BNP PARIBAS REAL ESTATE GUIDE TO INVESTING IN 2018

Real Estate for a changing world 41.88 Mbps 103.59 Mbps Transfagarasan: DO YOU KNOW... world’s best road trip The Transfagarasan mountain road (national road 7C) is one of the most spectacular roads in the Global average Romania average world. It runs through the Fagaras 41.88 Mbps 103.59 Mbps mountains, which are also called the Transylvanian Alps. The road 41.88 Mbps 103.59103.59 Mbps Mbps 7.0% is about 90 km long and climbs to an altitude of 2,042 metres. In 2009 the BBC TV show Top Gear Global average Romania average 2.6% was filmed along the road and EU Romania Global average Romania average Jeremy Clarkson claimed the 41.88 Mbps 103.59 Mbps Transfagarasan as the best road 20177.0% Global average Romania average in the world. Romania2.6% is the fastest One of the fastest 41.88 Mbps 103.59 Mbps growingEU ecRomaniaonomy in EU Global average internetRomania average in the world 2017 7.0% The economy of Romania strongly benefits Speedtest Global Index ranks Romania th from general favourable2.6% economic climate on the 5 place all over the world in in Europe. reported that over 2017 terms of fixed broadband internet speed. Romania was theEU fastestRomania RomaniaGlobal average overtook i. a.Romania United average States, in EU with GDP surges2017 between 5.8% and , , or 8.5% every quarter. The Romania’s GDP Japan. is the only country from growth greatly outpaced the EU average Europe which is ranked higher in of 2.6%. the ranking.

+12+12% %

Share of ICT sector 6% in GDP of Romania Automotive leader – “Silicon Country” Dacia, a part of the Renault Group,+12 is the% In 2016 the Information and biggest company in Southeast Europe in Communication Technology sector terms of total revenue. In 2017 it recorded generated 6% of GDP of Romania. It the sales growth by over 12% and reached means that the ICT sector has reached 3% market share in the entire EU & EFTA the same share in GDP as agriculture, region. It means that Dacia was more with ten times less people working in popular than i. a. KIA, SEAT, Volvo, Suzuki the sector. In the next 5 years, the share or Honda in 2017. of ICT is expected to exceed 10% of GDP. 1,235 companies from the ICT industry operate in Cluj-Napoca which is also the second strongest ICT hub in Romania. 4 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 5 ROMANIA F o r e w o r d by numbers Population Property market2 2 4.0m m office EU funds 22.2m 2 (2014-2020 budget)4 The second largest retail Romania m m the rising star of CEE population across the 3.1 CEE markets2 2 3.2m m warehouse €3.65bn omania has been in the last Romania and market potential. years the country to watch continues to have the largest pipeline out for, a fast-growing market of new projects due to the development Inflow of FDI1 in Europe with positive of the office market, industrial, but also macroeconomic factors and residential sectors. Cities like Cluj-Napoca, forecasts. As a member of Iasi, Timisoara or Brasov are following IAȘI closely behind and we believe the pace $ 4.59bn ORADEA since 2007, Romania has been taking an advantage of development in these cities will CLUJ-NAPOCA Rof the free flow of people, goods, services accelerate in the coming years. and capital. With a distinctly pro-Europe The brochure provides a summary of Investment mentality, it is a country located at the significant facts investors and developers crossroads of South-Eastern & Central Grade BRAȘOV need to know about the Romanian real Fitch: BBB- TIMIȘOARA Europe, providing an easy gateway for GALAŢI estate market before they invest. foreign investors to access other markets within the European Union, and allowing Thank you for taking the time to read BRĂILA them to penetrate through the lucrative this guide and I wish you successful GDP growth in 20173 PLOIEȘTI markets of Middle-East countries. investments in Romania!

CRAIOVA With a property investment volume CONSTANŢA 7% totalling almost € 1 billion in 2017, BUCHAREST The fastest GDP growth the country presented a series of great rates in the EU opportunities in the commercial property market, with a continued boom in the office segment and growing investment Top BPO/SSC/R&D volumes in retail or industrial sectors. location Romania provides foreign investors Number of cities above with competitive labor costs, industrial 3 200,000 inhabitants diversity and real possibilities for the 260 companies Bucharest, Iasi, Timisoara, 5 development of new economic entities, employing 120,000 people Cluj-Napoca, Constanta, Craiova, remaining an attractive destination for Galati, Brasov, Ploiesti, Oradea, Braila Olga Melihov 11 business. Country Head BNP Paribas Real Estate Romania This brochure sets out a detailed description of the regional hot spots in 1. / 2. BNP Paribas Real Estate / 3. National Institute of Statistics / 4. Ministry of European Funds / / 5. ABSL Romania 6 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 7

ROMANIA OVERVIEW TOP 5 REASONS COST AND TERMS t o i n V e s t i n r o m a n i a o V e r v i e w o f c o n s t r u c t i o n , l e t t i n g a n d i n v e s t m e n t c osts and terms The overall attractiveness of Romanian property will be strengthen by yields, as they remain higher than Land acquisition Office €1,000-1,800 1 the rest of Central and , at the level of costs (per sqm) Retail €400-600 t i o n Warehouse €25-50 7.25% for office, 7% for retail and 8.5% for industrial. c Construction costs Office €750-900 2 (per sqm) Retail €900-1,100 Warehouse €350-425 Bank margins 4.0-5.0% C o n st r u 1 2 3 LTC ratio 55-60%

3 Talented labor force Domestic demand – G Prime rents Office €18.00-19.00 Retail SC €50-65 at competitive costs the key driver for Retail HS €35-50 t t i n The Romanian Higher economics

LE Warehouse €3.50-4.25 The fastest GDP Education system instructs The main driver behind Standard Office 3-5 yrs approximately 530,000 economic growth is domestic lease terms Retail SC 3-7 yrs dynamics in the EU students annually in 97 demand, which was confirmed Retail HS 3-5 yrs In the last 5 years Romania universities for different areas by strong retail sales of around Warehouse 3-5 yrs has been recording one of the of specializations. Despite 11% in 2017. E-commerce in Agent fees Office 16.66-25.00% fastest GDP dynamics in the recent increases of salaries, Romania is developing strongly Retail SC 16.66-25.00% EU peaking 7% in 2017. The the cost of human capital still almost reaching a sale volume Retail HS 12.50-16.66% forecast remains bright with makes Romania attractive for of 3 billion in 2017. Warehouse 16.66-25.00% more than 4% growth in 2018. foreign companies.

Prime yields4 Office 7.25-7.50% n t Retail 6.75-7.25%

ME Warehouse 8.50-8.75%

4 5 ST Prime asset values Office €2,300-2,800

VE (per sqm) Growing real estate market Rich natural resources Retail €3,500-4,000 i n Warehouse €400-475 During the last 3 years the Investment funds and farmers are Stamp duty Asset/Shares 0% fundamentals of property market particularly attracted by large areas of *including fit-out Bank margins 3.50-4.50% 1. Prime location in capital cities. obviously improved being reflected in agricultural land which still have a very 2. For modern schemes. the compression of yields and volume of competitive price compared to Western LTV ratio 55-60% 3. Prime assets in the capital. Standard sale fees 1.0-2.0% 4. Best-in-class schemes in prime investments that is expected to exceed Europe. Romania has approximately 8% location within capital city. Euro 1bn in 2018. of the total area of EU28. 8 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 9

ROMANIA OVERVIEW

proximity of the new underground network that density, the retail modern supply represents RoMANIA will extend to the international airport. Simi- approximately 40% of the existing supply in lar effects will be visible on the industrial seg- Romania. With approximately 1.2 million sqm, b i g f i v e ment where the improvement of the eastern and the local retail market will be dominated by the southern sections of the ring road will increase extensions of the existing shopping centers that the attractiveness of these areas. The proposed intend to consolidate the market position. completions total approximately 300,000 sqm in 2018 that results in a total modern stock of Bucharest will remain the main target area for 1.8 million sqm at the end of the year. investors as other regional markets have less investment opportunities. Especially the new The expansive evolution of e-commerce positive- office developments will offer investment prod- Bucharest ly influences the evolution of demand for mod- ucts attractive also for investors that are not yet ern offices and warehouses in the proximity of present in Romania. Given the active demand, large markets like Bucharest and large regional prime yields might slightly compresses further in Bucharest attracted the majority of cities (Timisoara, Cluj-Napoca). As Bucharest has short to medium term. large international companies in Ro- the highest purchasing power and population mania being the preferred location for setting their local operation headquarters. Bucharest is the largest consumption market and labor force pool remaining highly attractive for retailers and office occupiers. The positive sentiment amongst companies and qualitative growth of the market raised the total take-up in 2017 at 322,000 sqm, 2,104,967 the best performance of the market ahead 2007. Population1

The new infrastructure projects will influence and reshape the geographical development pattern 1.5% of the office segment. Expozitiei-Presei Square Unemployment rate1 area, the newest hot spot of the local market, will record significant office developments that

are encouraged by large vacant plots and the Victoria Avenue, Bucharest. 172,038 Students2 Key facts Office Retail Warehouse €683 Total modern stock (sqm) 3,200,000 1,250,000 1,500,000 (RON 3,164) 1 Prime headline rents (€/sqm/mth) 18-19 35-50 3.50-4.25 Average gross salary Prime yield (%) 7.25-7.50 6.75-7.25 8.50-8.75

Source: BNP Paribas Real Estate 1. National Institute of Statistics / 2. National Agency for Employment The Bridge Building Bucharest, completed in Q3 2017. 10 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 11

ROMANIA OVERVIEW

Timisoara Iasi

Office demand is mainly under- turers from the automotive industry. The university system and boost after the completion of the pinned by companies from ad- The retail stock is about to increase 331,000 lower human capital costs first warehouse inside Miroslava In- 371,889 vanced technologies and IT&C by 70,000 sqm until end of 2019. In- Population1 attracted companies like Ama- dustrial Park (46 hectares). It is the Population1 sectors. Direct highway connection vestors are particularly interested in zon, Xerox, Capgemini and Yonder. largest mixed use project completed with the Western Europe attracts lo- office and industrial properties. The industrial segment will have a in regional cities. gistic service providers and manufac- 1.0% 4.1% Unemployment rate1 Unemployment rate1

Key facts Office Retail Warehouse 40,002 Key facts Office Retail Warehouse Students2 53,174 Total modern stock (sqm) 180,000 220,000 500,000 Total modern stock (sqm) 185,000 160,000 50,000 Students2 Prime headline rents (€/sqm/mth) 12-14 20-30 3.00-4.00 Prime headline rents (€/sqm/mth) 10-12 15-25 3.25-3.75 Prime yield (%) 8.25-9.00 7.75-8.25 8.75-9.25 €594 Prime yield (%) 8.75-9.25 8.00-8.50 9.00-9.50 €514 Source: BNP Paribas Real Estate (RON 2,749) Source: BNP Paribas Real Estate (RON 2,380) Average gross salary1 Average gross salary1 Cluj-Napoca Brasov

Cluj Napoca has the second number of IT&C companies that sus- Still in early stage of develop- one of the most important office in- best performing office market tained the rapid development of office 323,108 ment, the office market is highly ap- vestment transaction (Euro 50 Million) 290,167 in Romania with low vacancy rates (ap- market during the last 2 years. Population1 pealing to IT and BPO companies. The concluded in regional cities. Another Population1 prox. 7%) and stock above 200,000 sqm. local industry is currently dominated 45,000 sqm of modern retail stock will The completion of A10 Highway will by German companies active in the be delivered in the next 1.5 years. The 2nd major university center in Ro- improve the access towards Bucharest 2.0% 2.8% 1 automotive sector. Brasov recorded 1 mania, Cluj-Napoca attracted a large and Western Europe. Unemployment rate Unemployment rate 67,262 21,296 2 Students 2 Key facts Office Retail Warehouse Key facts Office Retail Warehouse Students Total modern stock (sqm) 210,000 160,000 230,000 Total modern stock (sqm) 110,000 130,000 260,000 Prime headline rents (€/sqm/mth) 12-14 25-35 3.25-4.00 €601 Prime headline rents (€/sqm/mth) 10-12 25-35 3.00-3.50 €547 Prime yield (%) 8.25-9.00 7.75-8.25 8.75-9.25 (RON 2,783) Prime yield (%) 8.50-9.25 8.00-8.50 9.00-9.50 (RON 2,532) 1 1 Source: BNP Paribas Real Estate Average gross salary Source: BNP Paribas Real Estate Average gross salary 1. National Institute of Statistics / 2. National Agency for Employment 1. National Institute of Statistics / 2. National Agency for Employment 12 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 13

ROMANIA OVERVIEW

BRANDS YOU KNOW Galati i n l o C at i o n s y o u m ay Population 302,772 n e V e r h aV E h e a r d a b o u t Unemployment rate 7.86% Number of students 14,142 Net monthly average salary €484 Oradea RON 2,241 Major companies / investors: Population 221,861 ArcelorMittal, Dutch Marine Trading, Unemployment rate 2.43% Damen, NEPI Number of students 15,833 Net monthly average salary €432 RON 2,003

Major companies / investors: Emerson, Inteva, Celestica, RCS&RDS IAȘI BRĂILA ORADEA Population 206,957 Unemployment rate 5.06% Number of students 710 Net monthly average salary €425 CLUJ-NAPOCA RON 1970

Major companies / investors: PLOIEȘTI Yazaki, Liting Universal Group, WDP

Population 230,523 Unemployment rate 6,939 BRAȘOV Number of students 3.02% TIMIȘOARA Net monthly average salary €486 RON 2,253 GALAŢI CONSTANȚA Major companies / investors: Federal Mogul, Calsonic Kansei, , Population 315,394 Unilever, Timken, AFI Europe, Coca-Cola BRĂILA Unemployment rate 23,118 Number of students 3.07% Net monthly average salary €474 Craiova PLOIEȘTI RON 2,193 Population 303,321 Major companies / investors: Unemployment rate 8.80% Constanta Shipyard, , Number of students 21,929 CRAIOVA BUCHAREST Ameropa Grains, Biochem, NEPI, Net monthly average salary €464 Immofinanz RON 2,148 CONSTANŢA Major companies / investors: Ford, Doljchim, Faurecia, Hella, Kirchhoff, Magna, Catinvest 14 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 15 office MARKET RETAIL MARKET o v e r v i e w o v e r v i e w

Office market is highly concentrated in Regional cities will concentrate almost Bucharest – 80% of the total stock (4m sqm). exclusively the development activity in 2018.

hile take-up is dominated by relocations Structure of office stock by location he new proposed stock (approx. 300,000 sqm) Evolution of shopping centers completions in Bucharest, large regional cities benefit during the next 3 years is dominated by the 250,000 from the entrance of new companies on Brasov 110,000 other 115,000 extension of the existing shopping centers as W T 200,000 the local market. IT&C companies, call-center Iasi 185,000 owners intend to consolidate the market position and BPO operators have continued to expand be- of their assets. 150,000 Cluj-Napoca ing the main demand sources. 210,000 Middle size regional cities will be the main target 100,000 Regional cities (Timisoara, Cluj-Napoca, Iasi and Timisoara of retail developers for projects up to 15,000 sqm. 50,000 180,000 Brasov) have come a viable alternative to Bu- 0 charest in terms of office quality and total oc- 2015 2016 2017 2018f 2019f cupancy costs. Source: BNP Paribas Real Estate, f - forecast

Bucharest Evolution of retail trade, except of motor vehicles and motorcycles (y-o-y evolution) 3,200,000 2010 2011 2012 2013 2014 2015 2016 Oct 2017 Source: BNP Paribas Real Estate EU (28 countries) 0,40 -0,50 -0,90 0,00 2,00 3,40 2,80 0,9 Romania -7,30 -1,00 4,10 0,30 6,40 8,80 13,30 12,6 Annual office take-up IN BUCHAREST -8,30 0,50 5,50 3,80 10,40 11,50 3,80 3.8 Class A Class B -0,80 0,30 -0,80 0,10 2,90 6,30 5,10 n/a 300 -2,20 0,30 -2,00 1,80 5,10 5,70 4,70 6.3 270 5,60 -0,60 -1,20 4,80 1,20 6,50 6,00 7.1 240 Slovakia -2,20 -2,40 -0,90 0,10 3,60 1,70 2,20 5.7

m 210 q s

d 180 Source: Eurostat n a

s 150 u o

h 120 T 90 Average rents in shopping centers, Euro/sqm/month 60 30 Primary cities Secondary cities Bucharest (Iasi, Cluj, Timisoara) (Ploiesti, Craiova, Sibiu) 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 35-50 25-35 20-25

Source: BNP Paribas Real Estate Source: BNP Paribas Real Estate 16 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate BNP Paribas Real Estate 2018 – INVESTING IN ROMANIA 17 industrial MARKET o v e r v i e w Stock and rents in major 2 3.2 million m warehouse and logistics Existing warehouse and he level of take up was 420,000 sqm in 2017, logistics stock in Romania hotspots in Romania being with 5% higher compared to the lev- T el recorded for 2016. The structure of the transactions clearly shows that the major lease ORADEA transactions throughout Romania are pre leases €3.75 – 4.25 CLUJ-NAPOCA – built-to-suit projects. Developers also started €2.75-3.50 Prime rents for warehouse to take the risk of speculative developments that and logistics space €3.25-3.75 address also to small and medium size tenants. (per sqm/month) 90,000 m² 230,000 m² Logistic service providers and retailers gener- ated the main portion of demand. The majority of transactions was concentrated in Bucharest BRAȘOV 4-5% ARAD submarket that attracted approx. 45% of trans- Vacancy rate €3.00-3.50 actions. in existing buildings €3.00-3.50 PLOIEȘTI A new stock of approximately 300,000 sqm is 260,000 m² proposed for completion for 2018, of which ap- 165,000 m² €3.00-3.50 proximately 60% will be located in Bucharest. Major landlords: CTP, Globalworth, Logicor, P3, TIMIȘOARA SIBIU Panattoni, WDP 305,000 m²

€3.00-3.75 €3.00-3.50 BUCHAREST Industrial take-up IN ROMANIA (sqm) NORTH 500,000 m² 40,000 m² 450,000 1,500,000 m ² €3.50-4.00 400,000 BUCHAREST WEST 350,000 BUCHAREST SOUTH 300,000 €3.75-4.25 250,000 LEGEND €3.25-3.75 200,000 Rent 150,000 Stock 100,000

50,000

0 2010 2011 2012 2013 2014 2015 2016 2017

Source: BNP Paribas Real Estate 18 INVESTING IN ROMANIA – 2018 BNP Paribas Real Estate Key Figures* b n P Pa r i b a s R e a l E s tat e Map of road infrastructure i n r o m a n i a 36 countries 40.5m m2 including of assets under 21 alliances management in Europe SATU MARE BOTOȘANI 5,100 BAIA MARE SUCEAVA employees

ZALĂU A3 IAȘI BISTRIŢA ORADEA A3 PIATRA NEAMŢ Nearly A8 CLUJ-NAPOCA A3 TÂRGU MUREȘ TURDA BACĂU 2 A3 €187m 3,600 124m m A11 A10 proflt before tax ARAD transactions during valued in Europe +20% vs 2016 A5 A1 the year A1 SEBEȘ A1 DEVA A3 * As of 31/12/2017 A6 SIBIU FOCȘANI TIMIȘOARA A13 BRAȘOV GALAŢI A9 A7 BRĂILA A3 BUZĂU

PLOIEȘTI PITEȘTI BNP Paribas Real Estate, one of the leading international real estate providers, offers its clients A3 A1 a comprehensive range of services that span the entire real estate lifecycle: property development, A12 A0 SLATINA A2 transaction, consulting, valuation, property management and investment management. With 5,100 CRAIOVA BUCHAREST Motorways in service CONSTANŢA employees, we support owners, leaseholders, investors and communities in their projects thanks to our Motorways under construction A4 Planned motorways local expertise across 36 countries. BNP Paribas Real Estate is part of the BNP Paribas Group. Planned expressways International airports As regards Central & Eastern Europe, we provide services in respect of Capital Markets, Property Ports Management, Transaction, Valuation and Consulting.

Picture credentials: Cover, P6-8: Fotolia All rights reserved. This Guide is protected in its entirety by copyright. No part of this publication P3: photographer Szymon Dołęga may be reproduced, translated, transmitted, or stored in a retrieval system in any form or by any P5, 16: BNP Paribas Real Estate picture library means, without the prior permission in writing of BNP Paribas Real Estate Poland. P9: picture courtesy of FORTE Partners /CONTACTS romania CEE Olga Melihov Patrick Delcol Country Head Chief Executive Officer CEE +40 75 408 17 27 +48 22 653 44 00 [email protected] [email protected]

Catalin Maruntelu Dr. Piotr Goździewicz, MRICS Research/Valuation Director Capital Markets CEE +40 74 912 06 17 +48 609 795 307 [email protected] [email protected]

Louis-Maxime Juhel John Palmer FRICS SIOR Head of Office Agency Director Industrial Investment CEE +40 75 609 58 21 +48 501 203 821 [email protected] [email protected]

Costin Nistor Mateusz Skubiszewski, MRICS Head of Property Management Director Capital Markets CEE +40 75 901 40 98 +48 609 795 340 [email protected] [email protected]

Patrycja Dzikowska Head of Research & Consultancy CEE +48 602 452 549 [email protected]

BNP Paribas Real Estate Advisoru S.A. Banul Antonache Street n°40-44, Bucharest 011665, Romania Tel.: +40 21 312 70 00

www.realestate.bnpparibas.com.ro

Real Estate for a changing world