Real Estate Report Romania Market knightfrank.com/research Overview 2020 - 2021 Inside -Out 4-9 10-17 Economic Overview Office Market 18-19 20-23 Capital Markets Residential Overview 24-27 28-29 Industrial & Logistics Land Market Market 30-35 36-37 2021: Workplace Trends Real Estate Taxes 38-39 Contents Legal Challenges 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.