20 Soft landing path ahead Colliers International Romania Research & Forecast Report Accelerating success. 18 1 Content TOP 10 Economic Industrial Retail Predictions 2018 Overview Market Market p. 04 p. 06 p. 10 p. 14 Office Green Investment Market Co-working Buildings Market p. 18 p. 22 p. 24 p. 26 Land Hotel New tax provisions New rules for commissioning Market Market in the Real Estate of construction works. Novelties Industry and practical difficulties. p. 28 p. 32 p. 34 p. 36 2 Colliers International Romania Research & Forecast Report | 2018 Dear friends and partners, Ilinca Paun Those who don’t change their mind, never change Your real estate project must be multilocation, virtual Member of the Board anything. It is Sir Winston Churchill who made this accessible, multifunction and highly accessorized by Colliers International phrase famous in his impossible situation as the comfortable services offering memorable experiences. [email protected] Kingdom’s Prime Minister of deciding between peace talks with Hitler or going ahead risking many hundreds And we are here to help you. of thousands of lives of the British army. Luckily, we are We will invest more in the professional and personal in a safer place and our market situation is not as bad as education of our people and we will continue to work Europe’s war zone in 1940. on our promise to be the most loved and respected The lesson to learn from is that of flexibility and leaving consultancy company on the market. Some of the best room for doubt. We get wise because we have doubts. senior experts joined our core teams in 2017, and new Don’t make assumptions and instead have a good services were launched or scaled up. We now have a Colliers International is a leader in command of deep and broad information. Learn before great balance in terms of business lines and resources thinking you know. Because the mind that produces a spread and our top priority is to consolidate our global real estate services, defined achievement. by our spirit of enterprise. Through problem cannot be the mind that solves that problem, too. a culture of service excellence and Today you wonder what soft landing means, how hard Colliers International Romania has had its best year since collaboration, we integrate the is ‘soft’, and how you can make your investments strong 2009, with a business revenue growth of 50% in 2017, compared with the previous year. The Office leasing, resources of real estate specialists enough to resist the wind of change. While many say you should follow your heart and do what you do best Industrial leasing and Investment Sales services brought worldwide to accelerate the success of and things will be all right, I say this is exactly what you a sustainable revenue growth aligned with our focus. our partners. We represent property should be doubtful about. I do hope our research papers will make your lives as investors, developers and occupiers in investors and developers in real estate easier and our local and global markets. Our expertise It is best to follow your reasoning systems and have a strict reality check process. Be your worse critic and advice will make your returns higher, while keeping a spans all property sectors–office, let others appreciate you, if. Don’t build what you build focus on creating a better and happier way of living and industrial, retail, residential, rural & best, the same product, but create diversified, multi-use working for people. spaces instead and enhance technology like never before. agribusiness, healthcare & retirement I wish you a successful 2018, living, hotels & leisure. A project takes 2.5 to 3 years to build and digitalization and artificial intelligence might evolve exponentially and Ilinca Paun – Member of the Board surprise you. Just as an example, is your project equipped for self-driving cars? Real estate is an old school type of business and it needs a real revolution. Online retail and ‘work from home’ policies are demonstrating that the old criteria “location, location, location” does not work anymore. It is much more complex now. 3 Romanian economy to Migration (internal and slow down, still outperform external) becoming ever most EU countries more relevant After 2017’s stellar1 GDP expansion of over 7%, Romania Internal migration3 patterns are already suggesting a was the fastest growing country in the European growing preference for Romania’s major “magnet cities” Union. It was mostly a private consumption story, though – Cluj-Napoca, Timisoara and Iasi – at the expense of TOP 10 exports held up quite well amid an unexpectedly robust Bucharest, with surveys further supporting this. With both Eurozone economy. Barring “black swan”-type risks, GDP labour and living costs lower outside the capital, companies growth is set to slow down to a more sustainable level might be rather inclined to expand/establish offices outside Predictions in 2018 (around 5%), given the limited room for fresh Bucharest; such patterns would also boost other segments fiscal stimulus and expected monetary policy tightening. (especially retail). A key development we will be watching Romania will remain among the top performing European out for is if Romanians working in other countries are 2018 economies. Consequently, the outlook for office, retail starting to return home in larger numbers. and industrial spaces remains quite rosy. Investment scene to steal Industrial segment to the show continue delivering very strong results After 2017’s investment2 volumes of just under EUR 1bn, Despite 2017’s record4 deliveries of storage spaces the potential pipeline for the office segment alone could be (around half a million sqm), the vacancy rate remained larger than this level. Though some deals could be delayed at an all-time low of close to 5% nationwide and 2% for next year (as we have seen in 2017 as well), we expect near Bucharest. We view the strong tenant demand as to see overall market turnover move well north of EUR fundamentally sound given the boost in e-commerce 1bn, with both currently active players and new entrants and room to catch up CEE peers. Vacancy could climb a to drive up demand. Among the arguments supporting the bit amid potentially more speculative developments and real estate investment scene are: attractive yield spreads some larger tenants moving in self-developed facilities. versus neighbouring CEE peers, good macro performance Meanwhile, big land banks ensure that deliveries could and strong appetite from banks to back deals (other continue to be elevated in 2018 (likely higher than funding alternatives also available). 2017’s pace). 4 Colliers International Romania Research & Forecast Report | 2018 Infrastructure constraints Labour market becoming Online retail, still no to remain in place quite stretched immediate threat for brick and mortar schemes After 2017 saw the5 delivery of 24km of highways The rate of unfilled7 job openings has been hovering around Shopping centres 9are still set to deliver solid results for nationwide, nearly four times below the year-start estimate post-crisis highs, while unemployment is at record lows. tenants as Romanians have a higher predisposition than from the government, pundits are warning 2018 could be Furthermore, central bank data suggest that the supply- regional peers to actually look at a certain product before similar. For this year, the minister is promising at least demand mismatch on the labour market has been on purchasing it. Still, in order to improve footfall, malls will 156 km. Given the limited fiscal room in the state budget the rise, while new bachelor graduates with a technical need to cement their status as actual destinations to and poor track record of EU funds absorption, we do not background are proving too few in comparison with spend one’s free time. This means more space for the expect to see a material acceleration in infrastructure employers’ requirements. This extremely competitive food court and other services like cinemas or children’s developments. That said, any positive surprises could labour market could limit the companies’ ability to playgrounds (so entertainment spaces of at least 20-25% bring a flurry of deals/interest. expand both in Bucharest and in other parts of the country of total GLA). A smaller per capita retail stock than in (thereby impairing office market activity – leasing and neighbouring CEE countries could also act as a buffer for new deliveries), though a potential buffer could come from brick and mortar schemes versus online sales. All in all, a external migrants returning to their native country. “retail apocalypse” looks like a minimal risk for Romania. Bucharest office market to Balanced Bucharest retail Residential segment to focus on new hotspots scene, ample room for remain the all-star driver smaller schemes nationwide for land demand Deliveries look set6 to accelerate quite a bit in 2018 after For now, no new large8 projects have been announced for Given the higher wages10 and elevated intentions to disappointing in 2017. Amid an expected slowdown in Bucharest in the upcoming years, just some extensions. purchase homes, residential projects are still likely to terms of employment growth, vacancy is likely to move That said, the consumption-driven growth has improved remain the key drivers for land, though at the time of slightly higher. The new/developing hotspots (Centre West, household spending appetite throughout the country, so writing, it is still too early to judge the impact of the start Piata Presei/Expozitiei) can likely be digested organically investments will continue to focus on improving the of a new monetary policy tightening cycle. As we have to a large extent, though developers are becoming much nation-wide coverage of modern retail, including via seen in the past, new office projects will likely draw more cautious, with the pipeline for 2018 already one third medium to smaller schemes in the less populated cities demand for residential projects in neighbouring areas.