THE CONSTRUCTION SECTOR IN ROMANIA
THE CONSTRUCTION SECTOR IN ROMANIA
September 2013
A study by Nicoleta Chirila
Flanders Investment & Trade
Intr. Bitolia 62, sector 1, Bucuresti
+40 21 231 56 07
bucharest@fitagency.com
www.flandersinvestmentandtrade.com
TABLE OF CONTENTS
1. General economic overview ...... 3
1.1 GDP development ...... 3
1.2 Employment & earnings ...... 5
1.3 Inflation & fiscal situation ...... 7
1.4 Macro indicators ...... 8
2. Construction sector (2007 – present) ...... 9
2.1 Rule system ...... 9
2.2. Leading companies ...... 13
2.3. Construction work evolution ...... 13
2.4. Construction investments ...... 16
2.5. Top developers and major projects ...... 19
3. Subsectors ...... 21
3.1. Residential ...... 21
3.2. Office ...... 27
3.3. Retail ...... 31
3.4. Industrial ...... 42
4. Main national trade fairs ...... 47
5. Construction organizations ...... 48
6. References ...... 49
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1. GENERAL ECONOMIC OVERVIEW
1.1 GDP DEVELOPMENT
Romania’s economy is slowly recovering, after withstanding a two year recession, as a result of the global economic and financial turbulences. After having been one of the fastest-growing economies in Europe in the mid-2000s, producing a 6.3% GDP growth in 2007 and 7.3% in 2008, the global economic downturn revealed Romania’s structural weaknesses and imbalances. In 2009 the economy shrank by 7.1%, followed by a 1.9% contraction in 2010.
Although the year 2011 brought an exceptional agricultural harvest and an export-led industrial recovery with a GDP increase of up to 2.5%, the year 2012 recorded a growth of only 0.2%, growth determined mostly by increases in professional activities, scientific and technical and administrative services of the real estate. The most significant workload reductions were recorded in agriculture, public administration and defense, social security, education, health and social care. The difficulties of the economic environment were also amplified by the internal political situation that was dominated by tensions and uncertainty regarding the general economic policy adopted by the government.
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Gross Domestic Product (lei¹ million current prices)
2009 2010 2011’ 2012’’
Agriculture, hunting, forestry & fishery 32297.8 29874.2 36438.6 30897.7
Industry + energy / gas / water 120637.4 148553.1 160927.9 167081.0
Construction 52809.4 47762.3 47563.4 50448.9
Services 245234.5 240207.4 242396.9 265375.2
Gross Value Added (GVA) 450979.1 466397.0 487326.8 513802.8
Net taxes on products 50160.3 57296.3 69381.6 73696.6
Gross Domestic Product (GDP) 501139.4 523693.3 556708.4 587499.4 ‘ semidefinite data ‘’ provisional data Source: Romanian National Institute of Statistics
¹ 1 LEU = 0,23 EUR (exchange rate at 02.09.2013)
Contribution of the main activities to GDP (%)
2009 2010 2011’ 2012’’
Agriculture, hunting, forestry & fishery 6.5 5.7 6.6 5.3
Industry + energy / gas / water 24.1 28.4 28.9 28.4
Construction 10.5 9.1 8.5 8.6
Services 48.9 45.8 43.5 45.2
Gross Value Added (GVA) 90.0 89.0 87.5 87.5
Net taxes on products 10.0 11.0 12.5 12.5
Gross Domestic Product (GDP) 100.0 100.0 100.0 100.0 ‘ semidefinite data ‘’ provisional data Source: Romanian National Institute of Statistics
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GDP was also influenced by the evolution of activity volume from the private sector.
Share of private sector (%)
2008 2009 2010’ 2011’’
Gross Domestic Product (GDP) 71.1 69.9 71.3 70.8
Gross Value Added (GVA)
Agriculture, hunting, forestry & fishery 92.7 88.5 92.7 93.4
Industry + energy / gas / water 86.1 81.8 82.2 81.9
Construction 91.5 96.8 95.9 95.7
Services 72.4 70.1 72.1 74.3 ‘ semidefinite data ‘’ provisional data Source: Romanian National Institute of Statistics
The Romanian economy is projected to recover gradually in 2013, helped by local and international factors that look more promising compared to last year. Additional public resources injected by the government into the economy, a normal agricultural crop after the severe drought of last year and a minor recovery in external demand will lift real GDP growth to 1.3%, down from some previous estimates of a growth of 1.9%.
1.2 EMPLOYMENT & EARNINGS
The economic crisis started in the second half of 2008 affected both the average number of employees and the salaries, the most accentuated falls being registered in manufacturing, construction and trade.
Economically active population (thou persons)
2009 2010 2011 2012
Total 9924 9965 9868 9964
Employed 9243 9240 9138 9263
Unemployed 681 725 730 701
Source: Romanian National Institute of Statistics
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Unemployment rate (%)
2008 2009 2010 2011 2012’ 2013’
5,8 6,9 7,3 7,4 7,2 7,1
‘ forecast Source: Romanian National Institute of Statistics
Employment by main activity of national economy (thou persons)
2009 2010 2011 2012’
Construction 726 705 681 696
Total 9243 9240 9138 9263 ‘ provisional data
Source: Romanian National Institute of Statistics
As in any market economy the highest share of employees is active in the private sector, the share of employment in the private sector has remained during 2008 - 2011 around 80%.
Monthly average net nominal earnings (lei¹/employee)
2009 2010 2011 2012
Construction 1069 1125 1247 1250
Total 1361 1391 1444 1547
Source: Romanian National Institute of Statistics
¹ 1 LEU = 0, 23 EUR (exchange rate at 02.09.2013)
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1.3 INFLATION & FISCAL SITUATION
The Romanian economic environment faced major imbalances caused by inflation. During 2008- 2011, in spite of a significant decline of economic activity, the inflation had a new persistent character entailed to a great extent by shocks on internal and international markets as well as a higher price for petroleum and raw materials or changes and evolution of exchange rate.
Food prices and also the significant depreciation of the leu against the euro have led to a monthly average rate of inflation of 0.3% for the first nine months of 2012.
The general government deficit decreased from 6.8% in 2010 to 5.2% of GDP in 2011. The deficit is expected to come down to 2.8% of GDP in 2012.
For 2013 the budget deficit is expected to fall to 2.2% of GDP due to the measures implemented by the authorities to continue fiscal consolidation: a freeze in public wages and further employment cuts in the public sector; a pension freeze; the introduction of a new social assistance code; excise rate hikes for cigarettes and diesel; and an increase in royalties for the use of resources necessary to produce construction material.
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1.4 MACRO INDICATORS
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2. CONSTRUCTION SECTOR (2007 – PRESENT)
2.1 RULE SYSTEM
The construction regulatory system in Romania is a traditional one where the majority of the laws, standards and norms are adopted and enforced from the central government level. The local public authorities can intervene at the local level only regarding local planning requirements.
Legislation and key issues
After 1989 the entire legal framework and technical regulations were subject to change, in order to adapt to European Union practices.
− Law on Building Permit (50/1991; 125/1996; 453/2001) − Law on Construction Quality (10/1995)
− Housing Law (114/1996 + Ordinance 44/1998) − Government Decision on General Urban Regulation (525/1996)
− Law on Protection of the National Cultural Heritage (1998) − Law on Efficient Use of Energy (199/2000) − Law on Urban and Spatial Planning (350/2001).
There are some laws (Lg50/1991, Lg10/1995) which regulate at a general and global level (for all buildings), and there are also many laws and regulations for specific functional categories of construction (residential, hotels, office buildings, schools, hospitals etc). Only industrial architecture is, somewhat more loosely regulated, the main factor being the functional-technological criterion.
New buildings
Regarding new buildings, sustainable construction aspects are very little or not at all covered in existing legislation in Romania. Unfortunately there are no specific instruments/regulations used by the government or the local public authorities to encourage the usage of local workforce and local construction materials in sustainable construction.
Some topics related to ecological quality are regulated; every construction needs to obtain an environment permit or environment impact assessment in order to get the Construction Authorization. In the field of economic quality the topics related to the density of the development and to mixed land use are regulated, both at a local level.
Social quality aspects are very little covered by any regulation or requirement. The health and safety at the workplace is covered decently, but unfortunately not always implemented. Most of the functional quality aspects are set in norms and normatives that are adopted at the national level and used accordingly by the different types of professionals or professional associations that are involved in the construction process (different types of engineers, architects etc).
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In the field of technical quality, there are very clear regulations regarding fire inspection, building safety and the structural quality of it, that are set at the national level, and are checked at the local level. They are the ones who are supposed to refuse the construction authorization and building functional permit in case the rules are not followed. Also the specific accredited engineers and architects that are working on a construction project may lose their license in case an error occurs (regarding structural quality, safety and fire prevention).
Existing buildings & renovation
In Romania some sustainability rules which apply to new buildings, also apply to existing buildings. These rules include energy, waste management, economic quality and technical quality. There are hardly any rules which also apply to renovation of existing buildings.
Level of regulation
Ecological topics are regulated only at a central level. Topics related to economic aspects are only regulated on a local level. For social quality, functional quality and technical quality, the aspects can be regulated on both central and local level, and also in some cases quasi-mandatory.
In general the Romanian public authorities are adopting the EU Directives as they come. There is no local/national interest in regulating an area before the EU Directive does, Romania being an obedient follower of EU Directives at the minimal level possible (if a specific area is not required by the Directive but only recommended, the public authorities will listen to the recommendation but won’t act upon). A process that is not as smooth as transposing EU Directives is the implementation of legislation. In many cases the local public authorities are supposed to implement legislation adopted by the central authorities and in many cases they don’t know about the new requirements or do not have the capacity (technical or administrative) to do it.
Enforcement regime
In Romania building plans are monitored on all sustainability subjects, except on social quality, by municipal authorities, architects and/or other public authorities. In general the monitoring process is regulated in law on a local/municipal level. Except on technical quality, which is checked thoroughly, building plans are checked in a superficial way.
The ‘Building Permit’, according to LG 50/1991, is the only legal document that entitles the recipient to build the project.
Work under construction is monitored only on functional quality (superficial) and on technical execution (thorough) by private inspectors - special licensed technicians or engineers which are part of the State Construction Inspectorate.
Prior to occupation the finished work is checked superficially on ecological quality by municipal authorities. The technical quality is checked thoroughly by municipal authorities and/or private inspectors. At the reception of any building, according to Lg10/1995, the formation of a Commission
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of Reception is mandatory (consisting of the customer, the builder and a representative of City Hall); this committee receives the new building based on a report (technical and quality) made by the architect.
Existing buildings in use are not monitored. In some rare cases (very degraded monument or building classified as a public danger) there shall be technical expertise and monitoring.
Main barriers
- The construction industry is not in a strong position, and the demand is modest in comparison with the offer, partly due to low income levels. - Inadequate communication and cooperation internationally, meaning a limited exchange of ideas, experiences and best practices. - Sustainability criteria are not integrated into education and training programs - Owners are not held responsible for unsustainable construction methods - Lack of standards to measure the sustainability of buildings - Lack of information about sustainable products and construction
(“Romania – Country Report” – PRC Publications)
News in legislation
On 27 July 2012, Law No. 133/2012 approving Emergency Government Ordinance No. 64/2010 entered into effect and amended Cadastre and Land Registration Law No. 7/1996 and Construction Law No. 50/1991. The new enactment has brought a set of significant changes to Law No. 7/1996, mainly intended to simplify the property registration procedures. Out of the amendments implemented by Law No. 133/2012, probably the most significant one is that the National Agency for Cadastre and Land Registration has been granted the initiative to start cadastral works for all properties (both public and private) which have not been surveyed yet, with a view to securing a free of charge registration of all real estates throughout the country with the integrated cadastre and land book system. This implies, as detailed below, correction of potential errors occurred for properties already surveyed and registered with the land book. Funding of this process should be ensured from the state budget, financial sources of the administrative-territorial units, or international financing sources.
It is also worthwhile mentioning that the organization of the systematic cadastral works is based on an improved procedure, which involves supplementary stages of the registration with the land book, such as: (i) the person authorized to perform the cadastral works has been granted the prerogative to integrate all technical and legal information collected from the local cadastre and land registration office, public authorities and institutions or other individuals or legal entities; (ii) the cadastral works provider updates the information collected on-site with the existing registered information; and (iii) notaries public may issue certificates necessary for the registration of the holders (in Romanian posesori) as owners of a certain immovable asset.
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Another significant amendment is that the law allows the public authorities and the cadastral works provider involved in the systematic cadastral and land book registration works to offset land areas, and to rectify clerical errors and errors on location of the immovable assets for which the ownership titles were issued according to the restitution laws, subject to the owners’ written approval. The offset and, respectively, the rectification, may occur with the owner’s prior consent, granted in authentic form, taking in consideration the de facto situation and based on the land division plan (in Romanian plan parcelar) as amended by the cadastral works provider. Moreover, the person authorized to perform the cadastral works may rectify the layout of the immovable assets without the owner’s consent, given that such action is meant to accurately record the on-site reality.
Another legal novelty is the registration of the holder of an immovable asset as owner of the same, based on the certification procedure carried out by the notary public, at the request of the local cadastre and land registration office.
In case the holder’s right is challenged in court or if the notary public refuses to issue the certificate, the de facto possession shall be registered with the land book in favour of the holder (the challenge of the holder’s rights shall also be noted with the land book). In such case, the ownership right may be conclusively registered with the land book subsequent to the fulfillment of one of the following conditions: (i) ex officio, upon the expiry of a 5-year term following the registration with the land book of the de facto possession, unless no dispute challenging the land book registration was noted with the land book; or (ii) upon request, based on an ownership deed, on the certificate issued by the notary public or pursuant to a final and binding court decision. If, during the cadastral works performed ex officio, the owners or other holders of an immovable asset cannot be identified, the ownership right shall be temporarily registered in favour of the administrative-territorial unit. The owners’/holders’ rights may be registered with the land book thereafter, upon their express request.
The registration with the land book shall be performed ex officio after the completion of the cadastral works for each cadastral sector and after the expiry of the term for the settlement of the rectification requests related to the cadastral documents, if any.
For the immovable assets registered with the land book further to the completion of the systematic cadastral works, the ownership right shall be attested by the land book excerpt. Furthermore, the demarcation of a real estate from another shall be attested only by a cadastral plan excerpt.
Law No. 133/2012 sets forth that the National Electronic Register of Street Nomenclature is the sole reference system at the national level, the use of which is mandatory for public authorities and notaries public. The street nomenclature for each commune/city should be approved by the local council. The novelty in this respect is that any change in the administrative address shall be registered with the relevant land book.
Supplementations have been brought by Law No. 133/2012 with respect to the access to the information registered with the electronic land book system. The integrated cadastral and land book system data base may be consulted by any interested person, using the identification data of the immovable asset. Furthermore, the applications for registration and/or information may also be filed electronically, being registered and processed with full legal effects.
Another concern of Law No. 133/2012 was the amendment of Article 23 of the Construction Law, in the sense that the land plots included in the intra murros area (in Romanian intravilan) on which the
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performance of construction works is envisaged, shall be definitively removed from agricultural use by means of the building permit (and not by means of the endorsement issued by the Directorate for Agriculture and Rural Development), thus simplifying the procedure of removing the intra murros land plot from agricultural use. If the owner wishes to remove only part of the owned land from agricultural use, the building permit will be accompanied by the technical cadastral documentation.
(Report - Ţuca Zbârcea & Asociaţii)
2.2. LEADING COMPANIES
Leading Construction Companies in Romania (2012)
Company Turnover (EUR million)
1. Hidroconstructia 140.0
2. Spedition UMB cumulated turnover = 261.0
3. Tehnostrade
4. Delta ACM 93 110.0
5. Bog’Art 76.0
Source: HBA International Law Firm
* Romstrade and Confort, the largest constructors in Romania, went insolvent in 2012.
2.3. CONSTRUCTION WORK EVOLUTION
Prior to the start of the crises at the end of 2008, the Romanian construction industry was one of the most vibrant in the European Union.
The year 2007 brought the fastest growth of the construction market after 1989. According to the Romanian National Institute of Statistics the market grew by 33.6%, compared to 2006, being thus reported by Eurostat as the biggest of all EU members.
The beginning of 2008 also marked a dynamic growth, with Romania still ranking first in Europe. During April-June 2008, Romania took the second place at EU level as far as the pace of growth of the construction market over the previous quarter is concerned, after Poland. In fact, the only states
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that reported construction market growth were Poland (+6.8%), Romania (+5.1%), Sweden (+2.2%) and Bulgaria (+2%).
Source: Eurostat
Because of the financial crisis at the end of 2008, which severely hit the Romanian construction sector, this positive trend changed dramatically in 2009, when the construction sector in Romania recorded a 12.2% fall compared to 2008, according to the Romanian National Institute of Statistics.
Source: Romanian Numbers – publication 2010
Both 2009 and 2010 recorded a deep decline in the construction sector and marked a high rate of bankrupt companies and of stand-by construction projects (25%).
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Source: IBC Focus
During the years 2011 and 2012 this downward trend continued, while the evolution of new development prospects in the construction sector facing many challenges.
Uncertainty generated by the economic-financial environment, low aggregated demand and its weak financial capacity, as well the diminishing of the foreign capital inflow, maintained the already existing difficulties on the local market.
Value of construction works (lei million)
2007 2008 2009 2010 2011
New construction works and capital 50051.6 72840.8 61554.0 57336,8 59708,1 repairs
Building maintenance and current repairs 12439.2 16015.5 15135.3 12718,2 14709,9
Total 62490.8 88856.3 76689.3 70055.0 74418.0
Source: Romanian National Institute of Statistics
Indices of construction works (%) 2008 = 100
2009 2010 2011 2012’
Total 81,7 72,7 71,0 72,0
New construction 77,4 76,4 75,3 81,3
Capital repairs 89,9 70,8 64,7 58,7
Maintenance and current repairs 92,2 74,3 77,0 69,0 ‘ provisional data Source: Romanian National Institute of Statistics
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In the first quarter of 2013 the activity in construction rose to the highest level since the final quarter of 2010:
− 71,000 sq m of office space was finalized (almost equal to the total volume for 2012).
− The number of insolvencies in the first quarter of 2013 was 966 (there were 3,716 insolvencies in 2012).
− Some 26,500 building permits for residential projects were issued in Romania in the first seven months of 2012, up 16.5% from the previous year.
2.4. CONSTRUCTION INVESTMENTS
Weak economic dynamics influenced by uncertainty and political tensions have increased the reluctance of the market players to commit for investments or real estate developments. However the most important problem has been generated by financing difficulties. Financial institutions have implemented new internal rules and regulations for assessing the risks associated to real estate finance. These changes discourage the intention of the developers/investors who require banking finance for the undergoing projects.
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Transactions:
Property Seller / Buyer Price Year
Developer (Eur mln)
Fabian Romania Limited London AIM Black Sea Properties 80 2009 market (11 properties, six of which were income producing offices)
European Retail Park Braila BelRom New Europe Property 63 2009 Investments (NEPI) (retail scheme of 53,000 sq m)
Praktiker Craiova Omilos Bluehouse 10 2011
Astoria Center Nicholas Abaco Bluehouse 10 2011
Louis Blanc Cefin Augustin Constantin 6 2011 Oancea
City Mall Insolvency Ioannis Papalekas 17,3 2011 company
Macromall Carpathian local business man 1 2011
Victoria City (joint venture) CD Capital New Europe Property 2011 Investments (NEPI)
Adama Company (intra-group) Adama Immofinanz 2011
Raiffeisen Tower (intra-group) Raiffeisen Evolution 2011
Iris Pitesti Shopping Gallery Avrig 3-5 New Europe Property 2011 Investments (NEPI) (exercised existing option)
City Business Center Timisoara Ovidiu Sandor New Europe Property 80-90 2012 Investments (NEPI) (45,000 sq m)
Vulcan (joint venture) New Europe Property 2012 Investments (NEPI) & (industrial platform in Bucharest) Michael Topolinski
LakeView New Europe Property 61,7 2013 Investments (NEPI) (office – 24,000 sq m)
InterCora Portfolio Miriska Ventures 10 2013
(retail – 32,000 sq m)
GTC Portfolio GTC 7 2013
(retail – 36,500 sq m)
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2.5. TOP DEVELOPERS AND MAJOR PROJECTS
Top developers that finalized the biggest projects in terms of investment value
“Financial Newspaper 2011”
Developer Finalized projects Investment value
(mil. EUR)
GTC America House, Europe House, City Gate, 300 Galleria Piatra-Neamt, Galleria Suceava, Galleria (Israel) Buzau, Rose Garden, Felicity
AFI Europe Cotroceni Park 300
(Israel)
Iulius Grup Iulius Mall Iasi, Iulius Mall Timisoara, Iulius Mall 270 Cluj, Iulius Mall Suceava (Romania)
Baneasa Investments Baneasa Shopping City, BB&TP, 260
(Romania) Baneasa Rezidential
BelRom European Retail Park Sibiu, ERP Bacau 250
(Belgium) ERP Targu-Mures, ERP Braila,
ERP Focsani,
Anchor Grup Bucuresti Mall, Plaza Romania, Anchor Plaza, 225 InCity Residences (Turkey)
Major projects – 2011 till present:
SWAN Office & Technology Park (29,124 sq m).
- Investment of Chayton Capital LLP (EUR 50 million) delivered in the second quarter of 2011.
- Office building owned by Swan Property SRL.
- The first office building in Romania to receive BREEAM Europe's Green certification, rated "Very Good".
- Despite this certification, the office building did not reach a satisfactory occupancy; therefore, in January 2013 insolvency proceedings were initiated against Swan Property SRL.
AdePlast polystyrene factory
- Romanian construction materials manufacturer opened in May 2013.
- A € 3.2 million polystyrene factory with an annual production capacity of 700,000 sq m of polystyrene.
- Investment of around € 22 million in its three local platforms.
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Cosmopolis Residential Complex
- In 2012 approximately 820 homes delivered in the Cosmopolis Residential Complex by the project developer Opus Project & Development, part of the Buyukhanli constructions group.
- Investment of EUR 200 million over the previous five years.
- The project started in July 2007 and is due to be completed in 2014: 6,000 homes occupying a total of 1 million sq m.
- The total investment amounts to EUR 700 million, planned to be realized in 2014. Mega Mall
The Austrian developer Real 4 You's project received a construction permit in November 2012 for a total surface of 70,000 sq m in Bucharest and will start constructing as soon as 50% of the space sells.
Extreme Light Infrastructure-Nuclear Physics (ELI-NP)
- The European project ELI-NP started the construction of a compound that will host the highest laser in the world.
- It will be completed in 2014.
- The funds required rise to nearly EUR 356 million.
- The construction of these buildings will be carried out by a consortium led by the Austrian group Strabag. The consortium also includes Zublin and Aedificia Carpati.
A new stage of West Gate project (14,000 sq m) - finalized in H1 2013
Floreasca City Center (16,000 sq m) and Sky Tower (41,000 sq m), developed by Raiffeisen Evolution – finalized in H1 2013
Sky Tower built by the Austrian construction company Strabag has 37 floors measuring 1,150 sq m each (50,000 cubic m of concrete and 8,300 tons of steel were used) and required credit of EUR 95.5 million from Raiffeisen Vienna.
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3. SUBSECTORS
3.1. RESIDENTIAL
The residential market recorded modest improvements after 1990 for almost a decade. The first signs of change appeared after 2004 when Romania started to export labor force and a constant flow of incoming money started to hit the market. In addition, the new born credit market generated the short booming period in the Romanian real estate that lasted 4 years.
2007 was the year which registered a record number of residential projects, both in Bucharest and the country as a whole. In Bucharest nearly 60 new projects were launched, with completion terms until 2015. They accounted for around 65% of the number of projects initiated in Romania, while the remaining 35% were intended to be developed in the cities of over 150,000 inhabitants.
Despite the large number of residential projects announced, the number of units available for sale was modest.
However, the residential booming period in Romania was characterized by a rapid increase in prices which did not reflect the real purchasing power of the population, surpassing the average income of the inhabitants. This led to an investors’ market or to one led by private individuals having the means for such an investment and not to an end-user market. Because of higher prices in land, construction material and qualified labour, the prices for new residential spaces recorded a growth, while the prices for the apartments in old buildings recorded stagnation and even a decrease. In Bucharest, the prices for old apartments varied between 1,500 - 4,500 EUR/net sq m depending on the location and finishing, while the prices of the apartments in new residential compounds started from 2,000 EUR/net sq m and to 7,000 EUR/net sq m for luxury apartments in exclusive compounds in downtown or North areas. Approximately 25,000 residential purchase transactions were recorded in 2007 in Bucharest (compared to 20,000 residential units purchased in 2006), out of which, 70% represented properties in old buildings. Around 50% of the new apartments sold were purchased by investors.
An increased interest in residential spaces to let was recorded. The Romanian lease market was not much developed as 95% of the constructions were expected to be sold. The offers that benefit from a good location and high quality finishing were rented very quickly, as their numbers were limited. The insufficient offer compared to the demand resulted in high rental levels, which fluctuated between 2000 - 6000 EUR/month for an apartment and 3000 - 8000 EUR/month for a villa, depending on the area. As a consequence, 2007 was a year of uninterrupted expansion regarding launched projects, prices and absorption rates.
The residential market continued to develop through 2008. In the metropolitan area Bucharest - Ilfov a record number of 3750 dwellings in residential compounds was delivered (two times more than the deliveries in 2007), 95% of these being apartments. The supply delivered in this region was exceeded by the number of completions recorded in the North-West and North-East development regions of Romania. Despite the high level of development in the residential market, the number of new apartments delivered in 2008 in Romania was 56% below the European average, with 2.1 units per 1000 inhabitants, while in Italy and Spain this value amounted to 15 units/ 1000 inhabitants.
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The beginning of 2008 brought the first signs of decline, when demand for older residential apartments fell, and as the year advanced this decreasing demand spread to all sectors of the market. After the steady increase of sale prices in previous years, during the first quarter of 2008, signs of stability were recorded. But there were still discrepancies in price expectations between developers and customers, which led to a decreasing number of transactions.
The second half of 2008 was a turning-point. The turmoil on the international financial markets started to show repercussions on the Romanian real estate market with severe effects for the residential segment. The access to bank loans was restricted, a measure that affected both companies and natural persons, generating a drastic reduction in the volume of transactions with activity below the level of previous years and downturn adjustment of prices to a peak of 45%. Moreover, at the end of 2008 the development portfolio was reconfigured, projects were dissolved and construction process was suspended.
The demand for both old and new apartments registered a severe fall. The sales prices registered a decrease of up to 30% compared with 2007, depending on the location, the finishing and facilities offered, varying between 1500 - 4500 EUR/sq m. Though the rent levels registered a slight decrease of 5-15% compared with 2007.
2009 brought more dwellings finalized than the previous years, due to the large number of residential projects started in 2006-2007. The level of newly developed units was 25% higher than in 2008. In comparison with other comparable CEE capitals the overall level of housing production remains very low.
The restricted access to financing for both developers and buyers significantly reduced the turnover volume and translated into a limited number of newly launched projects. The reduced demand as well as limitations in mortgage accessibility still had a severe impact on sales, keeping them at a very low level. Although sales were rather low and demand did not indicate any signs of revival, the residential market did not register major changes in pricing conditions.
In order to encourage the local real estate segment, the Romanian government reduced VAT to 5% for properties under lei 380,000 (+/- € 85,000) and put in place, in the second half of 2009 a special scheme for first time buyers, called “Prima Casa”.
With an average of 40.2 real estate transactions per 1,000 inhabitants, (third highest in the EU), Romanians were more willing to buy the communist cheaper apartments rather than new units.
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Only 25% of the granted loans through Prima Casa were destined for new residential units, the remaining buyers securing apartments in old blocks of flats.
Still marked by the economic downturn, the residential market did not show signs of improvement in 2010 and 2011. Developers focused on finishing the already started projects, instead of launching new developments. As demand did not keep pace with deliveries, the stock of delivered but unsold apartments continued o increase.
Prices followed a downward trend, ranging from 1200 to 3000 EUR/sq m, depending on the location, finishing and facilities offered. At the same time the rental levels, being still affected by the decreased demand and lack of affordability, continued to decrease.
However the market also received a number of smaller projects, addressing the low income population, located mainly on the outskirts of the traditional residential neighbourhoods. These developers adapted to the new conditions of the residential sector and renounced the generous surfaces, luxurious finishes and central locations, for small affordable units with prices similar to those of old apartments.
2012 recorded a bad start with three residential projects entering insolvency process, as the poor sales over the last four years forced banks to consolidate their positions and take charge of the developments they financed. The supply received additional units throughout 2012, the main contributors being on the one hand the projects that registered demand and continued the development of new units, and on the other hand, projects launched before 2008 that needed to be finalized. Because of the prolonged poor sales period, a growing number of developers turned to the leasing market, having in mind to wait for better selling conditions. At the end of 2012 the total stock in the analyzed projects had reached 20,000 units, out of which around 75% have been absorbed. Approximately 50% of the remaining units are available in projects launched before 2008, being poorly adapted to the current market conditions.
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The residential market was mainly sustained by the transactions concluded on the old apartment segment that were the result of the governmental program “Prima Casa” intended for the stimulation of demand. Demand focused mainly on studios and two room apartments with prices up to € 65.000-70.000, the maximum price level financed by the program. Developers of new apartments adapted to the new characteristics of demand and started to build residential compounds that offered apartments with smaller than 40 sq m usable area for studios and 55 sq m for two room apartments. Land price and lower construction costs allowed the developers to promote more affordable prices compared to other residential units, many of them started during the market boom.
The construction sector in Romania | September 2013 ______24
The prices continued to adjust in 2012. Consequently, the overall market average registered an 8% drop in prices comparing to 2011, prices fluctuating between € 800-900/sq m for units located within peripheral areas, between € 900 and 1.075/sq m for those located in secondary areas and between 1.100-1.250/sq m for centrally located apartments. Prices of luxurious apartments located in Primaverii, Kiseleff fluctuated between € 2.200-2.750/sq m, within Dorobanti-Capitale area, fluctuated between € 1.800-2.300/sq m, while the villas within the above mentioned areas fluctuated between € 1.750-2.500/sq m, respectively, € 1.400-2.000/sq m, depending on age, area of the attached land and the quality of finishing. The monthly rent varied between € 200 and 500 depending on the number of rooms, location and existing appliance. For the new apartment segment, rents fluctuated between € 275/month and € 800/month, excluding luxurious properties.
After 2012 with limited new projects brought to the market, a boost in the supply has been announced for 2013. A number of new projects and also subsequent phases in the existing developments are planned to break ground this year. 2013’s novelty consists in the increase in the supply targeting the middle income segment: average quality developments in semi-central traditional residential areas.
Due to difficulties in obtaining banking finance for purchasing residential units the demand has remained at low levels and mainly dependent on Prima Casa programme. Provided that the new programme is approved and launched during this year, the demand for new units is expected to improve.
Due to the high supply of new units and the low demand, an increase in the sale prices is excluded, but also a general diminishing in prices is excluded if the balance on the market is maintained. However, price adjustments can be recorded for specific areas and type of properties. For instance, residential units located in areas with difficult accessibility and high vacancy rates, such as the northern area of Bucharest in the vicinity of the ring road, have the highest probability of price adjustments. As for the rental segment, no significant change has been recorded.
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Major Residential Developments – Bucharest
Residential Compound Type of No of units Developer Development
Confort Park apartments 560 Domus Stil
Central Residential Park apartments 431 Niro Group
Rose Garden apartments 400 GTC
Rezidenz apartments 360 Tiriac Imoboliare &LEG
Quadra Place apartments 343 Conarg Real Estate
Ibiza Sol apartments in villas 304 Ibiza House
Emerald Residence apartments 279 Brooklyn Investments
Jupiter Residential apartments 196 RCC Group
Baneasa Residential apartments 176 Baneasa Investments
Ten Blocks apartments 172 Comnord
Green Lake Residences apartments & villas 157 QLD
Carol Park Residence apartments 144 Bellerive and Hanner Group
Noor apartments 120 Antrepriza Constructii Montaj 4
Felicity apartments & villas 112 GTC
City Center Residence apartments 104 Europa Group Hanner
Belvedere Parc apartments 102 Romfort
Diamond Park apartments 99 RO-IS Development
Estia Residence apartments 79 Werland Estate
Evocasa Titanium apartments 73 Adama
Austrial Village villas 59 SMEA BAU
Baneasa Lake View apartments 55 Vertical Construct
Gardenia Village villas 49 Astra Concept
Sunflower Grand Residence villas 40 General Concrete Land Developer
Ibiza Golf & Light villas 36 Ibiza Construct 2000
Cosmopolis Residential apartments 820 Opus Project & Development
The construction sector in Romania | September 2013 ______26
3.2. OFFICE
The Romanian office market recorded a rapid growth starting 2003 mainly due to new foreign companies that profited from the economic growth to extend their operations, and to the relocations and expansions of existing foreign companies. 2003 marked the rise of the business park concept, which over time proved to be a success. Starting 2006 developers became more and more interested in efficient, good quality buildings, with large floor plans and pleasant landscaping, and started similar projects which, because of the high demand, were all fully leased upon delivery in 2007. After rent compression between 2003- 2005, the market recorded a rental growth in 2006, as a result of the unbalanced ratio in demand and supply, demand being much higher than the supply.
The Romanian office market recorded high levels of activity over 2007. Compared to 2006, the supply of quality office space increased by 50%, the demand strengthened and the rental levels became almost 20% higher, ranging between 20 - 24 EUR/sq m/month for class A offices and 14 - 15 EUR/sq m/month for class B offices, depending on the location and the contracted area. The projects continued to be fully let prior to completion, the vacancy rate being historically low, close to 0% in prime locations. Because of the delays in obtaining building permits and the lack of sufficient experienced construction companies active in Romania, it was customary for most office buildings to be delivered three to nine months late.
The office segment continued to perform remarkably well during 2008 as preexisting unsatisfied demand corroborated with increasing development activity initiated in the previous years contributed to a further market expansion. The office stock registered a significant growth in 2008 comparing to the 2000-2007 period, an increased preference for high quality offices being recorded. The level of rents had an ascending trend, 2008 registered the highest rental level in the last 10 years reaching 25 - 26 EUR/sq m/month within prime office locations. The occupational demand remained still high, but the market activity continued to be limited because of the extremely tight supply of modern space.
Comparing to other capital cities in the core CEE markets, such as Warsaw, Prague or Budapest, the Bucharest stock level and take-up level were relatively low.
27 ______
Source: Cushman & Wakefield
However in terms of office take-up and delivery 2008 was a record year for Bucharest. Both supply and demand registered the highest annual figures ever achieved. Although the number of signed leases declined in the 4th quarter when the initial impact of the global crisis was felt.
The year 2009 was characterized by a significant contraction of demand, a strong increase in vacancy rates and a rapid decrease in rents. Many office projects faced difficulties in being realized. The average rents fell by several points, 15 - 20 EUR/sq m/month for class A offices and 11 - 14 EUR/sq m/month for class B offices.
In 2010 there was a slight raise in demand for office space, but the rents continued their slow decline due to an increasing vacancy rate and a decreasing supply. Following the descendant trend of the market, the rental prices continued their decreasing rhythm by 10 -15%.
Source: Colliers Internationa
The construction sector in Romania | September 2013 ______28
The pace of new office completions continued to slow down in 2011. In terms of availability, 2011 was the first year since 2008 when office take-up surpassed new supply, leading to a drop in the average vacancy rate. Many of the tenants renegotiated their contractual terms, and some also expanded the leased area, office space expansions representing 8% of total net take up. An increasing number of companies consolidated their operations into a single property and took advantage of landlords flexibility and current rental rate levels. Overall, headline rent levels did not record any significant change in comparison to rental rates in 2010, but the majority of landlords offered rent-free months and other financial incentives, and hence lower effective rents, especially in buildings with high-vacancy.
During 2012, the office market recorded a severe diminishing of the completion rate, being limited to only 60,000 sq m, the lowest level in the last 5 years, while the demand remained at comparable levels with 2010-2011. Although the demand was active, the pressure on the vacancy rates was not significant as the main sources of take-up were represented by relocations and pre-lease activity.
In general terms the rents remained stable in 2012 compared to 2011, 13 - 18 EUR/sq m/month for class A offices and 8 - 13 EUR/sq m/month for class B offices, depending on the location.
The first half of 2013 recorded completions of 79,000 sq m. leading to a total modern office stock in Bucharest of 2.23 million sq m. A stable demand rate correlated with the relatively low level of new completions, brought the vacancy rate down to 15.1%. The market has remained dominated by relocations and renegotiations. Rents are under pressure, prime headline rent being estimated at € 18 /sq m/month.
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There are a few office buildings that are expected to be delivered this year, such as Floreasca Park, the first stage of Hermes Business Campus, Sky Tower and Office Wing and H5 of the West Gate complex.
Romania has a competitive office building market only in Bucharest, with very few exceptions. Developers have built and will continue to build offices in particular in the capital, where most of the demand is located. Exceptions from this rule are three cities, namely Iasi, Timisoara and Cluj, where several international service providers and IT companies among others have established hubs, boosting demand for quality offices.
Although signs of improvement are seen in the office sector, progress will be slow. The level of completion will be low considering the projects under construction. Demand is expected to increase linked to some lease expirations, and with limited speculative development which will help to edge the vacancy rate down further. Besides the buildings under construction, there are an additional 356,000 sq m planned for development, for which the start of construction depends on pre-leasing activity and availability for financing.
The construction sector in Romania | September 2013 ______30
Major Office Developments – Bucharest - data 2011
Project (GLA) sq m Developer
BOB Tower 46,000 Upground Estate
Global City 42,000 Global Finance
Floreasca Business Park 36,000 Portland Trust
West Gate Business Park 27,800 ID Grup
Cubic Center 27,000 Fabian Expert RoInvest
Sema Parc – City Building 25,000 River Invest
Bucharest Tower Center 21,300 Industrial Export & Avrig 35
City Gate (tower B) 21,000 GTC
Twin Towers Barba Center 18,000 Private Individual
Euro Tower 16,500 Cascade Group
MultiGalaxy BC I 14,504 MultiGalaxy
Conect Building 12,000 Conect SA
Sema Parc - Courtyard Building 12,000 River Invest
Rams Business Park 11,800 Rams Business Park
Nord City Tower 9,700 Nord Grup
Platinum Crentre 8,780 Dagesh Group
Premium Plaza 8,500 PremiumRed
Multigalaxy BC II 7,350 MultiGalaxy
Victory Business Center 6,315 Management Imobiliar
Swan Office & Technology Park 29,124 Swan Property
Secondary areas Peripheral area
3.3. RETAIL
Due to the strong economic growth starting 2003, the retail market recorded a quick development, focusing on the development of new shopping centers, high street shopping and retail parks. During 2003 – 2008, the demand for retail was in a continuous upward trend, the sector becoming the target of international retailers and developers. Therefore, in order to satisfy the retail facilities,
31 ______
both retailers and developers focused on the capital city, Bucharest, and also on the secondary cities, the major economic centres in Transylvania and Constanta.
2007 - 2008 were very active in terms of new brands entering the market, the fashion segment being by far the most active in terms of newcomers, a fact that led to an increased demand of new shopping malls. However the shopping mall stock in Bucharest was extremely low at the end of 2007 compared to other capital cities of neighboring countries with a similar population. Therefore, Budapest and Warsaw had over 20 modern malls each, but in Bucharest there were only 4 such developments. The new retailers who entered the market centered on the existing opportunities in the secondary cities. As a result, the top regional cities proved to be more dynamic in the overall Romanian retail market than Bucharest.
Banks, pharmacies, telecommunication suppliers, casinos, restaurants and coffee shops showed interest in the high street segment. The high street supply was still limited in relation to the retailers' demand. There were only a few units situated on the ground floor of the new well located office building or of some new residential buildings.
The year 2008 was one of the best years for the retail segment in Romania since 1989. In 2008 the available retail space in Romania increased by 50% as compared with the existing stock available at the end of 2007. The Bucharest retail market experienced a positive evolution, new shopping centers being delivered, Bucharest accounting for more than a third of the cumulative annual supply and being the city that welcomed the largest modern retail scheme in Romania.
Source: Colliers International
Developers were encouraged by the continued expansion of local and international retailers, reflected in the increased volume of retail trade. Driven by rising consumer spending and purchase habits, a growing number of global brands were keen on opening stores in prime shopping schemes. Continuing the trend registered in 2006 and 2007, most of the high quality retail spaces in Bucharest were taken up during 2008. As a consequence of the steady occupational demand, especially from international luxury fashion and accessories brands, starting 2006 there was a rental increase for retail space recorded, the first half of 2008 reaching the highest level with top rents fluctuating between € 120-140/sq m/month.
The construction sector in Romania | September 2013 ______32
The food sector was the most dynamic segment and registered the highest growth, with more and more retail units opened annually in Romania. The retail segment was mainly supported by the super/hypermarkets and do-it-yourself centres which counted for 65% of the retail projects. There was a number of at least 29 DIY and furniture centures estimated to open by the end of 2009.
Source: Romanian numbers – news 2008 Source: Iresearch
But the international financial crisis at the end of 2008 affected the Romanian retail market too, the trading environment started to deteriorate and, as a result, most of the retailers slowed down or postponed their expansion plans. Prime rents in shopping centers registered a decrease, ranging from 100-115 EUR/ sq m/month, while prime high street units achieved rents between 95-115 EUR/ sq m/month.
During 2009 the overall retail market activity continued to decrease significantly. Approximately 50% of the total retail projects announced since the beginning of 2009, were under construction or in the finishing stage, the rest being still in the intention, designing or auction stage. However, there was an increase in shopping centre provision recorded with the opening of three new schemes and two extensions and there were also new retailers on the market who announced extension plans, Romania being thus placed 8th in a top realized by CB Richard Ellis, regarding the most attractive countries for retailers.
As the supply increased and the demand slowed across all the retail subsectors, the rents dropped gradually, ranging between 70 - 85 EUR/ sq m/month for shopping centres and 60 - 70 EUR/sq m/month for prime high street units at the end of 2009.
2010 was marked by a more optimistic atmosphere among retailers due to the slight stabilization of sales. The large DIY and food retailers continued to play a key-role as they were more able and more willing to expand and consolidate their positions on the market. The supply registered a modest increase, the demand improved significantly and the prime rents remained stable.
In 2011 retail locations with the largest geographical appeal continued to be Bucharest as well as large cities with inhabitants over 200,000 people, although the focus of some retailers and developers grew also towards medium cities with low modern stock of retail per capita. The food segment remained one of the most active retail segments in the market, followed by the large fashion retailers led by German operators expanding in the market. Kaufland and Dedeman were the
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most aggressive in terms of opening and securing locations. Lidl also confirmed its aggressive expansion strategy with the first opening and the rebranding of the former Plus stores. DIY retailers recorded a downward trend and marked only a few new openings.
With regards to fashion, there were several new retailers who entered the Romanian market in 2011, such as H&M, who in less than one year opened 11 shops, New Look, Calzedonia etc.
Rents remained stable for most big box segments and top performing shopping centres that had limited vacancy. However different incentives such as free rent or fit-out contributions, as well as clauses that secured the success of the project remained a market practice for existing centres. Incentives were also found in projects that were required to achieve a high occupancy rate at the time of opening.
High Street space, just like in previous years, is covered mostly by food-operators (mini-markets, supermarkets, producers) followed by fashion retailers. The development of the old centre as an entertainment area continued, generally bringing a mix of restaurants, clubs and coffee shops while
The construction sector in Romania | September 2013 ______34
the requirements of luxury brands were still primarily directed to the city center, mainly on Calea Victoriei.
Rents were constant in the central and high traffic areas, as demand for high street locations remained unchanged.
Retail development activity was relatively subdued in 2012, with difficult financing conditions acting as a barrier to the construction of large-scale projects. Several domestic and international retail chains however continued to pursue expansion plans in the Romanian market. Both in Bucharest and regional markets, the most active segments remained supermarkets (Mega Image) and discounters (Lidl, Profi), this tendency reflecting the preference of customers for less expensive shopping. These retail formats are easily adaptable to the necessities of every micro-area.
Medium fashion retailers (with 50–200 sqm selling area) registered an increase in activity in 2012. After consolidating their position on the market between 2009 and 2011, in 2012 they proceeded to the expansion step. The main fashion retailers, such as Inditex, H&M, C&A, New Yorker, Takko or Deichmann, recorded fewer openings in 2012 compared to the previous year.
A few retailers re-entered the market such as Time Out, Lee Cooper or Celio while a few new brands opened stores such as Max Azria, H&M Men, Carpisa, CCC and Oodji.
The new traditional supply was comprised of two large centers (Palas Iasi and Ploiesti Shopping City), a smaller one (Cora Bacau) and an extension of an existing development (Era Park Oradea). Hypermarket segment also recorded important evolutions generated by the extensions of some international retail chains (Cora in Bucharest, Kaufland in regional markets), as well by the consolidation of the portfolios of other retailers (Auchan Group acquired the Real Hypermarket chain in Romania, excluding some stores).
The offer of retail units remained higher compared to the absorption capacity of demand. Even the vacancy rate remained relatively high, rents recorded a slight decrease of about 10% compared to 2011, the rental levels fluctuating between: 45-70 EUR/sq m/month in central area, 18-40 EUR/sq m/month in secondary area and 8-14 EUR/sq m/month in peripheral area.
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Specialized centers in 2012 continued to follow a downward trend with a few new deliveries: new supply in Brasov strip mall, one extension in an existing project (Tom Shopping Center), also two small retail parks (Kaufland Iasi and Mihai Bravu) and several DIY standalone units (Dedeman with 4 new locations, Baumax and Hornbach with one new location each, in Cluj-Napoca and Timisoara, respectively).
Three drive–through food units were launched in 2012 in key traffic locations or in the parking of bigger retail schemes (KFC Mihai Bravu and Baneasa and McDonalds Pipera).
Rent in the specialized shopping remained stable.
In 2012 the high street market witnessed a new wave of available spaces as most of the retailers, especially the banks, underwent renegotiations or preferred to close down more locations in line
The construction sector in Romania | September 2013 ______36
with their new optimization strategies. In addition, a number of spaces in the Old City Center became available as they were either refurbished or had their litigations solved.
The market dynamics were similar to 2011, with tenants such as supermarkets, casinos, pharmacies and telecom operators remaining the main demand drivers in 2012.
Due to the higher offer and lower demand which led to a vacancy rate of 10%, double compared to 2011, there were considerable rent compressions recorded.
In 2013 major international food chains continued their aggressive expansion across the country such as Kaufland (in total 85 units), Mega Image (232 units both Mega Image and Shop&Go), Profi (165 units including Profi City and Profi Mall brands), Lidl (160 units), Carrefour Express (27 units).
As regards fashion retailers, some - mostly operating through franchise - closed their shops in Romania (Debenhams, Springfield, La Senza and Nine West) while directly-operated brands (Inditex Group, H&M, Takko, Deichmann) continued their expansion, with solid growth numbers. At the same time a new entry was registered, Intimissimi.
Online retailers (emag.ro and fashiondays.ro) have reported double digit increase in turnover and continue to consolidate their retail presence, some online tenants even opening physical stores aiming at attracting more customers (Bebe Tei and ErFi).
In H1 2013 only one shopping centre was delivered in Romania (Uvertura Mall Botosani, 15,000 sq m GLA).
Total retail stock at the end of Q2 2013 counts to about 2.7 million sq m, out of which 30% is located in Bucharest. Shopping centres account for 56% of the total modern stock in Romania, while retail parks account for 43.5% and factory outlet centres for 0.6%. Demand shows signs of increasing while both vacancy rate and rent level remains stable.
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The first five cities in terms of modern retail stock /1,000 inhabitants are:
- Suceava (1,118 sq m) - Pitesti (771 sq m) - Oradea (664 sq m) - Sibiu (609 sq m) - Targu Mures (563 sq m)
However there are no other retail schemes under construction in these cities.
Bucharest occupies the 12th position with 411 sq m /1,000 inhabitants, but with good prospects for further expansion.
The cities with the lowest ratio of modern retail sq m / 1,000 inhabitants are: Timisoara, Brasov, Galati, Craiova and Braila.
Insolvency continues to affect the retail market. The year started with two new cases of commercial centers unable to pay their debts, namely Arena Mall in Bucharest, which became insolvent, and Deva Mall, a project that will most likely go bankrupt and be sold through auction. Also the
The construction sector in Romania | September 2013 ______38
insolvency of three shopping centres was registered, all of them owned by BelRom (Craiova, Focsani and Bacau). Developer of Focsani Plaza was recently declared insolvent, while another project - Armonia Braila - failed to be sold through public auction.
Some of the projects under construction due for completion by the end of 2013 are: Cora (Constanta), Promenada Mall (Bucharest), AFI Palace (Ploiesti), Vulcan Value Centre (Bucharest), Galati Shopping City and a few more. Also there are several schemes planned for 2014 in Bucharest and Brasov but their completion is uncertain to date.
City Project Developer GLA (Sq m)
Bucharest Promenada Shopping Center Raifeissen Evolution 36,000
Galati Galati Shopping City NEPI 30,000
Ploiesti AFI Ploiesti Africa Israel 29,000
Constanta Corral Romania Hypermarche 27,000
Botosani Uvertura City Mall Moldova Universal 15,000
Vulcan Retail Park NEPI & Benevo 27,000
* NEPI also plans five more strip malls attached to existing Kaufland hypermarkets throughout the country.
* 2013 will bring the first large fashion brand to the Old City Center and we expect this opening to trigger further expansion of the fashion segment in the area.
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Major Retail Developments
Project City GLA (sq m) Developer
Baneasa Shopping City Bucharest 85,000 Baneasa Investments
Sun Plaza Bucharest 76,500 EMCT
Polus Center Cluj-Napoca 61,000 TriGranit Holding
European Retail Park Focsani 51,588 BelRom
European Retail Park Bacau 51,170 BelRom
Severin Shopping Center Drobeta Turnu 49,057 BelRom Severin
Iulius Mall Suceava 45,000 Iulius Group
Iulius Mall Cluj-Napoca 40,000 Iulius Group
Grand Arena Mall Bucharest 35,000 Euroinvest Intermed
Atrium Center Arad 30,000 Atrium Centers
Liberty Center Bucharest 26,000 Mivan
City Park Mall Constanta 25,800 Neocity Group
Militari Shopping Center Bucharest 25,000 Atrium European Real Estate
Euromall Pitesti 20,000 Flash Consulting
Arena City Bacau 19,500 Arena City Center
Aurora Shopping Mall Buzau 18,500 Cometex
Unirea Shopping Center Brasov 18,000 Nova Trade
Lotus Market - extension Oradea 16,000 Lotus Market
Fashion House Outlet Center Bucharest 14,000 Liebrecht & Wood
Galleria Piatra Neamt 12,252 GTC
Galleria Suceava 10,514 GTC
Mures Mall Targu-Mures 10,000 Matrix Investment Transilvania
Ploiesti Shopping City Ploiesti cumulated Palas Iasi Iasi 110,000
Era Park Oradea 14,700
Botosani Shopping Center Botosani 15,000
Cora Drobeta Turnu 29,000 Severin
Colosseum Bucuresti 37,500
The construction sector in Romania | September 2013 ______40
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3.4. INDUSTRIAL
Due to the Romanian economic growth in all sectors, high levels of industrial space demand were recorded throughout 2004 - 2008. Till 2007 the supply was modest and, as a result, the rental levels were high. In 2004 and 2005 the rents varied between 5.0 - 5.5 EUR/sq. m/month, depending on location and contracted area, while in 2006 the rents registered a decreasing tendency for the first time, ranging between 4.7 - 5.0 EUR/sq. m/month.
2007 was a glorious year for the overall industrial sector. Although there were slight delays in deliveries in the second half of 2007, due to the imbalance between the large number of new projects and the insufficient number of professional contractors, significant growth was recorded in terms of supply, demand and take-up, compared to the previous year. The supply, which was almost four times more than in 2006, came both from new phases of existing developments and from new entries. The demand was mostly driven by the logistic companies, being followed closely by retailers, as a consequence of the impressive growth in the retail sector too. The take-up for warehouse space was almost double in 2007 compared to the preceding year. Therefore, the vacancy rate dropped significantly and the rental levels remained stable.
The Romanian industrial market continued to grow during the first half of 2008. Developers were encouraged by the upward trend of the leasing activity in the last years and completed additional modern facilities. The demand was high, due to the increased activity and relocation of companies to modern logistics parks, and focused mostly on the industrial projects situated in the western part of Bucharest, in particular along A1 highway, where infrastructure quality was highest. But over time developers showed interest in the northern and eastern parts of Bucharest and in other cities too, due to the lower prices of land and also due to the fact that most of the companies dealing with production and manufacturing operations started to look for relocating their business, as Bucharest had the highest salary level in the country. However, Bucharest continued to lead the market, accounting for more than two thirds of the total supply delivered in 2008. Despite the high levels of deliveries, the figures were still low compared to the other CEE capitals. The vacancy rate was still low, recorded at fewer than 5%, due to the fact that a part of the new stock which was delivered in 2008 was pre-let during 2007. Rental levels for modern industrial premises were relatively stable or slightly increased during the first half of 2008, varying between 4.4 - 5.5 EUR/sq m/month, depending on the location, contracted area, facilities, lease period and development stage.
The Romanian industrial market faced the global storm at the end of 2008 rather well. The supply recorded a slowdown, as a number of projects or extensions of existing projects confronted delays due to capacity and financing constraints. But the vacancy rate was still low as the take-up, dominated by the logistic sector, supported by the expanding retail market, was high.
The construction sector in Romania | September 2013 ______42
Rental levels softened, fluctuating between 4.0 - 4.5 EUR/sq. m/month.
2009 recorded an overall slowdown in the industrial sector. Influenced by the economic downturn developers stopped or postponed the construction of their projects. New deliveries, which occurred only in the first quarter, represented extensions of existing industrial parks which were started in early 2008. A significant decline in both the supply and the demand for industrial premises resulted in a low volume of transactions. The compressed demand pushed the vacancy rate up to a record value of 10% from the 4% registered at the end of 2008. Despite the high vacancy rate, the rental levels remained largely unchanged.
In the first quarter of 2010 the Romanian logistics market registered a dynamic pace compared to the same period of 2009. The level of the new supply was lower, but the demand was more active and developers started to become optimistic and confident in the economic recovery. The total take- up recorded an increase and the prime rents remained stable. However due to the more severe financial constraints, after the first quarter of 2010, the vacancy rate increased to 16% while the rents registered a downward trend, ranging between 3.75 - 4.25 EUR/sq. m/month.
Source: Colliers International
During 2011 the industrial market was characterized by stability as the delivery of new logistic and industrial spaces was rather low (10,000 sq m delivered in Bucharest and 95,000 sq m delivered in the countryside).
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Compared to 2010, demand for industrial and logistics space decreased by 10%, and came mostly from existing tenants that relocated or extended their space. Out of the total demand, half was driven by logistic operators. The vacancy rate recorded a slight decrease while the rent levels remained stable.
As in the last four years, in 2012 new development activity in the industrial and logistic segment remained low with limited delivery of new spaces (only 19,000 sq m in Bucharest). While 2011 marked roughly 100,000 sq m in the new logistics projects outside Bucharest, 2012 registered no new deliveries, as a large share of the spaces delivered in 2011 are still vacant.
Demand recorded a compression of 45% and was exclusively driven by existing players. The total demand came from relocation (20%), pre-leasing (35%) and expansion (45%) transactions.
Due to the limited new supply registered during this period, the vacancy rate on the market decreased under the 15% level.
The average headline rents vary greatly from city to city and are directly correlated with the occupancy rate and the land prices in each city. The headline rents for Bucharest logistic spaces varied between € 3.5 and € 4.15 per sq m, depending on the size and lease term. Moreover, most of the owners were flexible in offering further incentives, mainly rent free months. In other cities better financial terms could be obtained, due to the significant vacancy there.
The construction sector in Romania | September 2013 ______44
In 2013 the industrial and logistic segment remained stable as no changes were recorded: no new deliveries, same vacancy rate and same rent levels. However here are several schemes in various regions in Romania planned by international and national developers like Graells & Llonch (Turda), VGP (Timisoara) or Tester (Iasi).
The automotive sector is one of the main drivers of the local industry, major players being: AG, Bosch, VCST Automotive, Leoni, Draexlmaier, MGI Coutier etc.
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Major Industrial Developments – Bucharest
Project Surface (sq m) Developer
Bucharest West 62,000 Portland
ProLogis Park 56,000 Prologis
Cefin Logistics Park 50,000 Cefin
A1 Business Park 45,000 Cefin
Equest Logistic Center 36,000 Equest
Nordest Logistic Park 16,000 EFG
Chitila Logistic Park 16,000 UBM Development
East Logistic Center 15,000 Archonto Casa
Buftea Distribution Park 10,000 Rombiz
Mercury Logistic Park 10,000 Helios Phoenix
Appolo Center 5,500 Elcyrom
Bucharest West Park 20,000 Portland Trust
The construction sector in Romania | September 2013 ______46
4. MAIN NATIONAL TRADE FAIRS
Construct Expo http://www.constructexpo.ro/index.php?limba2=en
Ambient http://www.ambient-expo.ro/index.php?limba2=en
Camex http://www.camex.ro/expozitii_en.php
Construct Week Brasov http://www.constructweek-brasov.ro/
Construct Week Iasi http://www.constructweek-iasi.ro/
Expo Residence http://www.exporesidence.ro/index.php?limba2=ro
TiMon http://timon.ro/
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5. CONSTRUCTION ORGANIZATIONS
The Romanian Association of Building Contractors (ARACO) http://www.araco.org/
The National Association of Constructors http://www.anc.org.ro/
The Union of the Romanian Architects http://www.uniuneaarhitectilor.ro/
The Order of the Romanian Architects (OAR) http://www.oar.org.ro/
The Association of Constructor Registering and Organizing http://www.aioc.ro/
The Association of Distribution of Construction Equipment http://www.aduc.ro/despre_asociatie.php
The Association of Construction Material Manufacturers http://www.apmcr.org/
The Association of Metallic Construction Manufacturers http://www.apcmr.ro/website/
The construction sector in Romania | September 2013 ______48
6. REFERENCES
Publications / Press Releases / Market Reports:
- Romanian National Institute of Statistics
- Colliers International
- King Sturge
- FRD Center
- DTZ Echinox
- Jones Lang LaSalle
- Cushman & Wakefield
- CB Richard Ellis Eurisko
- Coldwell Banker
- BNP Paribas
- Romanian Numbers
- The Diplomat
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Date of publication: September 2013
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