20 1 THE7 COLLIERS REPORT Accelerating success.1 Top 10 Predictions 2017 4 Economic Overview 6 Industrial Market 10 Retail Market 14 Office Market 18 ontents The Human Touch 22 C Green Buildings 26 Investment Market 28 Land Market 30 Hotel Market 32 Taxation of Capital Gains 34 Fire Permit Compliance 36 2 Research & Forecast Report | 2017 | Romania | Colliers International DEAR CLIENTS, FRIENDS, There are interesting trends to watch coming forward in development: i) a new location opening for HQs in the north In 2016 our company has celebrated 20 years of activity of Bucharest, ii) warehousing for e-commerce and in the in Romania and we are thankful to a long list of clients for further north of Bucharest, iii) production facilities checking trusting us with their real estate businesses. We have today into more south central cities, to avoid work force battle in a large team of highly skilled and enthusiastic experts, the center-west of the country. in 7 main business lines, offering more than 25 service specializations. Looking more into the future, the big surprise will come Ilinca Paun So one could argue that we are ready for a new cycle of in the following years from retailers, who will adapt their growth and a fast pace new development market. But can Managing Partner shops and overall business model to technology and how it we have a development market without an investment Colliers International changed the way people live. Robots and AI are no longer liquid context? Not really, but the first triggers the other, it [email protected] fantasies and the years to come will be a tipping point for is a matter of time. So our efforts are to create liquidity by changing the way we educate and allocate human resources. creating commercially appealing products and lobbying for Offices will no longer be offices, but living-working areas, Romania as a whole. where creativity will flourish, where millennials feel engaged The main drivers of the new developments in 2016 were in their meaningful work, where they can work out, read the service industry fueling good terms financing for office a book and have a coffee with a friend. Projects will have projects in Bucharest and other major cities, the appetite for mixed functions, office, retail and residential, creating an buying off plan residential units caused by accessible loans urban experience for the young families, with all services at and salary increases, which has also driven construction convenience and accessible by apps. COLLIERS of new retail schemes and warehousing needs for a large I hope you enjoy reading our market report, covering all INTERNATIONAL number of food operators or e-commerce players. sectors, including land market and hotels, and write to us Brexit and Trump filled the digital and print media of the your opinions and questions. Please send them through is a leader in global real estate services, second year half, and they were the main detractors for real to our colleague, Mihai Patrulescu, Head of Research and defined by our spirit of enterprise. Through a estate funds specifically. But the outsourcing and automotive Strategic Analysis, who coordinated this edition of our annual culture of service excellence and collaboration, companies cannot be stopped in expanding in Romania, not report. we integrate the resources of real estate even by the limitations of the work force becoming scarce, We also welcome your inquiries about our service lines or specialists worldwide to accelerate the or to be more accurate, becoming expensive, or the state client portfolio and expertise, and look forward to working success of our partners. We represent inability to plan, finance and build highways. Romania has together in the near future. property investors, developers and occupiers in what it takes to be attractive. Languages, flexibility, tech local and global markets. Our expertise spans skills, several good looking state aids, and the traditional well Ilinca Paun – Managing Partner all property sectors–office, industrial, retail, known hospitality. So development market has boomed in residential, rural & agribusiness, healthcare & office and industrial compared with previous years and stock retirement living, hotels & leisure. will increase significantly in the next 2 to 3 years. 3 3 TOP 10 3. IT and BPO/SSC sectors will PREDICTIONS be the main drivers of office space demand, particularly outside of Bucharest IT and Outsourcing services have seen a massive development over the past 5 years and will maintain the positive momentum in 2017. We expect these sectors to be 2017 the second most important contributor to GDP growth, and to be the key driver of demand for office spaces both in Bucharest as well as the other major cities. 1. Huge uncertainty externally, 2. Investment transactions will 4. Competition on the office but CEE will fare better than reach a post-crisis maximum market will increase other EMs in 2017 As deliveries continue to outpace the newly created demand on the Bucharest office market, the vacancy Financial markets in the CEE region weathered the storms The pipeline for investment transactions in 2017 is already rate is poised to increase over the upcoming period. New of 2016 remarkably well. In fact, most structural metrics covering >65% of the total volume of transactions from buildings which offer good connections to the public indicate that CEE countries are closer to developed 2016. Liquidity has improved as new investors entered transport scheme, Green certifications and an interesting economies rather than other Emerging Markets. Romania the market in 2016 and as new investors are currently mix of amenities will remain the market favorite and will followed this CEE trend and is poised to show resilience prospecting Romania. be able to keep rents around the current levels. Conversely, against external shocks in 2017. We consequently expect Bank lenders will maintain a positive appetite towards real older buildings with poor metro connections will either continued investments in the local market, propping up estate projects. In addition, alternative sources of financing have to make additional investments, or risk competing demand for office and industrial spaces. such as bonds or mezzanine debt have become more solely on costs. convenient and attainable. 4 Research & Forecast Report | 2017 | Romania | Colliers International 5. New industrial developments 7. Bucharest retail market will 9. Residential areas will will hit an all-time high focus on increasing client move closer to the recently The total stock of industrial spaces is set to increase flow; other cities will focus on developed business centers by 500,000 sqm in 2017, marking the highest rate of Substantial investments made in land during 2016 are deliveries/stock in the post-crisis period. Demand will developments of retail parks aimed towards the development of new residential areas stem primarily from the FMCG sector (40% of new Following the deliveries of the Parklake and Veranda in Bucharest, closer to the new office developments in deliveries), E-commerce (20% of new deliveries) and IT shopping centers in 2016, we expect no more retail the Northern part of the city. We expect demand for these & Electronics warehousing (10% of new deliveries). New developments in Bucharest during 2017-2018. However, new residential developments to be supported by the deliveries will remain focused on the Bucharest area (80% the existing shopping centers will focus on consolidating demographics of employees, which are young enough to be of new deliveries), but there is also an increasing interest their market positon and maximize the client catchment. looking towards either their first or second home purchase. for other cities. New deliveries will be concentrated in secondary and tertiary cities, with a strong focus towards retail parks. 6. 2017 will be a point of 8. New brands will enter the 10. Land market will be geared inflection for infrastructure retail market towards the retail and 2017 will result in the delivery of 180 new kilometers We believe there is a strong potential for new retail brands residential sectors of highway, which will provide a fast-track connection to join the Romanian market. Increases in consumer We expect the land market to be geared towards the between the major cities in Transylvania. This should spending coupled with the delivery of new retail spaces evolving needs of consumers. Residential developments in encourage investors to thread further East and will help provide a strong momentum for the market. Brands new areas will remain attractive, as will the expansion of alleviate some of the workforce shortfalls in the western from Poland and Turkey may perform particularly well networks for supermarkets, hypermarkets and DIY stores. part of the country. Both factors should result in increased since: i) these brands match the needs of the prospective Buyers will also focus on minimizing time-to-market for demand for industrial spaces, especially in cities such as consumers very well, ii) Romania is the largest market developments and will consequently prefer plots with a Cluj Napoca, Timisoara, Sibiu or Deva. after Poland in the CEE region, and iii) established solid administrative situation (e.g. PUZ, CUT, PUD). Polish and Turkish brands have had a very encouraging experience in the recent past. 5 ECONOMIC OVERVIEW 1. EXTERNAL CONTEXT for global trade (particularly as Brexit negotiations will Even with growth at 3.3%, the CEE region has outpaced come into play) as well as timid consumer confidence. all other EMs with the exception of Emerging Asia. Huge uncertainty abroad due to Trump, Brexit, With US growth on the rise and flat-line growth in the Furthermore, the region has weathered remarkably well elections in Europe Eurozone, we expect a divergence in the monetary policies the market storm that followed Mr. Trump’s victory in 2017 is gearing up to be a year of unprecedented for the two regions.