ratio 2012 made up of five sector confidence Budget Deficit -2.9% -3.9% -4.4% -1.9% -0.8% indicators – stood at 96.4 in June 2013, (% of GDP) 2012 well above the EU27 average of 91.3. Source: Eurostat The market’s improved current perception of sovereign risk is indicated Table 2 by the sharp downward trend in Main economic indicators Romania’s Credit Default Swap (CDS) spread throughout the last 12 months. H1 2013 Bucharest Romania At the end of the first half of 2013, Population (inhabitants)* 1,883,000 20,121,641 it was below 200 basis points for an Average net salary (€)** 487 364 assumed 40% recovery rate, almost Average unemployment rate (%)** 2.04 5.42 half the value registered in July 2012. GDP per capita (€)** 15,604 6,907
Besides the falling CDS, another Source: aspect to boost financing and increase *according to the 2011 census domestic demand has been the decrease **official data published by the National Institute of Statistics, The National Commission of Prognosis in the National Bank of Romania’s
5 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Overview Starting with 2011, offi ce take-up has consistently surpassed new supply levels. In H1 2013, demand was 60% higher than the level of new stock on the Bucharest offi ce market.
2. OFFICE MARKET
Charles de Gaulle Plaza
Supply A total of 78,000 sq m of new offi ce space The amount of space delivered in H1 was brought to the Bucharest market 2013 was more than three times the in the fi rst half of 2013, comprising of total recorded in the same period of 71,000 sq m in the fi rst three months 2012. The new supply brought the total and 7,000 sq m in the second quarter. modern offi ce stock (class A and B) in Most of this space was delivered in Bucharest to around 1.8 million sq m. the north-center of the city (Sky Tower, Siriului CSDA), but there were also Offi ce properties currently under new projects completed in the center construction in Bucharest are expected (Armand Calinescu Offi ce Building) to bring more than 180,000 sq m to and the west (West Gate Park H5). the market over the next 24 months.
Developers of the new offi ces A signifi cant project in the pipeline are mostly locally based, with the is Floreasca Park, located in the Austrian company Raiffeisen Property Barbu Vacarescu–Calea Floreasca International GmbH being the only offi ce hub, which has 37,500 sq m foreign developer to deliver a new GLA. This project already features a building in H1 2013 (Sky Tower, 57,000 sq high occupancy rate of 85%, having m GLA). Through the new stock, a wide benefi ted from The Advisers/Knight range of offi ce buildings has been Frank’s consultancy, which brought delivered to the Bucharest market: the biggest pre-lease ever signed in a tower, two small-sized schemes and the Bucharest market: 25,000 sq m the fi fth phase of a business park. for the IT&C company Oracle.
6 Following the success of its Figure 1 first phase (70% occupancy at Yearly evolution of total stock and new supply delivery), AFI Europe is currently developing AFI Park II, an 11,000 sq m GLA building set for completion 2,000,000 in the first half of 2014. 1,800,000 1,600,000 Vacancy 1,400,000 1,200,000 The overall vacancy rate for class A 1,000,000 offi ce buildings in Bucharest remained 800,000 stable at 19%. Occupancy levels have 600,000 improved in the Dimitrie Pompeiu 400,000 and Pipera areas, but vacancy rates 200,000 increased in Barbu Vacarescu–Calea Floreasca, due to the delivery of new 0 6 stock. The lowest vacancy rates in the H1 20 0 20 10 20 11 20 12 2007 2008 2009 2013 city can currently be found in the Presei
Libere Square and Center West areas. Total Stock New Supply
Source: The Advisers/Knight Frank Demand
Offi ce take-up in H1 2013 reached Figure 2 125,000 sq m, 12% higher than the Vacancy rates by submarkets same period of 2012, when 111,000 H1 2013 sq m were transacted. Take-up was % distributed fairly even between the 60 fi rst two quarters of 2013, with no unusual fl uctuations in demand. Out 50 of the total absorption, an estimated 40 75% was represented by transactions 30 in class A buildings, with the remaining area being leased in unconventional 20 offi ce spaces and class B premises. 10 A total of 80 transactions were closed in the fi rst six months of 2013, in modern 0 offi ce buildings, with an average East CBD Pipera Center
area of 1,350 sq m, 12.5% higher than Square the average deal size in H1 2012. Center West Center Presei Libere Presei Calea Floreasca Barbu Vacarescu Dimitrie Pompeiu One third of the total take-up in – H1 2013 was generated by IT&C companies, followed by Professional Q4 2012 Q1 2013 Q2 2013 Services which accounted for Source: The Advisers/Knight Frank 18% of offi ce leasing activity.
New occupation deals (including Take-up has consistently surpassed relocations and new entries to the new supply levels resulting in Take-up in market) continued to be the dominant a positive performance of the transaction type in the Bucharest offi ce market. This trend was also H1 2013 reached offi ce market, representing 55% observed in the fi rst six months of of total lease transactions closed 2013, and is expected to continue 125,000 sq m in the fi rst six months of 2013. over the rest of the year.
7 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Rents Figure 3 Figure 4 Demand by tenant activity sector Demand by type of transaction Rents remained broadly stable H1 2013 H1 2013 throughout H1 2013, at the same % % levels recorded at the end of 2012. However, some slight rental increases 3 2 1 5 were reported for prime offi ce 4 7 buildings with excellent specifi cations 4 29 and very good accessibility. 7
55 No signifi cant changes have been 10 33 noted to the incentives received by tenants (including rent-free periods 10 18 and fi t-out allowances). Thus, net 12 effective rents remain €1–3 sq m/month lower than headline rents. IT&Communication FMCG New occupation Expansion Professional Pharma The cost of service charge is also an �� �� Renegotiation/ Pre-lease � Services Other important consideration for tenants. Renewal Manufacturing Construction Currently, the average service charge for Industrial&Energy &Real Estate Source: The Advisers/Knight Frank class A buildings is between €3.50–4.50/ Automotive Consumer Services Finance/Banking &Leisure sq m/month. Service charges in offi ce /Insurance Retail towers are more expensive due to higher maintenance and cleaning costs. Source: The Advisers/Knight Frank
“Construction progress at Floreasca Park continues on a good track with completion expected as per the contract at the end of October this year. The complex is 85% leased with a few more leases under negotiation. The target is to be fully leased this year.
The energy saving technical innovations and low service charge have been well received by the market which is now demanding much more than just «green branding». There seem to be a few bright spots and new names in the leasing market and still a hunger from existing multinationals to upgrade to better quality buildings at lower opex.”
Robert Neale Managing Director Portland Trust Floreasca Park
8 Forecast The second half of 2013 is expected to bring approximately 41,500 sq m of new offi ce space, delivered in two projects: Floreasca Park and Averescu Offi ce Building. Thus, the total new supply for 2013 is expected to surpass 120,000 sq m. During 2014 and H1 2015, it is anticipated that an additional 140,000 sq m of offi ce space will be brought to the market across the city, raising the total stock above the 2 million sq m threshold.
Some of the new supply will come from the conversion of different schemes into offi ce space. A total of 29,500 sq m of this type of space is expected to be delivered to the market in the next nine months.
For the whole of 2013, the total take- up of offi ce space is expected to reach a similar level to the previous year, at around 200,000 sq m of leasable area. Rents are generally expected to maintain the stable trend of the fi rst half of 2013, with slight increases only Green Gate expected in prime offi ce buildings.
Figure 5 Map 1 Demand by location Prime headline rents by district H1 2013 €/sq m/month %
4 3 1 5 23 14 –15 7 Baneasa
7 9 –10 Pipera 8 21 15 –16 Dimitrie 13–14 Pompeiu 10 Presei Libere Square 11 Calea Floreasca 16 –Barbu Vacarescu 16 –19 Pipera East CBD CBD Presei Libere � 12 –14 Square Center 11–13 Center West Dimitrie Pompeiu 14 –16 East West West Calea Floreasca– Center West Barbu Vacarescu Baneasa South Source: The Advisers/Knight Frank
9 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Shopping Centers
Overview The Romanian retail market performed throughout the country, following moderately in H1, as a result of the solid performances achieved subdued consumption and diffi cult to date. In regard to new entries fi nancing conditions. Nonetheless, on the market, only small retailers the activities of market players have decided to secure locations. have demonstrated confi dence in the market’s potential, in both The last 12 months also witnessed the medium and long term. the departure of several retailers from the Romanian market: Debenhams, Nine West, La Senza Supply and Springfi eld, all of which were The fi rst half of 2013 saw a modest operated through franchises. increase in the Romanian retail stock, with only 22,500 sq m GLA delivered in 2 projects: Uvertura Mall Botosani, Rents with 15,000 sq m GLA, a shopping Well-performing shopping centers 3. RETAIL gallery with 7,500 sq m GLA attached to were able to maintain or slightly Corall Bratianu, the new Cora project in increase their average rents. However, MARKET Constanta. Thus, the total retail stock other developments are still trying to in Romania reached approximately stabilize rents by offering incentives 2.7 million sq m, of which nearly one and turnover rent structures to third is concentrated in the capital city. their tenants. In Bucharest, a good-performing shopping center The fi rst half of the year proved features asking rents around 40-50 to be a diffi cult period for several €/sq m/month for a medium sized shop. retail schemes in the rest of the country, as three projects developed by BelRom (Electroputere Parc Forecast Craiova and the European Retail Three shopping centers with a total Parks in Focsani and Bacau) entered GLA of nearly 100,000 sq m are insolvency. Armonia Braila shopping expected for delivery by the end of the center, which was declared bankrupt year as seen in Table 3. in 2011, had its legal administrator reduce the asking price by a further Although Bucharest remains appealing 30%, after several unsuccessful for developers and retailers, attempts to identify a potential buyer. Promenada Mall, which will open in Moreover, the developer of Focsani Q4 2013, will be the fi rst new opening Plaza was also declared insolvent. in the city for more than three years. Promenada Mall will deliver approximately 35,000 sq m GLA and Demand will serve as a shopping destination As in the previous four years, demand for the Calea Floreasca–Barbu for retail property has remained Vacarescu and Pipera offi ce hubs. primarily driven by food operators and international fashion anchors. Away from the capital city, Ploiesti Inditex Group, H&M, Takko and will welcome the opening of its Deichmann continued to expand second new shopping center in less
10 Coresi Shopping Center than a year. Anchored by Cora and Electroaparataj site. Both of these Developed by Immochan on the Cinema City, AFI Palace Ploiesti is projects will be anchored by Carrefour. former Tractorul site, Coresi Shopping expected to open in October and Center will deliver a 16,000 sq m will bring approximately 33,000 In addition, NEPI intends to open three Auchan unit and a 25,000 sq m sq m of retail space to the market. strip malls, by the end of the year, in shopping center. The delivery date Vaslui, Sfantu Gheorghe and Sighisoara. has been postponed until the end In addition, NEPI announced that Although there is a limited development of 2014. Following the acquisition the Galati Shopping City will be pipeline, a high number of projects of the Hidromecanica site in 2010, delivered by the end of 2013, whilst have been announced for Brasov. In Cora intends to develop Corall Mall a recent agreement on Mega Mall addition to the extension of the current in Brasov, a retail scheme scheduled Bucuresti will result in the project’s Carrefour site, developed through for completion in the next years. delivery by the end of 2015. In the a JV between NEPI and Carrefour The Polish company Echo Development summer of 2013, NEPI announced Property, the city is witnessing also postponed the delivery of Korona the acquisition of 70% of the Mega competition between Immochan, Cora Mall until 2015, with construction Mall project, which is situated next and Echo Development to establish being set to commence in 2014. to the National Arena, on the former its next shopping destination. Considering the high levels of competition expected in locations Table 3 such as Brasov, developers will need Retail projects to be delivered in Q4 2013 to concentrate their efforts not only on attracting good tenants to their Shopping Center City Developer GLA (sq m) Food anchor shopping centers, but also on creating Promenada Mall Bucharest Raiffeisen 35,000 Billa recreational and leisure activities in Evolution order to attract more visitors. Shopping AFI Palace Ploiesti AFI Europe 33,000 Cora centers will increasingly need to offer Galati Shopping Galati NEPI 27,000 Carrefour additional attractions, as on-line City (phase I) retail has started to gather ground Total 95,000 and is expected to provide growing Source: The Advisers/Knight Frank competition to traditional shopping.
11 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Other Retail Formats
of the year, the company plans to “Vigilance, this would be the word open another 2–3 new stores to that I would use to describe the its existing chain of 33 units. commercial real estate market of the past 6 months. After the Hornbach, BauMax and Ambient also hardships encountered, we are all inaugurated new units in 2012, but now much more cautious, looking for unlike Dedeman, they have put other risk free projects. Nonetheless, in expansion plans on hold in H1 2013. our everyday life, there are no zero risks ventures for developers, the The most important entry on the few that have still remained on the market in H1 2013 was represented market, nor for retailers. Everyone by UK based DIY retailer Kingfisher, is taking a risk in line with its job who acquired the Bricostore chain scope, in a shared social-economic which comprised 15 units. Also, the context. Particularly, this shared Competition Council of Romania has background should bring us closer, eventually approved the acquisition in order to transform challenges of Real by French hypermarket chain, into opportunities. The very Auchan. This will translate into 24 meaning of partnership, built on a Real stores that will be added to the strong foundation, the forthright 11 existing Auchan stores. Another communication, transparency and transaction closed in the first half of common perspective, will enable the the year was the acquisition of French development of successful projects. supermarket chain, Interex, by business I strongly believe in the potential of man Sorin Bonciu, owner of Bomax the Romanian market, I do consider Group. The buyer’s intention is to sell vigilance as a healthy approach, yet or rent further to a food or DIY retailer. I also believe that, aiming to be in Overview the champions’ league, requires to The most active retailers in H1 have vision, business acumen and 2013 were food retailers, especially Rents the courage to act accordingly.” discount formats and supermarkets Rent levels witnessed a stable (including proximity stores). Lidl and evolution for most big box Tatian Diaconu Kaufland have each inaugurated 6 segments, ranging between 5 and 9 Managing Director units so far, reaching a network of €/sq m/month. The rent levels depend Immochan Romania 160, respectively 85 stores. Profi, mainly on the location and size. Penny and XXL Mega Discount have also pursued their expansion plans throughout the first six months of 2013. Forecast DIY retailers and small format food Supermarkets (incl. proximity) were operators will continue to pursue their also extremely active on the market, expansion plans, focusing mostly on Rent levels with nearly 70 units opened in H1 Bucharest, as well as secondary cities. 2013. The big box unit previously New retail formats are expected to be witnessed occupied by Kiabi, in Militari Shopping launched on the market. In order to Center was occupied by specialized consolidate its position on the local a stable retailer Bebe Tei which secured there market, French retailer Carrefour its second location in Romania. announced a new store format – evolution for Supeco. Officially launched in Spain The most active retailer was Dedeman, at the beginning of 2013, Supeco most big box with 4 units opened in 2012 and represents a hybrid concept between 2 in H1 2013. For the second half a discounter and a cash&carry. segments
12 High Street
Supply Forecast New stock has scarcely been registered Fashion retailers are expected to The second half of 2013 is not expected on the High Street market of Bucharest. make their way progressively into the to bring any major changes compared Supply came mainly from renovation area, further increasing interest from to the first six months of the year. of historical buildings located in the types of retail other than HORECA or Old City Center that were reintroduced leisure. On Lipscani, fashion retailer The major international brands on the market in H1 2013. A minor H&M is due to open its doors to the will pursue their expansion plans, amount of space was also brought to public by the end of the year. as their financial power enables the market through the delivery of them to increase market share retail units in small office buildings. On a different note, the luxury market of aggressively during this period. Bucharest welcomed a Roberto Cavalli flagship store in the Marriott Hotel Demand shopping gallery. Other notable entries The highest demand was driven by the on Calea Victoriei include Lancel, and supermarket chains. Mega Image, Profi BSB, which decided to relocate here its The Old and Carrefour Market have all secured former unit from Magheru Boulevard. new locations throughout the city, City Center even by acquiring local supermarket Rents operators. For instance, in Bucharest, continues Gulliver was taken over by Mega Headline rents have fallen for central Image. However, most of the acquired avenues of Bucharest, partly due to draw a networks were based outside the to poor demand and lack of interest capital city (e.g. Luca chain in Brasov). from retailers. Nevertheless, areas significant with high traffic and visibility have The Old City Center continues to draw maintained a stable trend of rents, or part of a significant part of demand as it is still even registered increases as occurred in regarded as the hot spot of Bucharest. certain locations of the Old City Center. demand
13 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Overview The fi rst half of 2013 followed the same trend as the previous year, with the industrial market characterized by caution.
Supply In the absence of speculative 11%, with most occupiers focused on developments, there were no new renegotiating and extending contracts deliveries to the Bucharest market during in their existing locations. Currently, the fi rst half of 2013, while the rest of there are companies actively searching the country witnessed only very minor for locations closer to their customers, increases to the industrial stock. The lack in order to reduce distribution costs of new deliveries in the fi rst half of 2013 and achieve better time effi ciency. In kept the industrial stock of Bucharest at H1 2013, the preferred location for the same level registered at the end of occupiers clearly remained the western 2012, approximately 970,000 sq m GLA. part of Bucharest. For properties outside the capital city, the vacancy rate Developers remain willing to start is estimated at approximately 12%. new projects/phases only if they can secure pre-leases or deliver turnkey Rents 4. INDUSTRIAL projects. In general, the priority of owners/developers is to keep their Average rents in the Bucharest industrial & LOGISTICS current tenants or to improve the market are currently in the €3.30–4.20/ MARKET tenant mix within their existing parks. sq m/month range, depending on the warehouse size and length of the lease. Landlords continue to offer Demand signifi cant incentives in order to In H1 2013, take-up in the Bucharest make their properties more appealing industrial market reached 65,000 sq m. to tenants. Service charges have This level is comparable to the take- remained unchanged, at approximately up recorded in the whole of 2012, €0.50–0.95/sq m/month, depending when 62,000 sq m were transacted. on the quality of services offered and Two large transactions accounted for the level of local property taxes. approximately 75% of the take-up in H1, both signed in Europolis Park. Forecast Outside Bucharest, the total take- Industrial market trends are not up in the rest of the country reached expected to change signifi cantly in H2 approximately 40,000 sq m, with 2013, with leasing activity remaining transactions recorded in cities such moderate. Thus, developers will maintain as Timisoara, Ploiesti, Brasov and a cautious attitude, not taking the risk Iasi. One of the most important of building on a speculative basis. The transactions closed in H1 2013 was the industrial market should see a revival lease of 11,000 sq m in Olympian Park once the economy rebounds. This may Timisoara by an electronics company. be dependent on both the delivery of signifi cant infrastructure projects and Industrial leasing activity was a general increase in consumption. A dominated by companies in the retail bright spot for the industrial sector sector, followed by the logistics and could be the arrival of newcomers to the automotive industry. The vacancy rate market, with several schemes planned in Bucharest fell slightly, reaching for development in cities like Turda
14 Figure 6 Figure 7 Figure 8 Bucharest Vacancy Rate Bucharest Demand Bucharest Total Stock % sq m sq m
16 250,000 1,200,000 14 1,000,000 12 200,000
10 800,000 150,000 8 600,000 6 100,000 400,000 4 50,000 200,000 2
0 0 0 3 4 5 6 7 8 9 3 4 5 6 7 8 9 3 4 5 6 7 8 9 H1 H1 H1 20 0 20 0 20 0 20 0 20 0 20 0 20 0 20 10 20 11 20 12 20 13 20 0 20 0 20 0 20 0 20 0 20 0 20 0 20 10 20 11 20 12 20 13 20 0 20 0 20 0 20 0 20 0 20 0 20 0 20 10 20 11 20 12 20 13
Source: The Advisers/Knight Frank Source: The Advisers/Knight Frank Source: The Advisers/Knight Frank
Map 2 (Graells & Llonch) and Timisoara (VGP). Industrial aspects of Romania It is worth noting that all the major E 85 cities that have seen improvements Satu Mare to their infrastructure have become Baia Mare Suceava important industrial hubs (e.g. Ploiesti, E 60
Timisoara, Cluj and Constanta). In order Bistrita that new projects are delivered to the Oradea Piatra-Neamt Iasi Cluj-Napoca industrial sector, it is important that Turda particular attention is given to future Tirgu Mures Bacau infrastructure developments and to Arad incentives for investors, in order to make Romania a more attractive market. Deva Brasov Timisoara Sibiu
Ramnicu Valcea Braila Tulcea „For quite a while now, the E 70 Ploiesti Romanian market for industrial Pitesti space and warehousing is a mature
market, with powerful key players, Craiova Bucharest Constanta most of them focused on a certain Giugiu region or a certain client group.
E 85 E 87 WDP’s approach of the Romanian market started by Developing Future industrial Existing Highways to be acquiring landplots in strategic hubs opportunities for development highways delivered in 2014 locations throughout Romania, including but not limited to Table 4 Ploiesti, Pitesti, Constanta, Bucharest prime rental and service charge ranges Brasov, Bucharest area etc." Size (sq m) Rent (€/sq m/month) Service charge (€/sq m/month) <3k sq m 3.90 – 4 . 2 0 0.50 – 0.95 Jeroen Biermans 3k – 10k sq m 3.60 – 3 . 9 0 0.50 – 0.95 Managing Partner >10k sq m 3.30 – 3 . 6 0 0.50 – 0.95 WDP Romania Source: The Advisers/Knight Frank
15 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Overview Land acquisition activity remained modest in H1 2013, with a limited volume of transactions and caution prevailing in the market.
Supply As anticipated in previous market also adopted an aggressive expansion reports, land supply in Bucharest strategy, and now has a network of increased in the fi rst half of 2013 as a 250 units, including its convenience result of banks putting land plots up store format, Shop&Go. Aside from for sale as distressed properties. Sites the usual factors which infl uence the with approved zoning, suitable for offi ce, sale of a land site, such as building residential or retail development, are permits, location, price, competition currently available for sale. in the area, access to utilities and Nonetheless, brownfi eld properties public transportation, an increasingly also provide suitable opportunities important factor is identifying for development in Bucharest, and an end user (buyer or tenant). should continue to do so for the next ten years. In order to facilitate An important transaction in Bucharest 5. LAND transactions and encourage potential during H1 2013 involved the almost buyers, sellers continue to take a 10,000 sq m Porsche Aviatiei showroom MARKET fl exible approach to negotiations. land plot, located in the Calea Floreasca–Barbu Vacarescu offi ce hub, which was sold through Porsche’s Demand real estate division. The land plot was So far in 2013, demand can be described bought by the Greek investor, Ioannis as highly selective, with buyers focusing Papalekas, who plans to start the only on very particular locations, construction of an offi ce development. suitable exclusively for their areas of expertise and interest. Currently, On a different note, prices for the most sought-after land plots are agricultural land and forests are those for offi ce development, followed lower in Romania than in any other closely by land plots for retail schemes. CEE country. As a result, foreign As in previous years, there has been investors are increasingly attracted medium interest in sites for residential to this type of land in Romania, development. Nonetheless, residential expressing particular interest in developers are looking for land plots areas exceeding 500 ha and featuring that are either suitable for high end a compaction rate exceeding 80%. developments or for projects with the potential to comply with the conditions of Prima Casa government program. Prices Land prices remained stable during In the retail sector, Dedeman remains the fi rst half of 2013 throughout the largest and most active DIY retailer Romania, including the capital city. in the country, having acquired a 3.8 ha land plot in Pitesti, for the construction If there are any variations in of an approx. 13,000 sq m store. This asking prices, they will purely be a followed its acquisition of a 3.3 ha land consequence of the seller’s subjectivity. plot in Galati in December 2012. The In light of the current economic and supermarket chain Mega Image has political climate, developers prefer to
16 invest in projects with good locations, infrastructure, which are expected to “Comparing Prague land market coordinates and specifi cations, see decreases in prices and demand to Bucharest one is not easy as offering a high level of stability. Such over the remaining half of the year. the cities, and respectively the investments are safer and can assure a As in previous years, the strongest countries are in very different favorable exit in case of cash necessity. demand for land will be generated by moments of the market evolution. the offi ce sector, followed closely by the It is closely connected with the retail sector and the residential sector. saturation or if you want with the Forecast Central land plots with good urbanism maturity of the respective real Prices for land plots are expected to coeffi cients will continue to be most estate markets. While Prague is remain constant throughout H2 2013 attractive to developers. No signifi cant saturated, Bucharest has still space with the exception of those in secondary changes in prices are expected over the for growth. This translates into very locations with underdeveloped rest of the year. limited availability of good land plots in Prague, in general. Those
Map 3 good and empty ones are still kept Bucharest Land Prices by owners for future development. Currently the offer is reasonable in Bucharest, even plots that were not available for sale back in 2007–2008 400 –500 €/sq m are now on market with signifi cantly Bucurestii Noi reduced prices. Apparently, the crisis played a role here and developers gave up on their plans.” 900 –1100 €/sq m Vladimira Novakova Barbu Vacarescu –Calea Floreasca Managing Director Green Gate
450 –500 €/sq m Lujerului 450 –500 Land prices 500 –600 €/sq m €/sq m Timpuri Noi Progresului remained stable in H1 2013
17 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
Overview The fi rst half of 2013 was another slow period for the Romanian real estate investment market. Transaction volumes remained relatively low, despite increased interest from real estate investors that are exploring opportunities in the market, primarily for offi ce developments in Bucharest. Supply Institutional investment products The sole institutional investment are available for sale in all market transaction in the market during the sectors. Such products offer fi rst half of 2013 was concluded by investors the required criteria of NEPI, which acquired The Lakeview long leases, sustainable rents, solid offi ce building for a reported blue-chip corporate tenants and price of €61.7 million. NEPI is a excellent technical specifi cations. core investment fund listed on three stock exchanges: Bucharest, For offi ce buildings, Victoriei Square and Johannesburg and London AIM. 6. INVESTMENT Calea Floreasca–Barbu Vacarescu remain the most sought-after locations for Another important transaction that MARKET investors. This is due to their established occurred in the fi rst half of 2013 was profi les as important business hubs, the acquisition of a 50% share in eight backed up by major infrastructure small retail parks located throughout works carried out recently, such as Romania by a retail company managed the Basarab and Pipera overpasses. by the Belgium-based investment fund Mitiska Ventures. Developed by Aside from Bucharest, signifi cant InterCora, the properties comprise commercial properties in major a total gross leasable area of 32,000 cities such as Timisoara, Iasi and Cluj sq m and are all anchored by either Napoca have started to attract the Kaufl and or Lidl. The transaction was interest of potential investors. closed at a price of €10 million.
Demand Investment The well-established NEPI fund and the group managed by businessmen Ioannis volume reached Papalekas and Dragos Bilteanu were the leading investors in the fi rst six months €80 million of 2013. Moreover, the two businessmen formed a new investment fund, in H1 2013. Globalworth Real Estate Investment, and raised €53.6 million through an IPO on Continuing the trend that started the London Stock Exchange secondary in 2012, increased numbers of new market – AIM (Alternative Investment investors are getting acquainted with Market). Among the properties included the Romanian market and performing in the Initial Public Offering were Tower their market due diligence. Despite Center International, BOB Tower, BOC the fact that the limited availability of Tower and Upground Residential. senior debt remains a major investment barrier, new investors are seeking more
18 “As a destination of investment Bucharest could be assessed as a worthy option, provided the institutional Class A quality of the product. Our investment in Charles de Gaulle Plaza landmark building has proved its market competitiveness and attractiveness, despite of the general European economic environment in the last years.
Compared to our group’s investments in other CEE countries, this particular asset has recently leased as one of the fastest, whilst managing to remain around the prime rent of Bucharest, since its acquisition in 2006. Fully leased, Charles de Gaulle Plaza provides a substantially higher return than offi ce buildings in Paris or London. Such investments are highly appealing for our portfolio, providing attractive distributions to our shareholders. Most recently the investment market is starting to gather pace. Taking into account current and future developments in Bucharest, the medium term picture for investors in Bucharest could be described as positive.“ Victoriei Square information about local investment activities, partly in the belief that yield Forecast Martin Unglert compression may be close to ending in Due to the number of negotiations Fundmanager Accession Fund more mature and saturated CEE markets. currently underway, mainly for GLL Real Estate Partners GmbH Currently, most investors’ interest prime offi ce developments, it is is focused towards high-yielding, expected that transactional activity distressed, mid to small-sized assets. will intensify by the year-end or during the fi rst half of 2014. Bucharest It is also worth noting that there is growing interest in big box retail This should help to establish prime properties, as well as mixed-use prime yield levels more accurately, retail developments with long-term which will be a positive sign for yields are leases in place. However, this trend newcomers in the market. is still only at an early stage. encouraging, Table 5 Yields Prime Yields (%) compared to O f fi c e Retail Industrial Prime yields remained stable other CEE throughout the fi rst half of 2013. 8.25–8.75 9.00–9.50 9.50–10.50 Source: The Advisers/Knight Frank capitals.
19 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
This analysis only considers new developments with more than 100 announced units, located within the capital’s city limits or in landmark projects in satellite locations. The research addresses more than 70 active residential projects, both existing schemes and projects under construction.
7. RESIDENTIAL MARKET
City Point
Supply The residential stock of Bucharest (RED) and Red Sea Group. The new and satellite locations barely changed compound is located in the center-north throughout H1 2013. Only approximately of Bucharest, in the vicinity of Barbu 400 new residential units, in three Vacarescu–Calea Floreasca offi ce area. different projects, were completed in the fi rst half of the year, raising the total Another trend that continued stock to around 25,500 units. throughout H1 2013 was that Of the total analyzed existing dwellings, developers leased vacant apartments, nearly 5,000 units are currently available rather than holding onto them and for sale on the market, while another only making them available for sale. 500 are only available for rent. The This way, developers have reduced the large number of apartments on offer monthly costs of their premises, while in peripheral locations refl ects the keeping properties for an expected fact that demand is currently mainly capital gain after the rental period. focused on dwellings suitable for government programs. Most of the During the next six months, the deliveries in the last 18 months were residential developer Adama will deliver new phases of existing developments, new phases in the existing Edenia such as Cosmopolis, Felicity and Militari and Evocasa Optima projects. Also in Residence. However, H1 2013 also saw the eastern area of Bucharest, Vitan the start of the construction of the new Residence is opening a new phase, whilst mega project City Point, developed by Fundeni Residence (north-east) and Shikun&Binui Real Estate Development Militari Residence (west) are continuing
20 their extension plans. The first two of projects qualify for the reduced 5% Figure 9 the 12 buildings planned for Adora Urban VAT rate. This might not prove to be Evolution of average Village will also be delivered, on the a safe alternative in the medium-to- apartment prices south-western outskirts of Bucharest. long term, but it allows developers to 120% avoid the standard 24% VAT rate. Demand 100% 80% Total absorption in the first half Prices of 2013 is estimated at around There were few price adjustments 60% 1,500 apartments. Depending on during H1 2013. The weighted their characteristics and location, average price of apartments in the 40% individual projects were able to sell analyzed projects currently stands 20% 5–10 apartments on average each at approximately €900/built sq m. month. Developers who adapted their 0 5 6 7 8 9 prices to market realities achieved A new phenomenon in the most recent H1 20 0 20 0 20 0 20 0 20 10 20 11 20 12 20 0 20 13 the most consistent sales, with some period was that increasing numbers of registering record sales of 15–20 developers promoted their apartments Nominal apartment Nominal apartment apartments in their busiest months. as being within the VAT exemption price growth, RON price growth, € regime. The 24% VAT rate applied to Source: The Advisers/Knight Frank Investor interest in distressed the sales of new dwellings is a major residential projects increased during barrier to entry in the residential market. Table 6 the last six months, and several However, under existing legal provisions, Asking price by project type transactions for such assets may be properties which are not considered closed over the next half of the year. new can be sold without charging VAT Project % of total Asking price Either finished or uncompleted projects (apartments finalized as late as the end Type new stock range may be taken over by interested parties. of 2011 are considered old, starting (EUR/built sq m) from 2013). But there is the matter of Low 47% 600–800 There has been much discussion tag-along VAT costs if the developer Medium 23% 800–1,000 around the recent changes to the chooses the option of not charging VAT. High 27% 1,000–1,200 Prima Casa Program, as loans are Upper 3% 1,300–1,500 now granted only in Lei, as opposed Source: The Advisers/Knight Frank to the previous situation when most Forecast loans were granted in €. Although In the short-to-medium term, the Lei financing was already available evolution of the residential market is from banks, it was largely avoided dependent on both developments in the “In our opinion the residential because of the higher interest rates. wider economy and the availability of segment in Bucharest distinguishes financing. Prices have started to show by availability of real demand and State guaranteed loans are sold with a signs of stabilization as a result of the provides opportunities for well minimum down payment of 5%, which improved macroeconomic indicators and positioned products. We have is currently the only advantage of the the availability of financing at lower rates. identified a gap in the market for Prima Casa program, given that similar modern, well located, and fairly products are offering standard loans In H1 2013, the entire market voiced the priced apartments and thereof at lower interest rates. However, for opinion that the residential segment started this year the development such products, the minimum down would be highly affected by the move that of the first phase of City Point payment for a standard loan in Lei is meant Prima Casa mortgages could only residential project, one of the 15%, whilst a client seeking a mortgage be granted in Lei. However, the National future landmark schemes in the in € must submit a minimum down Bank decreased its policy interest Northern part of the city.” payment of 25% of the dwelling’s price. rate by 125 basis points during recent months, which has had a direct impact in Besides the Prima Casa program, encouraging Lei loans. Moreover, it is our Favi Stelian developers are testing the limits opinion that the matter of solvability of Shikun&Binui Real Estate with their attempts to find creative a loan applicant should prevail the idea Development (RED) solutions to ensure that their of a fast evolving residential market.
21 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
By Lucian Marinescu, Senior Associate Trend Hospitality
Overview Although a revival in the Romanian hotel market was expected in 2013, it did not transpire in the fi rst six months of the year. The hotel sector saw a positive increase in arrivals and overnights, but the average length of stay and average rates decreased, leading to only a very small increase in overall activity.
Supply 8. HOTEL At the end of June 2013, the total In terms of classifi cation, the Romanian number of hotels in Romania was 1,384, market is dominated by 3 star hotels, MARKET representing a 5.8% increase compared due to the large number of such with twelve months earlier. In terms of hotels at the seaside, in medical destinations, the highest percentage resorts and mountain resorts. increase was registered in the number of hotels in mountain resorts (+19%) while The presence of international hotel the lowest increase was for hotels at the chains is still very limited, with only seaside (+0.4%). Due to the seasonality 7.4% of rooms being affi liated to of activity, few investors are willing hotel chains. This fi gure decreased to invest on the Romanian seaside. compared with the previous year as, with the exception of two properties (Ramada Cluj and Hampton by Hilton
Figure 10 Cluj), all the other new hotels that Hotels by destination opened were unaffi liated with chains. % There are 12 hotel groups present 1.3 in Romania, as per the ranking 9.9 presented in table no. 7. 29.8 12.4 Demand
12.9 Following the optimism brought by the beginning of the new year, 18.5 the fi rst two months of 2013 saw 15.2 increases in the number of arrivals and overnights across Romania. Unfortunately this optimism was Secondary cities Bucharest � Seaside Resorts Mountain Resorts� not sustained by economic reality, Other Medical Resorts so the following months recorded destinations Danube Delta either decreases or similar levels
22 of activity to the corresponding Table 7 months of 2012, especially regarding Forecast Hotel Groups present in Romania the number of overnights. Activity in the second half of the year Hotel Groups Rooms Hotels is expected to improve on the first 2013 Overall, the first half of 2013 half, but not to be significantly better 1 Wyndham Hotel 1,857 11 saw increases in both arrivals than the same period of 2012. Seaside Group (+4.9%) and overnights (+0.9%). hotels are expected to have a very 2 Accor 1,221 6 However, the average length good performance, particularly those 3 Hilton Worldwide 728 5 of stay decreased to 2.13 days, located in Mamaia, due to the special 4 Carlson–Rezidor 718 1 compared with 2.21 in H1 2012. reservation programs that have been 5 Best Western 635 9 introduced in recent years, as well as Arrivals of international tourists the fact that many hotels have started 6 Group de Louvre 632 5 decreased from 23.2% of total to offer all-inclusive packages. 7 IHG 447 2 arrivals to 22.6%, while overnights 8 Marriott 402 1 of international tourists increased Investment activity in the hotel market International from 20.7% to 21.1%, indicating an will remain at a very low level, as 9 Vienna 177 1 International increase of the average length of investors and lenders have very little 10 NH Hoteles 161 2 stay. The main feeder market for appetite for this type of real estate 11 Europa Group 90 1 Romania is the European Union, with and sellers still have exaggerated 70.4% of international arrivals and price expectations which do not 12 K+K Hotels 67 1 67.7% of international overnights. reflect actual market conditions. TOTAL 7,135 45
The first half of 2013 saw increases in both arrivals and overnights.
23 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
By Peter de Ruiter, Partner PwC Alexandra Smedoiu, CFA PwC and Diana Rosu, Tax Senior Consultant PwC
Tax considerations for new Romanian real estate investments The international tax environment continues to draw worldwide attention, in the context of sustained efforts by OECD (Organisation for Economic Cooperation and Development). The OECD recently shifted focus to scrutiny of harmful tax planning techniques and issued a report 9. PROPERTY on Base Erosion and Profi t Shifting (BEPS), as well as an Action Plan on BEPS (July 2013). The OECD tries to set TAXATION new standards on allocating the taxing rights, preventing double non-taxation and tax evasion. In the context of such dynamic tax legislation, the Romanian real-estate market faces in its turn new challenges.
Currently, the principle of free income and the tax outcome of their transferability of assets, with the owner exit strategies. While fi nancing poses being free to dispose of property, certain diffi culties related to interest is enshrined in the Romanian law, with deductibility limitations and the few exceptions or conditions imposed taxation of investment income may on non-residents’ possibility to acquire prove challenging due to different real estate property in Romania. Such tax and accounting standards, the exceptions will be abolished starting exit strategy is most important 1 January 2014. As of this date, EU to a real estate investment and nationals, stateless persons domiciled should be considered up-front. in an EU member state, as well as legal entities set up in accordance The rules are that capital gains with an EU member state legislation derived by non-residents from the may freely acquire agricultural land, sale of Romanian – located real estate wood and woodland in Romania. property or from the sale of shares What key tax information may prove in a Romanian legal entity, if at least vital for these potential investors 50% of the value of its fi xed assets attracted by a more permissive to is derived, either directly or through be Romanian real estate market? several legal entities, from Romanian Investors should mainly focus on – located real estate property, are tax aspects of fi nancing, investment taxed in Romania at a fl at 16% rate.
24 Most double tax treaties concluded by Romania allocate the taxing rights to the source state (i.e. the state the property is located in) in case of an asset deal or to the residence state (i.e. the seller’s state of residence) in case of a share deal.
Thus, a distinction is made if one intends to leverage international taxing rules. For example, a legal entity resident for tax purposes in the Netherlands or Italy pays 16% Romanian tax if it disposes of a real estate property located in Romania but is exempt from such capital gain tax if it sells shares in a Romanian company holding the said real estate property.
Naturally, a comparison between the OECD member states tax legislation shows that capital gains are taxed in a considerably different manner. This implies some exceptions to the aforementioned rules of the double tax treaties entered into by Romania. The exception is that even in case of a share deal, the right to tax is allocated to Romania. Such is the case for investors in Sweden, France, to the value of total assets (which based on the specific case of the Austria, Germany, Canada and others. includes, for instance, receivables, investor and the double tax treaty. cash etc.). Therefore, the investor may To this end, one important concept be better off by applying the OECD The key takeaway is that a careful should be considered – the ‘fixed principle over the local rule (assuming analysis should be performed prior to assets test’. What does it mean the a double tax treaty allows this). deciding on the appropriate investment condition that more than 50% of structure so that future tax costs do the value of the assets is derived by Another aspect relates to indirect not outweigh or significantly diminish real estate located in Romania? ownership of real estate located in the investment outcome. The OECD Romania. As per the wording of the approach should be considered The Romanian tax legislation Romanian tax legislation, even an whenever a foreign investor is defines this 50% asset test based indirect transfer of shares may be concerned. Also, in case of EU investors, on the book value of fixed assets, taxable in Romania (i.e. when shares of further recourse can be made to including land, in line with the the shareholder in a Romanian limited certain European legislation and cases accounting requirements in force. liability company which owns real at the European Court of Justice. estate are sold). It is thus unclear at The OECD Model Tax Convention which entity the 50% test is applied, provides similar rules. However, i.e. at the level of the Romanian according to the OECD, the 50% test is limited liability company which owns computed by comparing the value of the real estate or at the level of the such real estate property to the value of shareholder whose shares are sold? all assets held by the company. This is an Such particularities are not explicitly important distinction, as it means that provided for in the Romanian law. the value of the real estate is compared Therefore, further analysis is required
25 H1 2013 Romania MARKET OVERVIEW Review & outlook http://knightfrank.com/romania
By Simona Chirica, Partner and Madalina Mitan Senior Associate – Schoenherr & Associates SCA
Guarantees under lease agreements In relation to the matter of lease agreements, whether they refer to offi ce, retail, or industrial markets, lessors usually demand the lessees to present guarantees that will ensure the full and proper fulfi lment of the obligations under the lease agreements. Such guarantees are commonly presented as bank letters of guarantee and surety bonds. The following article has the purpose of offering a brief outline over the notion and conditions for obtaining and enforcing bank letters of guarantee, as well as to present their potential advantages and disadvantages.
Bank letters of guarantee
10. LEGAL A bank letter of guarantee is a applicant requests the bank to issue commitment in writing undertaken a bank letter of guarantee, is a pre- ASPECTS by a bank (issuer/guarantor) in favour existing one between the debtor as of a person (benefi ciary), to pay the applicant and the bank as guarantor/ said person an amount of money if issuer. The third relationship is another person (applicant), at the concluded between the guarantor/issuer request of whom the bank letter of and the benefi ciary so that the bank guarantee is issued, has failed to comply may enforce the issued bank letter of with an obligation undertaken in an guarantee at the benefi ciary’s request. agreement (the main agreement), or has not complied with it according to It should be noted that the bank letter the conditions established therein. of guarantee is valid for the entire period of time and amount of money A bank letter of guarantee is a separate stipulated in the main agreement. Thus, obligation, independent from the it will still be valid for the period of time main agreement for the guaranteeing mentioned in the main agreement, even of which it was issued. Consequently, if the applicant is no longer able to fulfi l the existence of the obligation to its obligations e.g. due to insolvency guarantee does not depend upon the or removal from the Trade Registry. validity of the guaranteed obligation. Payment demand In order for such an independent Should the applicant fail to comply with guarantee to exist, it is necessary its obligations stipulated in the main to have at least three parties with agreement, a number of steps must be different legal relationships, as follows: performed. Thus, should the parties not stipulate otherwise, according The fi rst relationship is concluded to the ICC Uniform Rules for Demand between the creditor and the debtor of Guarantees 758 (“ICC Rules”), although the guaranteed obligation and refl ects the benefi ciary must indicate the the primary obligation. The second issuer the fact that the applicant did relationship, on the basis of which the not fulfi l its obligation and therefore
26 is justified to demand the payment of the guarantee, this does not imply that the issuer must verify the grounds indicated by the beneficiary. After verifying whether the demand complies with the main agreement and/or with the ICC Rules, as the case may be, the issuer must proceed to payment.
However, the issuer can deny the beneficiary the payment in cases of fraud or abuse. Abuse occurs when the beneficiary requests a payment before the established date. Nevertheless, the latter has the option to accept the payment even though the payment demand is abusive. In this case, if the In such case the beneficiary must which we note that (i) it transfers the applicant were to incur any damages, observe, in good faith, the provisions payment obligation for noncompliance this problem would be settled directly of the main agreement, otherwise undertaken in an agreement from between the beneficiary and the being liable to pay the applicant the beneficiary to the issuer; (ii) it applicant.Moreover, fraud means the damages or penalties for breach of reduces commercial risks, because deliberate attitude of the beneficiary to provisions of the main agreement. the payment is overtaken by the bank request the payment of the guarantee in its capacity as guarantor; (iii) it without any reason. However, the If the applicant initiates bankruptcy reflects a further insurance of good issuer is not obliged to investigate proceedings, the beneficiary will faith regarding the fulfilment of the whether a demand is a fraud or not: have the right to request to enforce obligations to the beneficiary; and this aspect must specifically result from the bank letter of guarantee, since (iv) by submitting a bank letter of the beneficiary’s actions. It should be the applicant is clearly no longer guarantee the applicant proves its noted that the most common fraud able to fulfil its obligations. solvability towards the beneficiary. cases are those where the beneficiary demands payment of the guarantee Finally, we note that if the applicant Additionally, in relation to the although the guaranteed obligation deals with insolvency proceedings enforcement of the bank letter of was fully performed by the debtor and the bank letter of guarantee is guarantee, the beneficiary must or another guarantor. Also, we note enforced, but this amount of money only demand the payment of the that the fraud affecting the main does not cover the entire loss and guarantee and to present the agreement does not influence in any damages suffered by the beneficiary, obligations of the main agreement way the independent guarantee. the latter could sign up for the that were not complied with, the statement of affairs of the applicant issuer not being obliged to make The parties of the bank letter of with the amount of money that was further investigations in this regard. guarantee can expressly stipulate that, not recovered after the enforcement of in case of flaws (i.e. abuse of fraud), the bank letter of guarantee. However, Disadvantages the beneficiary has two alternatives: the beneficiary is only an unsecured There are also a number of (i) to request the applicant to creditor and therefore the secured disadvantages related to bank letters remedy the flaws; or (ii) to enforce creditors and other creditors that are of guarantee, such as: (i) the bank the bank letter of guarantee. classified as preferential creditors charges imposed for issuing a bank will have priority to recovering their letter of guarantee; and (ii) in order In other cases, the parties may insert in debts, thus implying a risk that the to obtain a bank letter of guarantee, a bank letter of guarantee provisions beneficiary may not, in the end, be the applicant must hold the value of that specify that the beneficiary must able to receive the rest of his debt. the bank letter of guarantee in a cash firstly request the applicant to remedy collateral account during the entire the flaws and, should he fail to comply Advantages validity period of the bank letter of with this request, to further proceed to There are many advantages when guarantee, or, alternatively, it must enforce the bank letter of guarantee. choosing a bank letter of guarantee, of have enough credit to cover its value. Americas Romania USA Horatiu Florescu Canada President & CEO Caribbean +40 21 380 85 85 – General Australasia +40 21 380 85 35 – Fax Australia [email protected] New Zealand
Europe UK Austria Belgium The Advisers, in association with Knight Frank, provides high standard Czech Republic consultancy services on all market sectors presented in this report: office, France retail, industrial, land and investment. The Bucharest residential market Germany Ireland overview has been performed by the Research team in collaboration with Italy the Valuation & Advisory team. Monaco Poland Sharing resources within the Knight Frank network, our team offers to its Portugal clients international knowledge and expertise, tailored to specific local needs. Romania Russia Knight Frank Research provides strategic advice, consultancy services and Spain forecasting to a wide range of clients worldwide including developers, Switzerland investors, funding organisations, corporate institutions and the public sector. The Netherlands All our clients recognise the need for expert independent advice customised Ukraine to their specific needs. Africa Botswana Knight Frank Reports are also available at www.knightfrank.com Kenya Malawi Nigeria © Knight Frank LLP 2013 South Africa This report is published for general information only. Although market standards have been used Tanzania in the preparation of the information, analysis, views and projections presented in this report, Uganda no legal responsibility can be accepted by The Advisers (Prime Property Advisers srl), Knight Frank Zambia Research or Knight Frank LLP for any loss or damage resultant from the contents of this document. Zimbabwe As a general report, this material does not necessarily represent the view of The Advisers (Prime Property Advisers srl), Knight Frank Research or Knight Frank LLP in relation to particular properties Asia or projects. Reproduction of this report in whole or in part is allowed with proper reference to Cambodia The Advisers (Prime Property Advisers srl), Knight Frank Research or Knight Frank LLP, with prior written consent. China Hong Kong The figures, rent levels or prices described in this report are just good-faith estimations without India any legal or business implications. The figures, rent levels and prices in actual transactions may vary Indonesia significantly from the ones described in this report and are dependent on multiple factors such as, Macau without being limited to, location, lease term, amenities, nearby facilities and public transportation, incentives, reputation of parties involved etc. Malaysia Singapore We disclaim and reject any and all liability in respect to the figures, rent levels or prices described South Korea in this report and such cannot be used or quoted without our specific prior written consent and Thailand we disclaim and reject any and all liability even when disclosure has been made based on our Vietnam prior written approval. The figures, rent levels or prices described in this report cannot be used as benchmarks or for taking any decision, whether legal or business. Please seek authorized advice The Gulf before making any business or legal decision. Bahrain Knight Frank LLP is a limited liability partnership registered in England with registered number Qatar OC305934. Our registered office is Baker Street, London, W1U8AN, where you may look at a list UAE of members’ names.