ROMANIA MARKET OVERVIEW REFRESHED REAL-ESTATE PERSPECTIVES 2016 –2017 ROMANIA MARKET OVERVIEW 2016–2017 2016 was a record year for the Bucharest It takes approximately 10 years office market, with take�up reaching for a typical Bucharester to buy almost 350,000 sq m, 41% higher than a new two room apartment. in 2015. The year brought a significant There were approximately 10,000 volume of new deliveries – approximately residential transactions for new CONTENTS 300,000 sq m. Demand in 2016 was apartments in 2016 in Bucharest 50% higher than in the boom years. and surrounding areas. 04 ROMANIAN ECONOMIC OVERVIEW Office space goes back to nature, where human 06 OFFICE MARKET beings feel most at The total investment OFFICE RESIDENTIAL MARKET MARKET home and can reach volume reached their most efficient and €705 million in 2016, effective states. 10 INVESTMENT MARKET almost 16% higher than 2015. Foreign funds accounted for more than 99% of the total activity. 12 RETAIL MARKET 14 LAND MARKET INVESTMENT PROJECT MANAGEMENT MARKET 16 INDUSTRIAL & LOGISTICS MARKET HIGHLIGHTS 18 RESIDENTIAL MARKET 20 PROJECT MANAGEMENT 21 PROPERTY TAXATION INDUSTRIAL RETAIL MARKET MARKET 22 LEGAL ASPECTS Industrial take�up across the country LAND Fashion retailers maintained in 2016 reached record levels with MARKET a competitive pace in 2016, 415,000 sq m of space absorbed. supported by the opening of In Bucharest, total take�up in 2016 new malls and the expansion was close to 280,000 sq m, which was of existing ones. approximately 85% increase compared with 2015, and a record year. The key players on the industrial market are looking to secure new land plots for development and their interest has moved to the northern areas: the DN1–A3 and A2–A3 city ring segments have land plots with all utilities in place and ready to start construction work. 3 ROMANIA MARKET OVERVIEW 2016–2017 ROMANIAN ECONOMY – HIGHER INTEREST RATES AHEAD by dr. Andrei Radulescu, Senior Economist Banca Transilvania The global economy seems to be expansionary policy mix: the central Confidence indicators have recently gradually improving, after GDP growth bank (NBR) kept the monetary policy converged on pre-crisis levels, but slowed down to 3.1% in 2016, (the worst rate at the record low level of 1.75%, political tensions have contributed to performance since 2009), according to while the government cut VAT and volatility in risk perception, which is IMF estimates. increased public wages. reflected by the evolution of financing costs and of the FX markets. In the United States, leading indicators Fixed investments rose for the third have recently improved, pointing to year in a row, but the year-on-year In our core macroeconomic scenario we an acceleration in H1 2017, as the pace slowed in H2 2016, before several forecast that the domestic economy will Trump administration has signaled the new measures came into force: the slow down in the medium term, given implementation of expansionary fiscal elimination of the special construction global economic circumstances and the policy measures. tax and the VAT cut (from 20% to 19%) sluggish structural reforms in Romania. from 1 January 2017. There was an The dynamics of the Euro Area (the We expect annual GDP growth of 4.3% increase in foreign direct investment, main economic partner of Romania) are in 2017, 3.9% in 2018 and 3.2% in 2019, by over 30% year-on-year to €3.9 bn, consolidating, with the accommodative a scenario supported by the recent the highest level since 2008. monetary policy of the European Central dynamics of leading indicators. Bank counterbalancing the accumulation At the same time, private consumption In this scenario, fixed investments would of challenges, including the political accelerated in 2016, an evolution gradually accelerate, towards a 5% tensions associated with upcoming supported by the increased real annual pace of growth in 2017-2019, an elections in Germany, France and the disposable income of the population evolution supported by both exports and Netherlands. and by the recovery of the RON credit private consumption. The progression markets. The Romanian economy grew by 4.8% of the investment cycle would create a in 2016 (the highest pace since 2008), On the other hand, net foreign demand positive climate in the labor market, with as domestic demand accelerated. continued to provide a negative the annual average unemployment rate This trend was supported by the contribution to GDP growth in 2016. converging to 5.3% in 2019. FIGURE 1 Romanian economy outlook (%, YoY) The improvement of labor market of inflation (measured on HICP) would bonds (annual average) would increase sentiment (diminishing unemployment increase from 1.8% in 2017 to 2.7% in from 3.3% in 2016 to 3.9% in 2017, 4.2% 10 60 FIXED INVESTMENTS (RHS) and increasing wages) together with 2018 and 2.6% in 2019. in 2018 and 4.1% in 2019. GDP 8 PRIVATE CONSUMPTION 50 the positive climate for credit markets In this context, we expect the NBR Last, but not least, the EUR/RON 40 would support private consumption. In to start a new monetary cycle in the exchange rate would consolidate in the 6 our scenario, private consumption, the 30 short term, a reaction that would short term and may gradually decrease main component of GDP, is forecast to 4 counterbalance expansionary fiscal and in the medium term, an evolution 20 increase on average by 4.7% YoY during income policies and the sluggishness supported by the outlook for the real 2 10 2017–2019. of structural reforms, in a context economy and the increasing interest rate 0 0 On the other hand, net foreign demand of intensifying geo-economic and gap (Romania vs. Euro Zone). -10 will present a negative contribution to geo-political challenges. -2 Among the main risk factors for our GDP growth in the medium term, but we -20 For sovereign financing costs (the yield scenario we mention: the macro-financial expect a gradual convergence of exports -4 on 10-year bonds), we forecast that the dynamics (including the policy mix) in the -30 and imports’ dynamics. recent upward trend will continue in the US and China; the economic and political -6 -40 With regard to the financial side of the medium term, an evolution determined climate in the Euro Area; the return of -8 -50 economy, we forecast that the annual by the Fed monetary cycle in the US and the twin deficits, the expansionary fiscal rate of inflation will converge on the by the growth prospects for the nominal and income policies and the delay of 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 NBR target in the following quarters. GDP in Romania. According to our structural reforms in Romania; and the Source: Eurostat and Statistics Office estimates, Banca Transilvania forecasts In our scenario, the annual average rate forecasts, the 10-year yield on sovereign regional geo-political climate. 4 5 ROMANIA MARKET OVERVIEW 2016–2017 FIGURE 3 FIGURE 4 FIGURE 5 HIGHLIGHTS OFFICE MARKET Demand by leased area Demand by type of transaction Demand by submarket 2016 2016 2016 2016 was a record year for Overview of which 75% is class A office space. the Bucharest office market, The stock figure is getting close to that of other developed CEE capitals such as with take-up reaching almost Bucharest’s office market experienced its most active year in the last decade, Budapest or Prague. The most important 350,000 sq m, 41% higher with the delivery of 15 new buildings office buildings delivered to the market than in 2015. in 12 projects, so that the new supply were: Globalworth Tower (51,000 sq m), of class A and B offices reached over AFI Park 4 & 5 (32,000 sq m), Hermes The year brought a significant 293,000 sq m. This compensated for the Business Campus II (24,900 sq m) volume of new deliveries – low delivery volume of 2015, when only & III (29,100 sq m), Oregon Park B approximately 300,000 sq m – approximately 60,000 sq m were delivered, (24,600 sq m) and The Landmark although 2009 remains the high and we foresee that the market will now (21,000 sq m). Among the new deliveries, point of the last 10 years with resume its normal growth rate, in line with there was only one refurbishment – 400,000 sq m delivered. the trend of the past 10 years, of between Valeriu Braniste (approx. 4,800 sq m). 46+21+1815g 35+312410g 35+16+87652g 150,000–200,000 sq m each year. By submarket, 42% of new supply was delivered in the Calea Floreasca/Barbu >5,000 SQ M 46% RELOCATION AND NEW DEMAND 35% CENTER-WEST 36% Demand in 2016 was 50% higher We also see a growing trend of 1,000–3,000 SQ M 21% RENEGOTIATION / RENEWAL 31% DIMITRIE POMPEIU 17% Vacarescu area, 25% in Dimitrie Pompeiu than in the boom years, with the companies consolidating the operations 3,000–5,000 SQ M 18% PRE-LEASE 24% CALEA FLOREASCA-BARBU VACARESCU 16% and the remaining 33% in popular central Center-West being the main focus of multiple offices into one single location, <1,000 SQ M 15% EXPANSION 10% CBD 8% areas (CBD, Center and Center-West). PRESEI LIBERE SQUARE 7% with take-up of 123,490 sq m. especially when relocating. The relocation Source: Knight Frank Source: Knight Frank CENTER 6% of BCR to The Bridge, Forte Partners’ At a national level, the most important PIPERA 5% project, which Knight Frank consulted, deliveries were recorded in Timisoara WEST 3% The IT sector dominated is a significant example.