2011 Romania MARKET Overview Annual review & outlook Highlights • Activity in the Bucharest office market improved in 2010, as take-up was recorded at 225,000 sq m, an increase of 125% on 2009. Prime office rents were broadly stable during the second half of the year, after falling slightly in the first six months. • The high street segment was the most active in the retail market during 2010. Strong demand for retail space in Bucharest has helped prime high street rents to stabilize, though rents in secondary locations remain under downward pressure. • Vacancy rates in the industrial sector have risen, despite improved demand and limited development completions. Prime industrial rents fell by 10-20% during 2010. • The Romanian investment market experienced a modest recovery in 2010, with approximately €500 million being invested. However, activity remains constrained by difficult access to finance. 2 www.knightfrank.com Contents 1. Office Market 4 2. Retail Market 9 3. Industrial Market 12 4. Land Market 14 5. Investment Market 15 6. Investment Property Accounting and Tax Matters 17 3 2011 Romania MARKET OVERVIEW Annual review & outlook http://knightfrank.com/romania North Point, with 28,000 sq m GLA, developed by Sity International. Exclusive project of The Advisers/Knight Frank In comparison with the previous year, 2010 was characterized by a resurgence of the office market in Bucharest. While there were fewer deliveries of new office space than in 2009, take-up 1. OFFICE improved and 2010 brought an increase of 125% in the amount MARKET of leased space. Supply Over 70% of the space delivered was in the central and semi-central areas, while the In 2010, the Bucharest market saw the periphery registered only 29% of the total. delivery of over 265,000 sq m of new office Considering that in 2009 the periphery space in 24 buildings. This increased accounted for 45% of all deliveries, this the total office stock in the city to almost situation reveals an obvious shift in 1.52 million sq m. developers’ behavior and an increased orientation towards the central and semi-central areas. Figure 1 Evolution of office stock sq m 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2006 2007 2008 2009 2010 Source: The Advisers/Knight Frank Total stock New supply 4 www.knightfrank.com Figure 2 New office deliveries by location Peripheral Semicentral Central Central Semi-central Peripheral Source: The Advisers/Knight Frank 68th Polona Business Center, with 10,000 sq m GLA, developed by EEC Invest in the center of Bucharest Besides the already established business After the delivery in 2010 of the first two New office areas, such as Victoriei Square (the main BREEAM certified buildings, Lakeview and supply in business district), Charles de Gaulle Square Euro Tower, an increasing trend within the and the Free Press Square, a new district is market is for properties to become certified as 2010 was developing in the Center-North part of the city. green buildings post construction – or for new concentrated Starting in 2009 with the completion of Calea developments to seek green certifications Floreasca 169A and continuing through 2010 from the beginning of the excavation works. with Lakeview, Euro Tower and Nusco Tower, mainly in While the first half of 2010 saw the overall the Calea Floreasca-Barbu Vacarescu area has vacancy rate remain at a similar level to 2009, central and become a major business hub in Bucharest. at around 19-20%, by the end of the year it Due to its vicinity to Victoriei Square and the semi-central had fallen to 17%. The highest vacancy rates good accessibility towards both the city center are found in the peripheral areas of Bucharest locations of and the two airports, this is one of the most as tenants have relocated to more central and in-demand business areas of the moment. Bucharest accessible locations. Figure 3 Office vacancy rate % 25 20 15 10 5 0 2006 2007 2008 2009 2010 Source: The Advisers/Knight Frank 5 2011 Romania MARKET OVERVIEW Annual review & outlook http://knightfrank.com/romania Bucharest map Peripheral Area Knight Frank Light Blue CMYK: 83, 1, 0, 0 Tunari Forest Light Blue S1 CMYK: 100, 36, 3, 21 Baneasa Light Blue S2 Forest CMYK: 30, 59, 13, 45 Light Blue S3 E60 E60 CMYK: 13, 47, 43, 36 Light Blue S4 Sector 1 CMYK: 8, 23, 52, 17 Semi-Central Sector 2 E60 E85 Sector 6 Sector 3 Central Mill Lake A1 Sector 5 Sector 4 Lake Cernica E85 E60 E81 Lake A2 E70 Vacaresti E70 DN5 DN4 Cornetu Forest 6 www.knightfrank.com Office take-up Table 1 in Bucharest Office take-up by year Year 2008 2009 2010 amounted to Take-up area (sq m) 230,000 100,000 225,000 225,000 sq m Source: The Advisers/Knight Frank in 2010, up by 125% on the Demand the majority of demand was mainly directed towards these two locations, while only 20% previous year Transactions closed during 2010 in Bucharest of the take-up occurred in the periphery. came to a total of approximately 225,000 sq m, This resulted in a large amount of vacant reaching a similar level to 2008. office space in peripheral areas. Compared with 2009, this showed an upward Figure 4 The most active sectors were finance/ trend in the market, bringing a 125% increase Office take-up by transaction type banking/insurance and professional in take-up. During the first half of the year, services, followed by pharmaceuticals Sublease almost 95,000 sq m was leased, while the & healthcare and IT&C. Preleasesecond half accounted for 130,000 sq m. The average transaction size increased by Reneg/Rnew 25% in 2010 compared to 2009, from 1,000 Relocat/Expanto 1,250 sq m. The largest transaction registered in 2010 was the 15,000 sq m pre-lease signed by UniCredit Tiriac Bank in the first half of the year for an office building located on Expozitiei Boulevard. Relocations/expansions Renegotiations/renewals Whereas most of the deals signed in 2008 Pre-leases were new demand, a significant percentage Sub-leases of the transactions closed in 2010 were Source: The Advisers/Knight Frank renegotiations or the renewals of existing contracts (57,000 sq m). Despite the fact that at the beginning of the year a large amount of space contracted prior to the crisis was expected to be subleased, at the end of Figure 5 the year, the subleases accounted for only Office take-up by location 4,500 sq m, while relocations together with Peripheralexpansions totaled 145,000 sq m. SemicentralThe reduced amount of pre-leases – approximately 18,500 sq m – was caused Centralmainly by the difficult economic environment which made most companies uncertain of what the future will bring. Moreover, just as in 2009, during 2010, due to the existing available space on the market, tenants had the power to negotiate with the landlords for better conditions and to relocate without Central waiting 6-18 months to secure a location. Semi-central Due to the more attractive lease terms offered Peripheral by landlords, tenants relocated mainly to the Nusco Tower, with 20,000 sq m GLA, developed by Source: The Advisers/Knight Frank central and semi-central areas. Consequently, Nusco Group in Calea Floreasca/Barbu Vacarescu area 7 2011 Romania MARKET OVERVIEW Annual review & outlook http://knightfrank.com/romania Table 2 Net effective rents (€ per sq m per month) Year Central Semi-Central Peripheral 2009 16-18 14-16 10-12 2010 15-17 13-15 9-11 Source: The Advisers/Knight Frank Forecast who will have the financial power to start speculative projects in 2011 and 2012, or for As no new major projects were commenced those who are able to secure preleases in in the last two years, a limited number of order to obtain financing. buildings will be delivered to the market in 2011. The amount of new space expected this Moreover, during the next two years, demand year is approximately 130,000 sq m, showing will begin to exceed supply and, as a result, a clear decrease compared to 2009 (400,000 landlords with space available in buildings sq m) and 2010 (265,000 sq m). with good technical specifications and accessibility will be able to choose between As a novelty, the first building with a double tenants. The decrease in the available space skin façade and heliport, Crystal Tower, with a available on the market will impact on rental gross leasable surface of 16,200 sq m, will be levels. From the second half of 2011, because delivered in the first half of 2011 in the vicinity Crystal Tower, with 16,200 sq m GLA, developed by of the strong demand and lack of high quality Plaza Development in the center of Bucharest. First of Victoriei Square. Two other large projects space, for the buildings which benefit from office building with double skin façade and heliport will be finished in the far northern part of the good locations, accessibility (especially those city: North Point and Platinum & Convention close to a metro station) and good technical Business Center, with 28,000 sq m and specifications, rents may increase. Rents 38,000 sq m GLA, respectively, both located on National Road 1. Compared to 2009, the first half of 2010 saw Due to both the environmental protection a slight decrease in rents, of around 5% for policies adopted by multinational companies premises located in the central and semi- and the cost efficiency which characterizes central areas and of 15% on the outskirts green buildings, we expect that an increasing of Bucharest.