Real Estate Report
Romania
Market knightfrank.com/research Overview 2020 - 2021 Inside -Out Contents 38-39 Economic Overview Economic 4-9 18-19 Legal Challenges Legal 2021: Workplace Trends 30-35 Market &Logistics Industrial 24-27 Capital Markets 28-29 20-23 Real Estate TaxesReal Estate 36-37 Office MarketOffice 10-17 Land MarketLand Residential Overview The recent macro-financial developments (global, European, and domestic) point out the entry of the real economy into Positive the post-pandemic cycle, an evolution supported by the launch of the vaccination campaign and by the implementation of an unprecedented expansionary policy-mix.
prospects According to the PMI THE DYNAMICS OF THE GLOBAL PMI INDICATORS Composite indicator the world economy increased for the sixth for the economic month in a row in December, as the Aug-16 persistence of the year 2021 Dec-16 health crisis was Apr-17 counterbalanced by the unprecedented Aug-17 expansionary Dec-17 policy-mix. dr. Andrei Radulescu Director Analiza Apr-18 There can be noticed Macroeconomica Aug-18 the advance of the Dec-18 manufacturing (the Apr-19 engine of the economy), an evolution confirming Jul-19 the entry into a new Nov-19 cycle. On the other hand, the services Mar-20 decelerated in Jul-20 December, due to the Nov-20 persistence of the pandemic in Europe and Mar-21 North America. The Jul-21 recent developments of Nov-21 the global PMI indicators are Mar-22 represented in the Jul-22 following figure. Nov-22 Mar-23 Jul-23 Nov-23 Sources: Mar-24 Markit Economics Jul-24 and Bloomberg Nov-24 Manufacturing
20 30 40 50 60 Services
5 Knight Frank Romania Market Overview 2020
The positive climate on the In our view the main risks for the evolution incidence of the pandemic and its The USA economy (the largest of the % DYNAMICS THE GROSS FIXED THE YOY DYNAMICS OF THE GDP IN CHINA international financial markets has of the Romanian economy in the coming consequences. world) increased for the seventh Bloomberg Sources: recently consolidated (the stock CAPITAL FORMATION AND PRIVATE quarters are: the month in a row in December, with an indices at record high levels in USA CONSUMPTION IN ROMANIA global/European/regional macro-financial Last, but not least, we underline the accelerating pace, according to the 4Q 93 and Germany), evolutions that Bloomberg climate, with impact for the allocation of increasing probability for Romania to ISM (Institute for Supply Sources: express positive prospects for the flows towards the emerging markets; the launch the negotiations to join the OECD Management) indicators, an 4Q 94 dynamics of the real economy in the dynamics of the health crisis and the (Organisation for Economic Cooperation evolution supported by the optimism 4Q 95 coming quarters. We underline the 50 speed of vaccination campaign; the and Development) in 2021. induced by the start of the 4Q 96 fact that the volume of the IPOs hit domestic policy-mix; the geo-political vaccination campaign and by the 4Q 97 record high level in 2020, as the climate. We point out that Romania is the favourite policy-mix prospects (the 40 incidence of the pandemic and the on the European continent to join the implementation of additional 4Q 98 consequences of this exogenous We underline that the outbreak of the OECD, a process mainly dependent on the stimulus, as signalled by the 30 4Q 99 shock were counterbalanced by the pandemic pointed out the development accomplishment of several fundamental incoming Biden Administration). 4Q 00 implementation of an and transformation opportunities, at criteria, such as: the democratic society, unprecedented expansionary 20 global, European, and domestic levels. the respect of the rule of Law and of the On the other hand, the economy of 4Q 01 policy-mix. human rights; the market economy status, Euroland (the main economic partner 4Q 02 60 For instance, Romanian economy with a high level of openness and of Romania) contracted in 4Q 03 In Romania the economy declined by presented an evolution around potential transparency. December, according to the dynamic 5% YoY during January-September when the pandemic hit the country, but of the PMI indicators. This evolution 4Q 04 50 2020, a better evolution compared with twin deficits and a low manoeuvre In this context, we underline that in 2019 was determined by the adjustment 4Q 05 with that of Euroland (decline by over room in terms of policy-mix. GDP/capita in Romania represented of the services sector, due to the 40 4Q 06 7% YoY). We underline the fact that 65.6% of the level in Eurozone and 69.5% restrictions implemented to counter 4Q 07 Romania was the only one country of On the other hand, the Romanian of the OECD level. the persistence of the pandemic. the European Union reporting a 30 economy was endowed with domestic 4Q 08 positive YoY pace for the gross fixed resources (human, Digital and financial) On the other hand, we mention the However, there can be noticed the 4Q 09 capital formation in 1Q, 2Q and 3Q of 20 when the pandemic hit the economy, a challenges for the sustainable economic increase of the Chinese GDP (the 4Q 10 2020. This evolution expresses better stance compared with other development and convergence processes second largest economy of the positive prospects for the quick shocks (especially endogenous). of Romania: the incorporation of the Digital world) by 2.3% YoY in 2020, slowing 4Q 11
transition from the post-crisis cycle Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Jul-19 Nov-19 Mar-20 Jul-20 Nov-20 Mar-21 Jul-21 Revolution, the increase of the R&D down from 6.1% YoY in 2019, the 4Q 12 towards a new cycle. Immediately after the outbreak of the allocations and the improvement of the slowest pace since 1976. 4Q 13 pandemic the policymakers implemented tertiary education indicators. aggressive expansionary measures, to In Romania the economic 4Q 14 According to the core macroeconomic scenario of As regards the private consumption (the main counter the impact of the health crisis, confidence and the risk perception 4Q 15 Banca Transilvania (recently updated) the component of the GDP) we forecast an increase by despite the low level of the manoeuvre improved at the end of 2020 and at Romanian economy may increase by an average an average annual pace of 2.1% during 4Q 16 room. This was possible due to the beginning of 2021, as can be noticed annual pace of 2.5% during 2020-2022. In this 2020-2022, an evolution supported by the change of paradigm in terms of public from the following graph 4Q 17 scenario the adjustment during 2020 (determined prospects for the policy-mix to maintain finance and to the unprecedented (representing the dynamic of the 4Q 18 by the outbreak of the pandemic and its accommodative. expansionary monetary policies CDS indicator for the 5 YR maturity). 4Q 19 consequences) would be counterbalanced by the expected strong dynamics in 2021 and 2022. For the public consumption our forecasts point to implemented by the Federal Reserve in 4Q 20 an increase by an average annual pace of 4.5% USA and European Central Bank in -8 -4 40 8 12 16 This perspective is supported by the positive during 2020-2022, given the prospects for the Euroland and the programs launched by YR prospects for the gross fixed capital formation, implementation of the EU programs. the European Union in the context of the CDS ROMANIA health crisis. Sources: Bloomberg given the following factors: the favourable development during 2020 (despite the adjustment In terms of the financial side of the economy we of the economy in the context of the pandemic); forecast an evolution of the average annual Consequently, Romanian economy presented a better performance at least 0 the persistence of the real financing costs at a inflation (HICP basis) within the target of the low/affordable level; the implementation of the National Bank of Romania (NBR) in the coming compared with the dynamics across the programs launched by European Union in 2020 quarters. In this context, we expect the central Euroland (the main economic partner). Furthermore, the gross fixed capital -4 (including the Next Generation and the multiannual bank to maintain the accommodative approach. financial framework 2021-2027). formation continued to increase YoY in Last, but not least, we forecast the convergence of 2Q2020, the quarter with the toughest adjustment of the real economy since the -8 We forecast the increase of the gross fixed capital the financing costs towards the levels in the formation by an average annual pace above 6% Eurozone and the gradual appreciation of the beginning of the 1990s. during 2020-2022, with spill-over impact for the EUR/RON from the mid-run perspective. other components of the GDP. In other words, the productive basis of the
Dec-23 Jan-24 Jan-24 Feb-24 Feb-24 Mar-24 Apr-24 Apr-24 May-24 May-24 Jun-24 Jun-24 Jul-24 Jul-24 Aug-24 Aug-24 Sept-24 Sept-24 Oct-24 Oct-24 Nov-24 Nov-24 Dec-24 Dec-24 Jan-25 Jan-25 economy was not hardly hit by the
6 7 Knight Frank Romania Market Overview 2020
In our view the main risks for the evolution incidence of the pandemic and its of the Romanian economy in the coming consequences. quarters are: the global/European/regional macro-financial Last, but not least, we underline the climate, with impact for the allocation of increasing probability for Romania to flows towards the emerging markets; the launch the negotiations to join the OECD dynamics of the health crisis and the (Organisation for Economic Cooperation speed of vaccination campaign; the and Development) in 2021. domestic policy-mix; the geo-political climate. We point out that Romania is the favourite on the European continent to join the We underline that the outbreak of the OECD, a process mainly dependent on the pandemic pointed out the development accomplishment of several fundamental and transformation opportunities, at criteria, such as: the democratic society, global, European, and domestic levels. the respect of the rule of Law and of the human rights; the market economy status, For instance, Romanian economy with a high level of openness and presented an evolution around potential transparency. when the pandemic hit the country, but with twin deficits and a low manoeuvre In this context, we underline that in 2019 room in terms of policy-mix. GDP/capita in Romania represented 65.6% of the level in Eurozone and 69.5% On the other hand, the Romanian of the OECD level. economy was endowed with domestic resources (human, Digital and financial) On the other hand, we mention the when the pandemic hit the economy, a challenges for the sustainable economic better stance compared with other development and convergence processes shocks (especially endogenous). of Romania: the incorporation of the Digital Revolution, the increase of the R&D Immediately after the outbreak of the allocations and the improvement of the pandemic the policymakers implemented tertiary education indicators. According to the core macroeconomic scenario of As regards the private consumption (the main aggressive expansionary measures, to Banca Transilvania (recently updated) the component of the GDP) we forecast an increase by counter the impact of the health crisis, Romanian economy may increase by an average an average annual pace of 2.1% during despite the low level of the manoeuvre annual pace of 2.5% during 2020-2022. In this 2020-2022, an evolution supported by the room. This was possible due to the scenario the adjustment during 2020 (determined prospects for the policy-mix to maintain change of paradigm in terms of public by the outbreak of the pandemic and its accommodative. finance and to the unprecedented consequences) would be counterbalanced by the expansionary monetary policies expected strong dynamics in 2021 and 2022. For the public consumption our forecasts point to implemented by the Federal Reserve in an increase by an average annual pace of 4.5% USA and European Central Bank in This perspective is supported by the positive during 2020-2022, given the prospects for the Euroland and the programs launched by prospects for the gross fixed capital formation, implementation of the EU programs. the European Union in the context of the given the following factors: the favourable health crisis. development during 2020 (despite the adjustment In terms of the financial side of the economy we of the economy in the context of the pandemic); forecast an evolution of the average annual Consequently, Romanian economy the persistence of the real financing costs at a inflation (HICP basis) within the target of the presented a better performance at least low/affordable level; the implementation of the National Bank of Romania (NBR) in the coming compared with the dynamics across the programs launched by European Union in 2020 quarters. In this context, we expect the central Euroland (the main economic partner). (including the Next Generation and the multiannual bank to maintain the accommodative approach. Furthermore, the gross fixed capital financial framework 2021-2027). formation continued to increase YoY in Last, but not least, we forecast the convergence of 2Q2020, the quarter with the toughest We forecast the increase of the gross fixed capital the financing costs towards the levels in the adjustment of the real economy since the formation by an average annual pace above 6% Eurozone and the gradual appreciation of the beginning of the 1990s. during 2020-2022, with spill-over impact for the EUR/RON from the mid-run perspective. other components of the GDP. In other words, the productive basis of the economy was not hardly hit by the
8 9 Knight Frank Romania Market Overview 2020
Bucharest Baneasa
Pipera North
North - West Dimitrie Expozitiei Pompeiu Office Floreasca/ Barbu Vacarescu
Central Business Market District
East Central Center West Demand West
sq m 237,500
2020 witnessed a total take-up for class A and B offices Looking at transaction types, South of approximately 237,500 sq m, representing only 60% renegotiations and renewals were from the amount transacted the year before. 162 the most prominent drivers of tenant transactions were signed in 2020, compared to 232 in activity, accounting for approximately 2019. 45% of the total take-up, as many companies wanted to avoid or to Larger transactions of over 5,000 sq m were again on reduce the relocation risks. Although top, accounting for a 35% share of the total take-up. This in 2020 pre-leases accounted for a was followed by transactions between 1,000 sq m and smaller percentage of the total, 3,000 sq m with a 30% share. When looking at deals by respectively 16%, it is worth number, the most numerous were those below 1,000 sq mentioning that the largest pre-lease m, accounting for almost 60% of the total take-up, transaction is in the top 5 followed by transactions between 1,000 sq m and 3,000 transactions signed in 2020, namely sq m with 26%. KPMG pre-lease of ~8,500 sqm in Miro. The most sought after submarkets in 2020 were Center-West, which saw almost 63,000 sq m of leasing IT & Communication sector still activity (26% of total take up) and Dimitrie Pompeiu, makes up the largest share of where 37,000 sq m of space was leased (16% of total demand, accounting for 36% of the Main take up), followed closely by North-West Expozitiei area total take-up, totaling ~85,000 sqm with ~32,000 sq m (14% of total take up). (200,000 sqm in 2019). Business Hubs 10 7 Knight Frank Romania Market Overview 2020
It is not worse than in the What a decade global financial we had!3-year cycles crisis!
200k to 250k sq m 250k to Recovery will be Supply significantly shorter as now 300k we have the money! 2010 - 2012 sq m 155,000 sq m
2020 saw class A and B supply reach approximately 155,000 sq m, around 50% decrease compared to the year prior, driving the stock to 2.955 million 2013 - 2015 sq m. Before Covid-19 300k to Among the schemes, Ana Tower is the largest (~34,000 sq m), followed by Globalworth Campus III to (~33,000 sq m), One Tower (~24,000 sq m) and The 350k Bridge III (~21,000 sq m). 350k 400k YEARS 2008 2009 2019 2020 sq m After Covid-19 The submarket with the highest modern office stock is Calea Floreasca / Barbu Vacarescu to (544,000 sq m), followed by Center West area 350k 237k (457,000 sqm) and Dimitrie Pompeiu (441,000 sq m). sq m 2016 - 2018
DEMAND SQ M 230k 90k 388k 237K DEMAND BY 2020 61% 40% 2019 - 2021 LEASED AREA
35% <5000 sqm
30% 1000 sqm - 3,000 sqm
18% <1,000 sqm SUPPLY 190K 363K 287K 155K SQ M 17% 3,000 sqm - 5,000 sqm 48% 46%
12 13 Knight Frank Romania Market Overview 2020
VS. SUPPLY 2020 DEMAND sq m BY TENANT DEMAND ACTIVITY
5% Demand Supply Other sqm 4% Manufacturing/Industrial/Energy DEMAND BY TYPE OF
4% Retail TRANSACTIONS
Relocation/ 2% Transport & Cargo 46% New Demand: 180k Renegotiation/ 45% 26% 1% Pre-lease: 100k Renewal: 107k 36% IT & Communication Administrative Renegotiation/ Relocating & 20% 32% Renewal: 76k New Demand: 76k 1%
300.000 400.000 14% Consumer Services & Leisure Finance/Banking/Insurance 8% Expansion: 31k 16% Prelease: 38.5k
13% 1% Media & Marketing Professional services Total: 388k 7% Expansion: 15.5k
1% 9% FMCG Construction & Real Estate Total: 237k 200.000 9% Medical & Pharma 1% Agriculture 2019 2020 100.000
0 DEMAND 2010 2011 2012 2013 2014 2016 2015 2017 2018 2019 2020 BY SUBMARKET 2020 Rents 7% Baneasa - Otopeni
The headline rents are rather at or slightly The year of below pre-COVID levels. The incentive 26% Center West 7% Central Business District packages have improved slightly in favour of Renegociations/ the tenants, especially in case of properties with high vacancy rates where landlords are 16% Dimitrie Pompeiu 4% South more flexible and really want to attract new 45% tenants. Incentive packages are roughly renewals 14% 3% Pipera North estimated to be ~10-20% higher on North-West (Expozitiei) short-term, depending on the vacancy in the respective property, on the size and 11% Floreasca/Barbu Vacarescu 2% West length of the transaction. In many cases the increase in incentives was/will be corroborated with a longer lease term. 9% Center 1% East
14 7 Knight Frank Romania Market Overview 2020
DEMAND BY 2020 NUMBER OF COVID-19
TRANSACTIONS Many leasing requirements have been 12% postponed or slowed down given the uncertainty associated with the medical 61% <1000 sqm crisis and its impact on the companies’ Vacancy business. 26% 1000 sqm - 3,000 sqm Since the work from home started more 7% 3,000 sqm - 5,000 sqm At the end of 2020 the vacancy sublease options appeared on the market rate reached 12%, a similar level as companies are expected to downsize 6% >5,000 sqm with the one from 2015. Additional their office space. to this available space, numerous tenants have expressed the desire Some of the companies have returned to to sub-lease parts of their office their offices since the end of the lockdown MODERN space, part of their strategy to in the second half of May, with employees adapt to the new way of work. As a coming mainly to the office in shifts (e.g. sq m result somewhere around 50,000 every other day/ week). Companies with a OFFICE STOCK sqm are estimated to be large number of employees are more ANNUAL EVOLUTION available in sub-lease offers. reluctant to return to the office given the increased complexity of the returning plan and process, the higher risks (e.g. to have a COVID outbreak within the company) and costs for supplies (e.g. disinfectants, STOCK BY masks). In order to respect the social 2010 distancing the preferred approach seems SUBMARKET to be the rotation of the employees 2011 coming to the office. For projects under construction, the 2012 owners have started to adapt the installations and equipment to reduce the risks of covid: provide more fresh air 2013 through the ventilation system and install better quality filters, more opening 2014 windows, smarter lifts, etc.
2015
2016 Forecast
Floreasca/ 2017 18% 7% Pipera North Barbu Vacarescu 255,000 15% Center-West 5% Baneasa 2018 in the next
Dimitrie sqm 15% 5% West Pompeiu 12 months 2019 12% Center 2% East Including schemes such as by: J8
Central Business Office Park (~45,000 sq m), @Expo 11% 2% South 2020 District Campus I (~22,000 sq m), Miro Offices 8% North-West (~21,000 sq m), Tiriac Tower (~16.500 0 750k 1.5m 2.25m 3m (Expozitiei) sq m), Dacia One (~12,500 sq m), etc.
16 17 Knight Frank Romania Market Overview 2020
Transaction 8.25% distribution by property type 7% 2020 7% Capital Office Prime Retail Industrial Yields Hotel Markets Office
25% 50% 75% 100% Retail
Investment Industrial 0 250 500 750 1000 volume EUR Stable outlook 2010 662 2020 started with a clear downward pressure on 2011 267 881 m yields however following the post-lockdown period the yields stabilized and the overall sentiment 0 remains stable for the moment. Consequently, the 2 12 244 In 2020 we witnessed a total of EUR 881 yields on the local market remain at very million in transactions on the local market a 0 competitive levels compared with other similar 2 13 303 level which is above the volume that was markets in the region and it is expected that these reported previous year and also above the 0 levels will continue to further attract both local 2 14 964 expectations from mid 2020. The record and foreign capital. 0 transaction that was reported on the 2 15 608 market is the NEPI office portfolio which 0 was sold to AFI for an amount in excess 2 16 705 of EUR 290 million. Despite the fact that the pandemic and associated uncertainty Forecast 2017 905 led to a significant delay, the closing of this in 2021 0 transaction and several other significant 2 18 973 transactions confirmed the maturity and
attractiveness of the local market. EUR 2019 650 0.9bn Following to the trend from previous years, 2020 881 the office segment was the most Judging by the existing pipeline of projects that attractive in terms of transaction volumes, are currently on sale on the market it is expected generating more than 80% of the total that in 2021 we will have at least the same volume market volume. The industrial/logistics of transactions with an upside potential to get ROMANIA INVESTMENT segment was the second most active in closer to the EUR 1 billion threshold. The maturity terms of volume generating roughly 10% of the market and the competitive prices make it a TRANSACTION VOLUMES of the total volume, followed by the retail viable destination for the significant amounts of ANNUAL EVOLUTION m. EUR segment which accounted for almost 5% capital that have been raised globally and are of the total volume. expected to be deployed in 2021.
18 19 Knight Frank Romania Market Overview 2020
Resi- dential Market Overview
Demand 27,021 84,000 Forecast transactions transactions in April in October 75% apartments In 2020, 602,805 properties were sold nationwide, with 12% more than the previous year, according to sold before ANCPI. The transactions include also land for development, which indicate a constant demand in delivery in 2021 2020 for residential properties, despite the pandemic.
In April however, at the peak of lockdown, the number of transactions decreased by 34%, followed by an 4% average price increase in 2021 and a decreased ascendant trend towards the end of the year. take up for homes in new residential projects: 85% sold before delivery in 2020 vs. 75% in 2021.
eur / square meters average residential price Rising the maximum pricing threshold for the reduced VAT rate of 5% on Prices 40 in 2020/Bucharest residential properties from 450,000 RON to 140,000 EUR was postponed by emergency ordinance up to 1st of January 2022. The delayed measure not In Q1 2020, prior to lockdown, selling prices + only surprised few thousand buyers with signed pre-contracts in Q4 2020, prices for residential properties in Romania, but it is expected to slow down the interest in larger apartments for 2021. registered a 8.1% increase, compared to the same period of 2019. This growth margin was 4.1 Despite the difficult economic context, the residential market registered a above the European Union recorded average (+ average residential price positive trajectory with mild prices increase in 2020. With a cap on the 5.5%), but also above the Euro zone (+5%). + in 2020%/Romania wage increases in public sector amid fiscal consolidation and postponed 5% VAT law, in 2021 we are looking at moderate start, followed by increases.
20 21 Knight Frank Romania Market Overview 2020
MEDIUM PRICE 0 eur 1k eur 2k eur 3k eur 4k eur 5k eur /BUILT sq m
Unirii 2,190
Timpuri Noi 1,740
Tei 1,715
Stefan Cel Mare 1,600
Razoare 2,090
Pipera 1,290
Piata 1 Mai 2,040
Obor 1,500
Mosilor 1,990
Kiseleff 4,500
Iancu Nicolae 1,800 Herastrau 2,500 Corporate Grozavesti 1,700 Lettings Gara de Nord 1,700 Rent values maintained stable on the premium and luxury Floreasca 2,900 market, where properties such as luxurious penthouses and historic villas are in high demand among top executives and Domenii & Expozitiei 1,700 diplomatic personnel. On the other hand, the prices for the Delea Veche 1,700 affordable properties decreased due to higher supply versus demand. A lot of young professionals decided to move back to their home town or rent houses in the rural / Bucurestii Noi 1,350 mountain areas for the teleworking period. Batistei 2,900
Barbu Vacarescu 1,750
Baneasa Sisesti 1,350
Baneasa Jandarmeriei 1,500
Baneasa North 1,100
Baneasa Aviatiei 1,700
Primaverii/Aviatorilor 4,100
Aviatiei 1,800
13 Septembrie 1,760
22 7 Knight Frank Romania Market Overview 2020
BUCHAREST MODERN INDUSTRIAL STOCK ANNUAL EVOLUTION sq m 3m 2.25m 1.5m
Industrial 750k
and Logistics 0 0 0 15 16 17 1 11 12 13 14 18 19 2 0 0 0 00 3 00 4 00 5 00 6 00 7 00 8 00 9 0 0 0 0 0 0 0 0 2 2 2 Market 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
TAKE UP TYPE OF TRANSACTION 2020 53% 23% Supply Demand New Demand 9% Renewal/renegocization 8%
sq m 530,000 sq m 722,000 Expansion 3% Pre-lease 3% The level of deliveries in 2020 was In Bucharest, total take up in 2020 was ~498,000 around 530,000 sq m, bringing the sq m, while nationwide the take up reached Relocation nationwide stock to 4.7 million. Around approx. 722,000 sq m, a 67% increase Short term lease 65% of the new supply was in Bucharest. compared to the previous year.
24 25 Knight Frank Romania Market Overview 2020
BUCHAREST 35% FMCG 5% Others
24% Retail 3% Distribution
MODERN TAKE UP 2020 TAKE UP BY
ANNUAL EVOLUTION 16% Logistics 2% Manufacturing
sq m TENANT
8% Production 1% Storage ACTIVITY SECTOR 6% Medical & Pharma 0% Automotive 500 k
375 k
250 Forecast k Vacancy sq m ~400,000
125 k 5% Almost 50% of them being in the Bucharest area. As a result of the However the vacancy rate developer’s tendency is estimated to remain at
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 towards built-to-suit low level as most of the projects the vacancy rate future spaces being already remain at a low level which pre-leased in BTS is estimated around 5%. transactions.
A total of 90 leasing transactions 2020 TAKE UP were recorded nationwide in BY REGION 2020 out of which 22 were larger than 10,000 sq m. 69% Bucharest 2% Roman Although Bucharest accounted for 13% Timisoara 1% Constanta 69% of total take-up, Timisoara
(~98,000 sqm) and Craiova 8% Craiova 1% Cluj (~57,000 sqm) were the most 5.00 sought-after regional locations 3% Arad 1% Brasov Rents 4.75 accounting for a further 13% and EUR/sqm/month respectively 8%of the total 2% Ploiesti 0% Iasi 4.50 volume. 4.25
The largest volume of demand came 4.00 from FMCG & Retail companies, Because of the restrictions imposed by the covdi-19 3.75 which rented together ~60% of pandemic, the retail segment turned mostly to the online 3.50 the total volume recorded in 2020 environment, which led to an increased activity on the Rental4 levels for prime industrial (~422,000 sqm), companies with warehousing and logistics market. Maybe we are even and logistics space remained 3.25 activities in the field of logistics , both in talking about a pandemic winner considering the figures unchanged in 2020 3.00 (16% and 118,000 sqm, respectively) recorded at the highest level ever, far exceeding the Bucharest and in the other regions and production (8%, ~58,000 mp) maximum previously reached. across the country. Bucharest Timisoara Cluj-Napoca Ploiesti
26 27 Romania Market Overview 2020
PRICES Overview sqm / LAND PLOT After a few very positive years, post crisis, 2015-2019, 2020 EUR PRICES BY USE came, more exactly March 2020 which blocked our everyday life Land and also the transactions that we were discussing at the beginning of the year. Almost all of them Barbu Vacarescu/ Market Overview 2,000 stayed in stand-by for the whole Floreasca year, due to the uncertainty of the OFFICE times. Center-West 700-900 Though the pandemic has challenged certain sectors such as hospitality and retail, it has also proven the resilience of core Prime areas 2,000 - 2,500 assets, driven a surge in online retail (and by association, Central benefited the logistics sector), and RESIDENTIAL (Unirii-Piata 850–1,250 accelerated existing trends Victoriei) such as high-end residential. Periphery 250-300 Demand
Office developers backed-off from Bucharest 350-500 the plans we were having and the RETAIL residential developers decided to stay in a waiting mode, because Country side 150-300 they could compare 2018-2019 when they were selling with 50-60% more apartments/month, compared to pandemic times.
Forecast However, at the end of 2020, we saw the biggest land 2021 started well and full of hope, due to the vaccine transaction ever signed in of course, especially for the residential business, Bucharest, for a mixed-use the houses/villas sector, which became attractive destination. SIF Banat-Crisana in the lockdown periods when people wanted out in bought the IMGB industrial nature. Investors are looking to buy, but everyone is platform 540,000 sq m from still waiting to see if there are going to be price drops Doosan, for approximately 40 and opportunities, however we don’t expect big million euros, which was a very changes in this sense. There is no big pressure on good price opportunity. the costs, even when we watch the way the stock markets react. Land for industrial sites was in focus in 2020, due to the Compared to recessions, this time investors and conversion to online shopping of developers were caught in a strong position, the majority, which we expect to however sitting on cash is not healthy for the continue to grow, both in long-term, which is why we are looking ahead for a Bucharest and other big cities in more dynamic second year in 2021. Romania (including surroundings).
12 729 Knight Frank Romania Market Overview 2020
Flexible working Office space will "The future of work will continue to be crucial be flexible – there’s no one-size-fits-all model for businesses or Undeniably, despite our newfound employees. Autonomy acceptance of remote working, there is a and variety will drive growing need for businesses to provide business performance." office space for their employees to develop their skills, collaborate and learn from one another.
The ‘death of the office’ narrative that murmured through 2020 wasn’t silenced by academic rhetoric, it was silenced by Many of the trends will continue people sincerely missing their office to shape our world of work, but environments – and everything that came with them. the pandemic has also accelerated several others. Businesses still want a central hub. In fact, Here are our predictions for only 8% of employees want to work from 2021 home five days a week, and 53% of UK 2021 workplace trends – both accelerated and new. businesses surveyed by Knight Frank said they wanted their offices to feature more collaboration space. So, while the demand Workplace Working from home for flexibility continues, social capital will continue remains critical. Trends: Health and wellbeing It’s safe to say that Covid-19 has Predictions for the year ahead accelerated the adoption of flexible working. For most forward-thinking companies, Several lockdowns have forced many health and wellbeing were firmly embedded companies to work from home – even those into corporate agendas, but Covid-19 has that were reluctant to work anywhere but the catalysed efforts across the board. office. We believe working from home, as well as other types of flexible working, such Covid-secure as staggered hours and working closer to workplaces will prevail home, will continue to form a part of our working lives in 2021. As the first lockdown was lifted, flexible office space providers went to great lengths While this partly comes down to our ongoing to create Covid-secure workplaces in order efforts to contain the pandemic, it’s also a to comply with government guidelines and consequence of our newfound focus on lower health risks. flexibility as a whole. We’re beginning to see the extent to which different people, roles They enhanced their cleaning regimes, and tasks require different parameters for increased airflow, added hand sanitizer optimal performance. stations throughout all spaces, displayed safety signage, organised one-way systems To boost employee productivity, and redesigned furniture layouts to enable engagement and happiness, our world of social distancing. work will feature a strategic blend of different environments, places, working For all workplaces, this safety-first approach hours and even agile working setups – such will prevail in 2021 and beyond as we as sit-stand desks, active sitting chairs and continue to mitigate the dangers of even exercise balls. Covid-19.
30 31 Knight Frank Romania Market Overview 2020
Active commuting will rise The demand for In the months we were encouraged to flexible office space return to our workplaces, active commuting became a popular way to both will grow avoid public transport and break up a sedentary working day. A focus on the office experience is also It’s likely this trend will continue, and as a likely to boost the demand for flexible result, employers will look for offices fit for office space – which has already a cycling commute, which neighbour witnessed a surge (as monthly rolling cycleways and feature showers and contracts acted as a tonic for uncertainty secure bike racks. amid lockdowns.
Businesses will try to prevent Sustainable commutes will trend remote working loneliness We’ve already witnessed the rise of active commuting – and in particular – cycling to For some, remote working came with a work, but 2021 is likely to see the sense of loneliness and isolation – our sustainability trend reach new heights. innate need for social interaction was barely being met. But for others, it was a dream come true. Green, sustainable offices will win the war for talent Ultimately, 2021 wellbeing strategies will There is a growing recognition that younger come down to personal choice, flexibility, generations of talent are seeking out and an additional integrity in remote businesses that increasingly align with their environments. What’s important is that the moral values across environmental, social conversation continues. and governance initiatives. These include efforts to reduce corporate carbon footprints, improve employee wellbeing, and The office experience ensure diversity and inclusion.
As businesses continue to view real estate Though dull, drab and cubicle-clad offices as a strategic device and an investment, have been a thing of the past for some choosing to base their teams in green, time, we’re likely to see an increased focus sustainable offices is a clear way to on the office experience in 2021. demonstrate a commitment to the cause (for both employees, clients and Quality and collaboration competitors). will centre stage
The office won’t be what it’s always been. Workplace strategies will feature a flight to quality, a focus on design and an emphasis on collaboration – especially as we try to rebuild our depleted levels of social capital. The office will be a destination that provides experience, connection and choice – with insta-worthy cafés, curated meet-ups that instil a sense of community and belonging, We’re experts in finding you the biophilic office design that boosts wellbeing, perfect office space at the best price. agile working strategies that encourage Ask us to start your search today – it mobility and technology that streamlines won’t cost you a penny. workflows.
32 33 Knight Frank Romania Market Overview 2020
HEPA FILTERS Capturing up to 99.995% of WORKPLACE microscopic contaminants. NEW RADICAL CHANGE VEHICLE LICENSE PLATE RECOGNITION BUILD Avoiding direct contact with any surface (access cards, buttons etc.) INGS.Improved <20% of employees Smarter controlled elevators; present in the Standards offices Larger revolving door at the main entrances. Large Smaller companies WORK companies kept BEYOND – easier to handle FROM their people ULTRAVIOLET Covid-19 measures HOME home, tech HYBRID / especially. GERMICIDAL FLEXIBLE BREEAM IRRADIATION I. Good WORK II. Very good LEED Rents were UVGI lamps in the air III. Excellent I. Silver collected in more handling units and IV. Outstanding II. Gold than 95% of the elevators as extra III. Platinum cases NO barrier for viruses WELL RECYCLED & bacteria. AIR GREEN 100% CERTIFICATIONS fresh air intake
HOW THE MARKET SHAPES POST PANDEMIC?
Net impact Safe Office Occupiers to in size is distances demand to reduce their incertain between pick up in size by 10-20% offices, 2021 total amount of space/person could rise BEYOND HYBRID/ FLEXIBLE Employees will WORK start going back Collaborative to the office as face to face of Q2 2021, up work still Organisational to 70-80% in Lower office necessary culture Q4 2021 attendance
13 Knight Frank Romania Market Overview 2020
What’s new for real estate in Romania Once upon a time … when people started preparing for winter holidays, the lawmakers issued the long-expected law (Law 296/2020) to amend the Fiscal Code by introducing some of the business environment’s requirements.
And they lived happily ever after … well, not Authors: quite, because the Government Emergency Ordinance (GEO 226/2020) was issued right Inge Abdulcair, before New Year’s Eve whereby certain Director PwC Romania; measures provisions of the Law 296/2020 Claudiu Simionescu, were amended or postponed. Senior Manager
As these new amendments made to the Fiscal Code are of impact also for the real estate sector, we briefly present some of them in the next paragraphs. Real Estate Corporate income tax consolidation – finally also in Romania Romanian corporate income taxpayers (exclusively) which are part of the same Taxes group (at least 75% directly or indirectly ownership) can form a tax group. One of the members is designated as the responsible legal entity that will calculate, declare and provision was introduced, it was not possible to 5% on the sale of dwellings Impairment of receivables adjust the taxable base in the case of uncollected pay the corporate income tax for the group, Further to the new rules, the threshold for the sale Full deductibility granted for adjustments receivables from individual debtors, but only for with the tax determined by summing the of apartments under the social policy (i.e. the regarding the impairment of receivables that receivables against legal entities. individual calculations of each member - current threshold is of 450,000 RON – approx. are uncollected in a period exceeding 270 thus giving the opportunity to offset the tax 100,000 Euro) has been raised to 140,000 Euro. days from the due date, are not guaranteed Further to the new introduced rule, if the total or profits of companies within the group with However, the application of such rule has been and are owed by a non-affiliated person (and partial value of the goods delivered or services the tax losses of others. postponed to January 1st, 2022. not only 30% deductible as in the past). provided was not collected from the beneficiaries However, GEO 226/2020 postponed this represented by individuals within 12 months from the Thus, the real estate developers with more Tax amnesty provision for 2022. entities into their portfolio may consider this payment deadline set by the parties / from the facility as to decrease the tax burden at the invoice date of issue, the taxable VAT base may be The Emergency Ordinance no. 229/2020 extended level of their group. adjusted. Therefore, the supplier will be in the posi- the period until which taxpayers that had Local taxes tion to recover from the state budget the amounts outstanding tax liabilities at March 31st, 2020 can In the case of legal entities, the taxable value paid with its own resources and without being cashed However, the period of application of the benefit from the tax amnesty for the annulment of of the building will be updated every five years in from its customers. system is five fiscal years, while tax losses interest and late payment / non-declaration on the basis of an evaluation report prepared recorded by a member of the group before penalties related to such main tax liabilities. by an authorised valuator (that term was The adjustment is allowed only if it is proved that the application of the system cannot be previously three years). commercial measures have been taken for the compensated for at group level. Initially, the Emergency Ordinance no. 69/2020 And there are also other pieces of legislation recovery of claims up to RON 1,000 and that legal established as the deadline for submitting the issued in the last 12 months which impacts the proceedings have been undertaken for the recovery Adjustment of the VAT application for annulment of ancillary tax liabilities business environment in a positive way: e.g. of claims higher than RON 1,000. taxable base the date of December 15, 2020, many taxpayers capitalization incentives, tax amnesty, COVID being in a rush to submit documentation by this related facilities etc… but that’s another story Such provision will be applicable for invoices that The local rules have been amended to align date, however, the Emergency Ordinance for another time. with the principles of the VAT Directive and have a payment deadline / date of invoice issuance published at the end of 2020 extends this recent European case law. Before such after the entry into force of the said Ordinance. deadline until March 31 2021.
36 37 Knight Frank Romania Market Overview 2020
The COVID-19 pandemic has severely impacted several fields and industries, including the real estate sector. Many office buildings have been vacated as a precaution or because the companies went out of business. Given that the pandemic has triggered a recession on the real estate market and that How to employers have discovered remote work to be an efficient solution, the demand for office buildings will likely decline. Property owners should therefore look for new ways their buildings can be used to turn office improve rentability.
One of the most appealing options is to convert office buildings into residential space into units. The rules in this regard are provided mainly by Law No. 50/1991, on the authorisation of construction works, as amended. residential According to Law No. 50/1991, owners must first obtain a new town planning certificate for their property indicating all the documents needed to change the units building's designation. Legal challenges As a rule, the conversion of commercial spaces into residential units will require a planning permit. Nevertheless, it may be Authors: possible to convert office or commercial space into residential premises even Simona Chirică, PhD, Partner; without obtaining a building permit, but Mădălina Mitan, Managing Attorney at Law; only if the construction works do not alter Steliana Garofil, Attorney at Law – the structure of the building and/or its Schoenherr și Asociații SCA architectural character. Obviously, if structural partitions are needed, applying for a new building permit will be a must. Before obtaining the building permit to change the use of a building, the local Finally, once conversion works are completed and a public authorities may also require the reception protocol has been issued, the change of use owner to prepare a regional urban plan from commercial to residential must be registered with (PUZ) or a detailed urban plan (PUD), if the Land Book Office, based on a new cadastral the new designation of the building is documentation drawn up for the building. incompatible with that provided by the urban local regulations. Besides the funds required to reconvert an office building into residential spaces, the reconversion may also entail a Moreover, the use of a building may be lengthy bureaucratic process. However, given the change changed by obtaining a new building from offline to online office work, reconversion will permit, but without needing to prepare certainly be a viable alternative in some cases. This new technical documentation if the new use business model will create the need for many additional of the building is in line with the local services, such as construction work, technical and urban regulations set by the applicable professional services, real estate consultancy, brokerage PUG or PUZ. services and others.
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15 KNIGHT FRANK Romania
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