Romania

,
Back in the Spotlight
2014
New Basarab Bridge, Bucharest Photo: Dragos Stoica
2 Romania, Back in the Spotlight
3 Romania, back in the spotlight
Table of Contents
About Romania.....................................................................................................................4
Infrastructure.........................................................................................................................7
Investment Incentives Available in Romania.......................................................................10
General Real Estate Market Overview................................................................................15
Investment Market...............................................................................................................17
Real Estate Financing.........................................................................................................19
Office Market.......................................................................................................................21
Retail Market.......................................................................................................................24
Logistics..............................................................................................................................28
Manufacturing.....................................................................................................................30
About Romania
Romanian Atheneum, Bucharest
5 Romania, Back in the Spotlight
Romania is the 7th largest country in the European Union (EU) in
terms of population and the 2nd largest in Central and Eastern
Europe (CEE) after Poland, equalling the population of the Czech
Republic and Hungary combined, making it one of the largest
consumer markets in Europe and an attractive manufacturing and
outsourcing hub. Romania is on its way to becoming the 2nd most
important economy in CEE considering the current and projected
growth rate at above the CEE average. Romania's GDP in absolute
terms has surpassed that of Hungary and is now only exceeded in
the region by that of the Czech Republic and Poland.
escalation relating to the situation. Romania could even benefit as
Romania is a stable parliamentary democracy, a member of NATO
foreign investors are reconsidering their expansion plans further
since 2004 and a member of the EU since 2007. The US military is
towards the east and beyond the EU and NATO boundaries.
present in the country with 2 bases, an air base next to the Black

Sea port of Constanta, and another under construction next to
Macroeconomics
Craiova, part of the US anti-missile shield in Europe.
In 2013, Romania registered the second highest GDP growth
(+3.5%) in the EU, supported mainly by an upswing in industrial
Presidential elections will be held in November, but this is not
production and exports. The main trade partners of Romania are
expected to have any major impact on the main political goals of
Germany, Italy and France. GDP growth in H1 2014 was 2.6%
the country. Romania is now firmly dealing with its former problems
larger than the one registered in the same period in 2013, while
such as corruption. A number of high profile politicians and former
growth for the entire year is projected by JP Morgan (July 2014
public figures have been officially accused and are now undergoing
forecast) at 3.2%.
trial proceedings or, have been sentenced and put in prison.
The growth is based on solid fundamentals. Government debt is
Bucharest, the capital of Romania, is the 6th largest city in the EU,
39% of GDP, one of the lowest in the EU, while the government
with a population of over 1.88 million inhabitants. The Bucharest
deficit in 2013 was 2.3% of GDP.
metropolitan area includes the surrounding Ilfov county and
comprises over 2.22 million inhabitants. Similar to Poland, Romania
The annual average HICP inflation rate (June 2013 – June 2014)
has a number of large second tier cities such as Cluj-Napoca,
decreased to an historic low level of 0.66%. As a result, the
Timisoara, Iasi and Constanta, each with a population of between
monetary policy rate of the National Bank of Romania reached
325,000 and 280,000 inhabitants. These are strong cultural, social
3.25% (starting in August 2014), the lowest level since 1990. The
and economic regional hubs.
move is aimed at further encouraging the credit market, which has
demonstrated positive signs since the beginning of the year, and at
The recent events in neighbouring Ukraine have had little impact on
supporting the current economic growth. The exchange rate has
the Romanian economy so far in 2014 and we expect this will not
remained stable in the past years, with the RON actually being the
change in the following months, unless there will be a major military
most stable CEE currency since the onset of the financial crisis.
About Romania
Source: INS, Eurostat, BNR, JP Morgan, National Commission of Prognosis
Palas Iasi
Key economic indicators
2009 2010 2011 2012 2013 2014F 2015F
Real GDP (% change) -6.6 -1.1 2.3 0.6 3.5 3.2 3.5
Nominal GDP Per Capita (EUR) 5,800 6,100 6,500 6,600 7,100 7,560 8,310
Consumer Price Index (% change) 5.6 6.1 5.8 3.4 3.2 2.5 3.0
Policy Interest Rate (%, end of period) 8.00 6.25 6.00 5.25 4.00 3.25 3.75
Unemployment Rate (%) 7.7 7.3 7.8 7.2 7.4 7.1 6.9
Current Account Balance (% of GDP) -4.2 -4.4 -4.5 -4.4 -1.1 -1.4 -1.7
Exchange Rate (RON/EUR, annual average) 4.23 4.20 4.23 4.45 4.41 4.48 4.45
World’s fastest internet download connection
Europe’s hardest working nation
6 Romania, Back in the Spotlight
Average numbers of worked hours by employees per year
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Source: Ookla, August 2014
Source: Eurostat
Infrastructure
Basarab overpass copyright @ skycam.ro
Pan-European Corridors Crossing Romania
Source: JLL
8 Romania, Back in the Spotlight
Romania benefits from its strategic geographical location in
Central and Eastern Europe, being at the crossroads of
historical trade routes that are once again increasing in
importance, namely those linking Western Europe with the
Black Sea, the Caspian Sea and the Middle East. The
country is crossed by 3 Pan-European Corridors
. Corridors IV and IX are for both road and rail, while
Corridor VII is only partially serviced by road and rail.
(IV, VII,
and IX)
Roads
At the end of 2013, the length of the road infrastructure was Danube River. The Constanta port has a handling capacity of over
estimated at 84,887 km, out of which 17,110 km were represented 120 million tons per year. In 2013, the port of Constanta registered
by national roads. Sections of these national roads are incorporated a traffic of over 55 million tons, approximately 10% more than in
in the 7 main European Roads and a further 10 secondary 2012.
European Roads spread throughout the country. The country
commenced its highway construction efforts only relatively recently,
but has made significant progress since 2007. In June 2014,
Romania had around 645 km of highways. The main focus of the
authorities during recent years has been the completion of the key
corridor connecting the Black Sea port of Constanta with the
Hungarian border and consequently with the rest of CEE and
Western Europe (part of Pan-European Corridor 4). While the A2 -
the Bucharest-Constanta highway - is currently fully completed, the
A1 - between Bucharest and Nadlac at the Hungarian border, is still
only partially finished and works are being carried out for several
Internet
additional segments.
Romania has the fastest internet speed connection in the world,
with an average data download speed of 55.5 Mbps in 2014 (Ookla,
Moreover, Bucharest is currently connected through highways with
August 2014), followed by Lithuania and the Netherlands, with 46
the industrial hubs of Pitesti and Ploiesti. An extension to the above
and 44 Mbps respectively. The high speed internet connectivity and
mentioned corridor should also provide a direct highway link
power infrastructure (see section below) is of major importance for
between the two largest cities in the country, Bucharest and Cluj.
IT&C related companies, which are massively expanding their
presence in Romania.
Rail
The rail network has a length of approximately 10,800 km, out of
Energy infrastructure
which, 4,000 km has electrified lines. Currently, ca. 3,000 km are
Romania has a good transport infrastructure and a balanced
part of the TEN-T network, part of the Pan European Corridors IV
electricity production capacity, with close to 50% of it coming from
and IX. Several main lines along the same Pan-European Corridor
thermal power plants (gas and coal), 19% from the Cernavoda
4 have already been or, are currently being upgraded. Once
nuclear power plant (2 reactors) and the rest from renewable
completed, rail transport of cargo is likely to gain in importance,
sources - 22% hydro, 9% wind and photovoltaic.
especially to and from the Constanta harbour.
Romania is a net exporter of electricity. It is the 4th largest oil
producer and the 4th largest gas producer in Europe and therefore,
Airports
the least dependent country in CEE on Russian gas imports (below
Romania is well connected by air with all major European cities.
12% of total gas consumption). The presence of large gas reserves
The country offers a network of 16 airports with a combined traffic
in the Romanian Black Sea continental shelf have recently been
of 10.77 million passengers in 2013. The largest and the busiest
confirmed, while significant shale gas reserves are prospected in
airport is Henri Coanda International Airport (Otopeni, 15 km from
the east of the country.
Bucharest city center). It is the main gateway in to the country with
an annual capacity of over 7.6 million passengers. The vast
majority of the large European airlines (regular or low cost) operate
international flights to Bucharest, while TAROM, the state owned
airline, also provides internal flights. The second busiest airport is in
Cluj, with an annual traffic of over 1 million passengers in 2013.
Ports
Romania has direct access to the Black Sea with the Constanta
port (both maritime and river port), being the largest port in CEE.
The country offers 3 maritime ports, and over 10 ports along the
9 Romania, Back in the Spotlight
Infrastructure
Household internet download speed
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CEE & SEE major ports comparison
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Constanta - RO Gdansk - PL Piraeus - GR Varna - BG
Source: JLL
Source: Ookla, August 2014
Investment Incentives
Available in
Romania
Currently, in Romania a wide range of incentives are available for also depending of the region where the investment is performed
investments, which include national grants and tax incentives. and the period when it is performed. In comparison with the state
Please see below a brief summary of some of these incentives, aid intensity level for state aid schemes applicable until 30 June
which could be of interest for investors operating in various 2014 (i.e. 40% for Bucharest-Ilfov and 50% for the other regions),
economic sectors in Romania. the state aid intensity for this scheme dropped for Bucharest (i.e. to
10%/15%) and West region and Ilfov County (i.e. to 35%).
1. National grants
One of the state aid schemes available in Romania is the state aid As regards the eligible costs based on which the state aid is
scheme supporting investments promoting regional development by computed, these are the salary costs (i.e. gross salaries and
means of creation of new jobs. related social contributions due by the employer) incurred by the
beneficiary over 2 consecutive years. However, gross salaries for
Under this state aid scheme investors can benefit of cash grants which the eligible expense can be claimed are capped at the gross
provided that the investment meets certain eligibility requirements, national average salary.
including, inter alia, the requirement for the investment to lead to
creation of at least 20 new jobs, out of which minimum 3 jobs for
disadvantaged workers (namely, individuals between 15 to 24 years
or over 50 years, etc.).
The maximum intensity (amount) of the state aid available varies
between 10% - 50% of the eligible costs, depending on region were
the investment is performed and the period when it is performed.
However, the level of approved grants cannot exceed certain
capped amounts (i.e. between € 7.5 million – € 37.5 million) set
Investment Incentives Available in Romania
by EY
11 Romania, Back in the Spotlight
Metropolis Center, Bucharest
Companies that benefitted from state aid schemes 2012-2014
Year Beneficiary Industry Location Investment
value
(million €)
Approved
state aid
(million €)
Number of
jobs
created
2012 Robert Bosch Automotive Jucu, Cluj county 77.48 25.99 325
2012 Pirelli Tyres Automotive Slatina, Olt county 104.78 35.21 502
2012 De'Longhi Home appliances Jucu, Cluj county 32.50 12.54 677
2013 Continental
Automotive Products
Automotive Timisoara, Timis county 24.79 11.75 227
2013 IBM IT services Bucharest and Brasov,
Brasov county
51.20 21.00 900
2013 Dell
International Services
IT services Bucharest 21.09 8.43 455
2013 Deutsche Bank
Global Technology
IT services Bucharest 39.24 15.69 500
2013 Daimler Automotive Sebes, Alba County 237.97 37.40 510
2014 Siemens R&D activities Bucharest and Brasov,
Brasov county
10.02 5.41 220
2014 GST Safety Textiles Automotive Albesti, Mures county 46.07 18.53 424
Source: EY
2. Corporate income tax incentive eligibility requirements are met). Even though one of the conditions
Romanian authorities reintroduced recently a corporate income tax is for the employer to obtain during the previous fiscal year a yearly
incentive for companies which perform investments in certain types turnover of at least $ 10,000 for each of the respective employees,
of equipment. Starting with 1 July 2014, the profit reinvested in it seems that more and more IT companies registered in Romania
technological equipment utilized in performing economic activity is have already successfully applied for this incentive for their
exempt from taxation. However, only certain types of equipment are employees.
eligible for this exemption. The exemption applies to the profit of the
year during which the purchased equipment becomes operational. Brief comparison of tax rates with Poland and Hungary
The tax exemption triggers the obligation to keep the related Compared with other countries in the region, Romania has certain
equipment in the company's books for at least half of the useful life tax advantages and tax disadvantages, although in some cases the
period of the equipment, but not more than 5 years. mere tax rates do not give away the whole truth, the tax basis and
ease of application of tax rules being also important. Still, below a
3. Tax incentives on employment brief comparison of tax rates with Poland and Hungary (certain
Romania is attractive also from the point of view of the employment exemptions and reduced rates can apply).
tax incentives. Since Romania is keen to reduce the unemployment
rate, it offers certain tax incentives/cash grants for employers that As regards withholding tax, exemptions or reduction of the rate can
create new jobs. apply (subject to certain conditions) for dividend distributions,
interest and royalties payments, services, etc. under the EU Parent-
Even though there is no threshold provided by the law as regards Subsidiary Directive, EU Interest & Royalties Directive and the wide
the number of employees envisaged to be hired, a random number range of Double Tax Treaties.
of 100 employees for example would reflect savings between
approx. € 133,000 – € 200,000/ year for the employers who
conclude employment contracts for an undetermined period with
recent graduates. The cash grant is available for one year if certain
eligibility conditions are met and shall be credited against
employer's unemployment contributions.
Additional incentives are available for 2 years period representing
the employer's social charges for every additional year of service, if
the eligibility criteria is met. Thus, Romania can grant in addition to
the employer for example approx. € 165,000 (assessed based on
the gross national average salary for 100 employees/ year).
Even though certain eligibility criteria should be met and
administrative burden is needed for the employers to benefit from
such tax incentives, Romania develops and updates its strategy in
this respect since more companies have decided to invest in
Romania in the last period and the aim is to simplify the practical
procedure for the incentives requests. These incentives are not
linked with the national grants, being available irrespective of the
investments made in Romania (not necessary at all) or the region
so long as the employer is based in Romania.
Also, on a related note to employment incentives, Romania
envisages to continue attracting development of IT services since
the employees of economic agents operating in Romania according
to the law, whose main activity includes the creation of computer
programs, benefit of salary income tax exemption (if specific
12 Romania, Back in the Spotlight
Country Period
Romania 7 years
Poland 5 years
Hungary Unlimited Can be applied against only 50% of
the tax base for a particular year.
Additional restrictions
Tax loss carry forward
None
No more than 50% of the original
loss can be deducted in one year.
Country Debt-to-equity
limitation
Romania 3:01
Poland 3:01
Hungary 3:01
Thin capitalisation
Interest rate
cap
6% for foreign currency /
National Bank of Romania
rate for RON loans
(currently 3.25%)
None
None
Source: EY
Source: EY
Source: EY
Corporate
Income Tax
VAT Withholding
tax
Romania 16% 5% / 24% 16%
Poland 19% 8 % / 23% 19 % / 20%
Hungary 19% 27% 0% / 16%
VAT treatment for transfers of going concern
Under the general VAT principles, the sale of a totality of assets
belonging to a line of business performed by a taxable person
registered for VAT purposes in Romania should be done, in
principle, with VAT charged. Under this scenario, the buyer would
find itself in the position to pre-finance 24% VAT, which would be
very burdensome and cost wise inefficient, limiting the number of
potential buyers who could afford such a transaction.
However, Romania has implemented a specific relief in case of a
transfer of all the assets or of a part thereof, irrespective if such
Romania also introduced starting 1 January 2014 a construction tax
transfer is performed further to a sale, spin-off, merger, or
computed by applying a 1.5% rate to the book value of
contribution in kind to the share capital. Thus, under certain
constructions subtracting from that the value of buildings and
conditions, the transaction (i.e. transfer of a going concern) would
certain works for which building tax is due.
not be considered as a supply of goods/services and would not be
subject to VAT, as an exception from the general rule.
Important corporate income tax developments
This relief helps the taxpayers to consolidate their business
Romania is continuously catching up on tax aspects, becoming
activities in case of e.g. envisaged mergers or acquisition of
more attractive and removing various hurdles.
businesses, leading to a stronger market position, reduced costs
and improving operational efficiency.
New participation exemption
For example, Romania introduced starting 2014 a participation
Romania – a hub of legal modernity in the CEE
exemption regime, through which certain types of income are
Lately, Romanians have watched Poland's economic performance
exempt from corporate income tax, such as:
with a certain degree of envy. It is easy to imagine that Poland's
certain dividends received from foreign legal entities;
success is partly due to substantially better legislation and more
certain income derived from the sale/assignment of shares;
effective judicial and administrative systems. However, that is more
certain income derived from the liquidation of a legal entity.
a matter of perception than of reality.
These provisions apply if the taxpayer holds for an uninterrupted
period of 1 year, at least 10% of the share capital of the legal entity
distributing the dividends or of the legal entity in which the shares
sold/assigned are held or, respectively, of the legal entity which is
subject to liquidation.
Permanent establishment consolidation
Also, starting 1 July 2013 foreign legal entities are not obliged
anymore to have several permanent establishments for corporate
income tax purposes in Romania if their activities are carried out
under the jurisdiction of several tax authorities. While previously
each permanent establishment, with no distinct legal personality,
was subject to corporate income (no consolidation being possible,
Romania has one of the most modern legislation in this part of the
the tax losses of a permanent establishment could not be offset
world. The essential piece of business-related legislation, the Civil
against the taxable profit of another permanent establishment), now
Code, dates from 2011 and is based on some of the most
all revenues and expenses are consolidated under one single
advanced laws in the world. The Romanian companies law, dating
permanent establishment.
from 1990, was amended several times in order to tailor it to a
burgeoning economy's business needs and to align it with
This is important for many companies, including construction
European directives. A new insolvency law will be issued in the
companies who generated easily more than one permanent
summer of 2014. New legislation protecting fair competition is
establishment, having projects throughout Romania.
currently subject to public debate. To sum up, Romania's legislation
is quite modern and adapted for business.
Parliament House, Bucharest
13 Romania, Back in the Spotlight
Country Building
tax
Land
tax
Real estate
transfer fees
Romania 0.25 - 1.80% 0.2 - 2,800 €
/ha
generally 1.5%
Poland 5.5 €/m
2
0.2 €/m
2
2% when VAT does
not apply
Hungary Discretionary Discretionary 4% (2% over a
certain value)
Source: EY
As regards the judiciary and the administration, considerable
reforms are in progress. Court decisions are being published in
order to ensure consistent practice and specialized business law
courts are about to be created. Corruption accusations within the
judiciary still apply – however, the efforts to clean up the system are
obvious. The administration is also progressing – for instance, a
new financial supervision authority was created in order to enhance
the supervision of the capital, insurance and pension markets.
In addition to the judicial reforms mentioned above, Romania has
adopted on 15 February 2013 a new Civil Procedure Code that is
aimed, inter alia, at increasing the efficiency of the courts of law in
resolving a claim.
The entering into force of the New Civil Procedure Code brings a
long awaited change in the judiciary system by shortening the
terms between the hearings thus assuring a swifter resolution of the
case. Moreover, the Romanian business environment welcomed
this change since in the past the companies involved in a
commercial litigation had low expectations for prompt resolution of
the dispute.
Nevertheless, there is still a long road ahead. However, the
combination of modern legislation and a reformed judiciary will
ensure that Romania continues to be an excellent place to do
business.
14 Romania, Back in the Spotlight
CEC Bank, Bucharest
General
Real Estate
Market Overview
Sustainable technical features and quality are acknowledged as
mandatory for new projects, as the specifications required by
international tenants are becoming more rigorous. The increased
interest in sustainability is proven by the variety of certified buildings
across the country. The most common sustainability rating systems
used are BREEAM and LEED.
The Romanian market benefits from the presence of the 'Big Four'
audit and consultancy companies: EY, KMPG, PwC and Deloitte.
Besides JLL, in Romania there are several other international real
estate consultants such as CBRE and BNP Paribas (the only other
fully owned subsidiaries of their parent companies), Colliers
The Romanian commercial real estate market provides
International, The Advisers - Knight Frank and DTZ Echinox. In
opportunities in all segments, both in terms of development and
terms of law firms, there are several large local players such as
investment. Historically, the market has been driven mainly by local
NNDKP, Musat & Asociatii, Tuca Zbarcea & Asociatii, Popovici Nitu
or regional developers, but in the recent past we have seen
& Asociatii, PeliFilip and Biris Goran, as well as representations of
increasing interest from international institutional players. Some of
major international players such as Schoenherr & Asociatii, DLA
the international office developers with a track record in Romania
Piper, Clifford Chance Badea, CMS Cameron McKenna and
are: Skanska, AFI Europe, Atenor, GTC, Portland Trust, Bluehouse
Kinstellar.
and Immofinanz. In the retail sector, AFI Europe, Sonae Sierra, S
Immo, Immofinanz and Raiffeisen Evolution have been active. The
industrial sector has been shaped by developers such as Prologis,
Portland Trust, WDP and Alinso Group.
The main office developments are located in Bucharest and the top
secondary cities with strong university centers that can offer the
relevant labour force with higher education. Retail developers have
targeted most of the 42 county capitals in Romania, focusing mainly
on those with a high population density and high disposable
incomes. There are industrial projects throughout the country,
however access to good infrastructure and proximity to either
Bucharest or, CEE and the rest of Europe, has directed investors
interest mainly towards the western part of the country (Timisoara,
Arad, Cluj-Napoca, Sibiu) or, to the central-south (Bucharest
Greater Area, Ploiesti, Pitesti).
General Real Estate Market Overview
Palas Iasi
The Office, Cluj Napoca
16 Romania, Back in the Spotlight
Victoria Center, Bucharest
Investment
Market
CBC Timisoara
In 2007/2008 Romania had a very liquid real estate investment While Romania's economy has resumed solid growth from the
market with total volumes of over € 2 billion and € 1 billion beginning of 2013, the real estate investment market has only
respectively, despite the limited availability of modern product at the recently started to show consistent signs of increased investor
time. Romania was then the third largest investment market in appetite. H1 2014 transaction volumes are higher than any of the
terms of deal flow in CEE (after Poland and the Czech Republic). full year levels registered since 2008. It is expected that transaction
Between 2009 and 2013 volumes have decreased significantly, as volumes will grow markedly in the near future with several quality
has the number of active players. However, given its size in terms assets currently on the market. Moreover, a higher degree of
of population and forecasted GDP, it can be expected that Romania diversity on the buy side can be expected, which is important for the
will be second only to Poland in CEE in terms of investment perceived exit liquidity among investors.
volumes at some point over the coming years.
Investment product in Romania is currently historically cheap.
Yields have peaked and have reached levels not seen since 2005,
whilst rents have bottomed out and have also reached levels never
seen before 2005. As a result, capital values per square meter of
modern commercial real estate are at the bottom of the long-term
cycle.
The currently low capital values combined with the economic
recovery that is gaining momentum and is expected to translate into
real rental growth, jointly result in a compelling business case for
investors. Consequently, we expect that yields in Romania will
compress and yield premium compared with Poland and the Czech
Republic will narrow.
Investment Market
Sky Tower & Promenada Mall, Bucharest
18 Romania, Back in the Spotlight
CEE investment volumes
0
2
4
6
8
10
12
14
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
B
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Poland Czech Republic Hungary Romania Slovakia Other CEE
Romania investment volumes
0.0
0.5
1.0
1.5
2.0
2.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
H1
B
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Office Retail Industrial Mixed Residential Hotels
Source: JLL Source: JLL
Source: JLL
Prime yields as
of Q3 2014
Office Shopping
centers
Industrial
8.00% 8.00% 9.75%
Real Estate
Financing
The Romanian economy has had an encouraging evolution in 2013
and in the year up to date. GDP expanded by 3.5% y-o-y in 2013,
benefiting from an outstanding harvest and strong external demand.
Lower harvest yields as well as external turbulences are expected
to drag on growth in 2014, but the underlying process of recovery
for consumer sentiment remains intact.
In this context, in the last two years, banks' sentiment towards Real
Estate financing improved, in line with macroeconomic indicators.
While 2009 up to mid-2012 was a period in which banks were very
reluctant to new financing in real estate, dealing mainly with the
management of the existing portfolio, the financing market
improved since the second half of 2012, with several new large
transactions being financed. As lease/ sale contracts are linked to Euro, and EURIBOR is still at
a low level, financing in Euro for such Real Estate projects
Among such transactions are the following: AFI group obtained € continues to be preferred to local currency financing. In the general
13.4 million from UniCredit to finance the development of the first context of the market, however, RON financing has an increasing
phase of AFI Park offices and € 30 million from Raiffeisen for the stake, in line with refinancing sources of the local banks and NBR
new shopping mall in Ploiesti; NEPI borrowed € 30 million from measures to stimulate local currency financing.
UniCredit Tiriac Bank to refinance the acquisition of The Lakeview
office building and € 20 million from Garanti Bank to refinance the With a Real Estate demand still slowly increasing, banks would
shopping mall in Galati. rather finance already operational income-generating projects
rather than new developments. Nevertheless, depending on the
The outlook for 2014 is positive, with a strong focus on office, quality of the project and developer, as well as prelease (minimum
medium focus for retail, and low focus for industrial and residential required level depending from bank to bank and sub-sector to sub-
projects. As one of the most experienced Real Estate banks in sector, anyway not lower than 10%) new developments are also
Romania, UniCredit Tiriac Bank is actively monitoring the market financed.
and is ready to consider new financing, in accordance with the
prospects for each sub-segment and, of course, with the quality of Interest rate margins are highly dependent on loan period, country
the project itself. Though the bank has always had a prudent and risk and project profile. For example, for a 5 year loan one could
well calibrated Real-Estate policy, the current stance could be expect a margin between 400 bps – 550 bps, still higher than in
defined as cherry picking, UniCredit Tiriac Bank analyzing the new CEE countries like Poland and Czech Republic, however, in line
Real-Estate financing opportunities a case-by-case basis. with CDS (credit default swap) levels (e.g. Romania 5Y CDS is 147
bps compared to Poland – 59.5 bps and Czech Rep – 52 bps).
At market level, despite the recovery signs, financial institutions are
generally expected to keep the prudent approach. Therefore, For residential developments, banks are more focused on mortgage
financing conditions being offered on the market are expected to be lending granted to individuals rather than financing the development
in the following range: itself, considering high completion and cost overrun risks (driven by
crisis weakened construction companies) and market risk (off-plan
sales very difficult to achieve, project concept has to offer
apartments fitting 5% VAT and/or First House programme).
Real Estate Financing
by UniCredit Tiriac Bank
The Lakeview, Bucharest
20 Romania, Back in the Spotlight
Financing conditions
LTC / LTV 50-65%
DSCR 1.20-1.30
Maturity 5-10 years (with balloon)
Full amortization 10-20 years
Interest risk hedging
requirements
Depending on each bank’s
policy, loan amount and maturity
Source: UniCredit Tiriac Bank
Office Market
AFI Park 1-2, Bucharest
After 20 years of post-communist development and the profound
transformation of the Romanian economy into a mainly services
oriented one, the office hubs have become the “new factories” of
the large cities. Modern schemes have replaced the former
industrial plants and the blue collar workers are followed by a
young, skilled and highly educated generation.
The total modern office stock in Bucharest amounts to 2.15 million
2
m of offices (Q2 2014). By local market standards, approximately
50% is considered Class A. The major secondary cities, which
lacked the interest of foreign investors until recent years, are
becoming more and more attractive, with important speculative
transportation in all other Romanian cities is limited to above
projects having been developed or under construction as tenant
ground transportation: trams, trolley-buses and buses. Moreover,
demand surges, driven mainly by foreign BPOs and SSCs
developers are searching for areas within close proximity of densely
(Outsourcing and Shared Service Centers). At the end of Q2 2014,
populated neighbourhoods, important university centers and
Iasi recorded the largest office stock outside of Bucharest with
student campuses.
125,000 m², followed closely by Cluj-Napoca with almost 120,000
m² and Timisoara with 100,000 m². The total stock in the country is
We consider Bucharest to be divided in 13 office sub-markets
estimated at more than 2.5 million m².
according to their geographical coordinates. Traditionally, the main
ones are the northern fringe of the city center - Piata Victoriei, the
Floreasca – Barbu Vacarescu corridor and the adjacent Dimitrie
Pompeiu in the north. In recent years, as the market matured and
major infrastructure works were completed, new submarkets have
emerged, the most important one being Center West. In the
regional cities, the majority of office buildings are scattered around
the city centers.
In general, recent completions show quality specifications that allow
efficient usage by multinational occupiers, which represent a high
share of the office demand. Typical specifications include large and
open floor plates (of over 1,000 m² /floor), 4-pipe HVAC systems,
raised floors, glazed façades, minimum 2.7 m floor to suspended
New developments in the country and especially in Bucharest are
ceiling height, incorporated lighting systems (LED's for green
focused on locations that provide good access by public
certified buildings), CCTV, 24/7 security, BMS, and heavy traffic
transportation. Bucharest is the only city that features a subway
resistant carpeting in the office areas and prestigious main lobby
network in Romania. With 4 main lines (plus one under
areas.
construction), close to 70 km of double track and a total of 51 stops,
Bucharest has the most extensive subway network in CEE. Public
Prime headline rent in Bucharest is € 18.5/m²/month, average
headline rent for non-CBD locations is in the region of € 14-
15/m²/month, while similar Class A accommodation in peripheral
locations command headline rents of € 10-12/m²/month. Secondary
city offices are currently marketed at a relatively high headline rent
of € 12-14 /m²/month, due to the limited supply. Even though the
real estate offer in Bucharest is indisputably more diverse than in
the secondary cities, the cost gap is not that wide considering that
occupiers usually compare prime projects in regional cities with
quality assets located outside the CBD in Bucharest.
Office Market
The Office, Cluj-Napoca
22 Romania, Back in the Spotlight
AFI Park 1-2 & Bucharest AFI Palace Cotroceni mall,
Office stock per capita in CEE & SEE capitals
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Bratislava
Warsaw
Prague
Budapest
Zagreb
Bucharest
Belgrade
m² per 1,000 inhabitants
Source: JLL
Service charges and parking space rent are additional to the office
rent. For the vast majority of modern buildings, leases are triple net,
with all costs included in the service charges, which are reconciled
annually. On average, service charges in Bucharest for Class A
office buildings are in the range of € 2.7 to 5/m²/month, depending
mainly on the efficiency of the asset and whether the land is owned
as freehold (common) or, leasehold (rare). Service charge levels
are slightly higher than on average in the CEE due to the relatively
high property tax charged in Romania, which is recovered by the
Landlords through the service charges.
Emerging outsourcing location
the buildings allow for high space density: up to 6-10 m²/person in
The increased presence of international companies with their
Romania, compared to an average of 12-19 m²/person in EMEA.
BPOs/SSCs/ITOs has greatly influenced office real estate
The Romanian government continues to offer incentives/ grants for
development activity in Romania. In early 2005, only a few
IT companies investing in Romania.
companies were present in the country with such operations. Since
then, the number of new openings contributed to an increase in the
Although there is still an important gap in demand between
annual take-up from a level of 119,000 m² in 2009 to the highest
Bucharest and the secondary cities, we expect a further increase in
take-up ever recorded in Bucharest of 293,000 m², in 2013.
demand for the latter which will be fuelled by the growing
Completions in the capital city in 2013 reached approximately
competition for qualified employees in Bucharest as well as by an
120,000 m² and are estimated to increase to 140,000 m² in 2014.
improved availability of modern office space in such cities. The
The vacancy rate in Bucharest at the end of Q2 2014 was 14.7%,
main beneficiaries will be the tier one cities such as Cluj-Napoca,
mainly concentrated in the peripheral areas of Bucharest such as
Iasi, Timisoara and Brasov.
Pipera North and Baneasa, due to their poor accessibility.
The gap between Bucharest and the rest of the country is also
explained by the size of operations. Very few existing operations
outside of Bucharest exceed 1,500 or 2,000 m², although currently
there are a number of requirements for space to accommodate
between 700 and 3,000 work stations. These active searches are
encouraging groups like Iulius Group and Modatim, the two main
developers with activity outside of their city of origin, to assess
potential development sites and enlarge the market beyond
Bucharest.
BPOs, SSCs and IT Software Development Centers increasingly
target Romania due to the country's human capital, one of the most
educated in CEE and SEE, with strong foreign language skills, as
well as the availability of quality office product at competitive pricing
(for more details on this topic, please refer to JLL's “Romania, Too
large to be ignored” 2013 publication). Technical specifications of
Green Gate Bucharest ,
23 Romania, Back in the Spotlight
Hermes Business Campus Bucharest ,
Market practice Bucharest Secondary
cities
Prime Headline Rent
(€/m
2
/month)
18.5 15.0
Average Headline Rent
Class A (€/m
2
/month)
14-15 12-14
Lease Length
Indexation
Add-on Factor Typically 6-8%
3-5 years
Annually, with Euro CPI
Service Charge
€ 2.7-5/m
2
/month
All costs recovered by the Landlord
Rent Reviews Optional, not yet a practice
In case of lease renewals
Incentives Fit-out contribution
Rent free period
Free parking
Source: JLL
Retail Market
AFI Palace Cotroceni Bucharest ,
The birthdate of the modern retail market in Romania is considered
to be the opening of the first cash and carry store of Metro in
Bucharest in 1996. The first modern shopping center however was
delivered in 1999 when Turkish based Anchor Group finalized the
37,000 m² Bucuresti Mall in the capital. Carrefour inaugurated the
first hypermarket in Bucharest and Romania in 2001.
At the start of the last decade, more than 10 years after the fall of
communism, modern retail was still in its infancy. The need for it
however was tremendous so new schemes performed very well
Prime rents in Bucharest are between € 60-70/m²/month, one of the
and delivered amazing financial results. Once the NATO and EU
lowest levels in the CEE. At the start of 2014, we witnessed the first
accessions became a certainty for Romania, developers became a
increase of prime rental levels after more than 5 years of
great deal more active, so between 2003 and 2009 the retail market
continuous softening. However, for the moment, this trend is only
became effervescent. Most of the existing shopping centers were
registered in the most successful shopping centers and is not valid
built during this period.
across the market.
The economic downturn in 2009 has put many of the planned
schemes on hold and the pipeline has decreased significantly.
Development will bottom out in 2014 when new supply will be the
lowest since 2005. However, even though the market seems almost
saturated, we expect development to restart in specific areas with
lower retail density, fuelled by the pick-up in sales, the restoration of
consumer confidence and the growth of the credit market. Some of
the cities where we believe there is still room for development are
Bucharest, Brasov and Timisoara.
The total modern retail stock currently amounts to approximately
2.55 million m² at country level, out of which, over 890,000 m² is in
Bucharest. Besides the capital, regional cities such as Cluj-Napoca,
Timisoara, Iasi and Constanta also have dominant retail schemes
where most of the important retailers present in Romania can be
found. The most important retail owners in Romania are Iulius,
NEPI, Immofinanz, AFI Europe and Argo.
Retail Market
Promenada Mall Bucharest ,
25 Romania, Back in the Spotlight
AFI Palace Cotroceni Bucharest ,
Prime rents
(€/m
2
/month)
Bucharest Regional
cities
Shopping centers € 60-70 € 25-35
Prime retail street € 55-65 € 25-35
Retail stock in CEE countries
0 50 100 150 200 250 300
Serbia
Bulgaria
Romania
Hungary
Croatia
Slovakia
Poland
Czech
Republic
m² per 1,000 capita
Source: JLL
Source: JLL
Chemicals and the announcement of Leroy Merlin that it will acquire High street retail
the 15 Baumax units. The above transactions emphasize the Romanian cities usually lack a high street retail market with only a
interest of the global leading retailers to expand their Romanian few exceptions. Most high street units are occupied by
activities. supermarkets, bank branches or pharmacies. The important fashion
retailers prefer shopping centers mainly because of the local
consumer habits, fragmented ownership of the street units and
significant investments required for refurbishment. There is
however renewed interest from both retailers and developers for
historical city centers. After a long period of total neglect,
Bucharest's old city has been transformed in the past couple of
years into a vibrant horeca location. This has also attracted the
attention of the big fashion brands with Adidas and H&M being the
pioneers in opening flagship stores in this area. Sibiu is another
exception, having attractive pedestrian retail streets due to
intensive refurbishment works of the city center prior to 2007 when
it was designated as a European Capital of Culture.
Retailers
Big Box retailers are diverse and the majority of them have a strong
presence throughout the country, as can be seen in the table below.
In recent years, a number of important consolidations and
acquisitions were recorded among big box retailers present in
Romania: the purchase of part of Metro's Real hypermarkets by
Auchan (20 out of 24), the acquisition of the Bricostore network by
UK-based company - Kingfisher, the take-over of the local operation
of Praktiker comprising 27 units by Turkish owned Search
Retail Market
H&M,Old city Bucharest ,
26 Romania, Back in the Spotlight
Burberry store, Bucharest
Old city, Bucharest
Unirea Shopping Center, Bucharest
Type Big box retailer No of units
Cash & Carry Metro 32
Selgros 19
DIY Praktiker 27
Bricostore (now BricoDepot) 15
Leroy Merlin 1
Baumax (under acquisition by
Leroy Merlin)
15
Dedeman 37
Hypermarkets Carrefour hypermarkets 25
Auchan 31
Cora 11
Kaufland 95
Supermarkets Profi 244
Billa 82
Mega Image (Delhaize Group) 331
Carrefour Market 78
Discounters Lidl 179
Penny Market (REWE) 158
Furniture Ikea 1
Kika 1
List of major big box occupiers in Romania as of August 2014
Source: JLL
Mass market fashion retailers such as Zara, Mango, Promod and The largest fashion retailer in Romania is Inditex, both in terms of
Marks & Spencer opened their first stores in Romania in 2004 when turnover (estimated at € 175 million in 2013, with a profit of € 25
the Plaza Romania shopping center was inaugurated. However, million) as well as in terms of presence, with 98 stores across the
most of the international fashion brands came later, during the peak country. Inditex initially started as a franchise, but given the
of Romania's economic growth and when the top shopping centers massive success of the Zara and Pull & Bear brands in Bucharest,
in the country were delivered. H&M only recently entered the the parent company took over the operation.
market in March 2011 and have since expanded aggressively,
taking advantage of the availability of space and the favorable
financial conditions it could obtain from landlords. Currently, there
are 34 units throughout the country. The Romanian expansion of
H&M was one of the most successful new market entries in terms
of profitability. H&M has become the most active retailer in Romania
in the last three years, managing to secure locations in all key retail
projects and targeting even cities below 100,000 inhabitants. With
the opening of the first high street location in Bucharest they also
launched the first H&M Home, which they plan to roll out in several
of their stores.
27 Romania, Back in the Spotlight
AFI Palace Cotroceni Bucharest ,
Promenada Mall Bucharest ,
Romanian presence of the ‘Top 20’ retailers in Europe
60% 65% 70% 75% 80% 85% 90% 95% 100%
Hugo Boss
Louis Vuitton
Starbucks
Adidas
Claire's
Geox
Gant
Jack Jones
Max Mara
Massimo Dutti
Diesel
G-Star
Foot Locker
Timberland
Tommy Hilfiger
Lush
Mango
Benetton
The Body Shop
H&M
Zara
Coverage (%) of the key European markets
Not present
Not present
Source: JLL
Mass-market retailers
Mid-to-up market retailers
Upmarket retailers
Logistics
Logistics
Many of the major 3PL players are present in Romania, mainly in
and around Bucharest: Kuehne & Nagel, DB Schenker, Ceva
Logistics, DSV, Gebruder Weiss, Geodis, Maersk, Rhenus, Gefco,
etc... Due to the forecasted increase in retail sales, supported by
the positive results registered in the last 12 months, we expect that
3PL companies will soon be in a position to develop further.
The Romanian retail market is controlled by 9 large international
groups: Lidl & Schwartz (Kaufland & LIDL), Auchan (Auchan, Leroy
Merlin, Decathlon, Orsay, Norauto), Carrefour (Carrefour, Carrefour
Express, Carrefour Market, Supeco), Cora, Metro, Selgros, Rewe
Romania is strategically located in Europe, being crossed by 4 (Billa, Penny Market, XXL Mega Discount), Delhaize (Mega Image)
major Pan-European corridors and benefits from one of the largest and Profi. Almost all of these groups have a national coverage and
commercial deep water ports in CEE. Romania is also a large therefore require efficient logistics solutions.
consumer market, with over 20 million inhabitants with a growing
spending power. With a country level vacancy rate estimated at between 13 and
14.5%, the market is expected to continue to develop mainly on a
built-to-suit (BTS) basis, with only a few speculative projects in the
pipeline.
Prime headline rents in Bucharest for logistic space is between €
3.6-4/m²/month. Since the onset of the financial crisis, headline
rents registered a soft decrease while the gap with net effective
rents widened. Service charges and parking space rent are
additional to the warehouse rent. For the vast majority of modern
buildings, leases are triple net, with all costs included in the service
charges, which are reconciled annually. On average, service
charges in Bucharest for Class A space are in the range of
€ 0.7 to 1 /m²/month.
The current modern industrial stock is estimated at almost 1.8
million m², with close to 1 million m² in and around Bucharest.
Approximately 75% of the stock in the capital city is clustered in its
western part, along the A1 highway. Other industrial hubs have
been established in Ploiesti, Pitesti, Craiova, Timisoara, Arad,
Oradea, Cluj-Napoca, Sibiu and Brasov. Romania's industrial
market of is still underdeveloped with a total stock per 1,000 capita
of just 89 m² versus 431 m² in the Czech Republic. Bucharest is
significantly undersupplied compared to its regional peers, as can
be seen in the chart below.
There are several drivers for the logistics market in Romania.
Among them manufacturing (especially in the automotive sector),
the expansion of 3PLs and the strong growth of modern retail.
Logistics
Phoenix Logistics Center, Bucharest greater area
Europolis Park, Bucharest greater area
29 Romania, Back in the Spotlight
Industrial stock and population in CEE capitals
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Bucharest Budapest Warsaw Prague Bratislava
M
i
l
li
o
n
Population (inhabitants) Industrial stock (m²)
Prime rents
(€/m
2
/month)
Bucharest Regional
cities
Distribution centers € 3.6-4.0 € 3.5-3.75
Distribution centers
(exceeding 20,000 m
2
)
€ 3.5-3.7 € 3.25-3.5
Light industrial € 3.5-4.25 € 3.5-3.75
Other costs
Service charges € 0.7-1.0 € 0.7-1.0
Source: JLL
Source: JLL
Manufacturing
Ploiesti West Park
The majority of these facilities are located around Pitesti and Craiova
(close to Dacia and respectively Ford) or in the western part of
Romania due to the obvious advantages of this region - proximity to
Central and Western Europe, Romania's main export markets,
present and planned highways and the well qualified labour force.
The most important company producing auto parts in Romania is
Continental, which operates in several locations in the country.
Runners-up include auto safety equipment producer - Autoliv
The manufacturing sector is currently the main driver of the
Romania, with 2 factories, one near Brasov and another in Lugoj,
Romanian economy and is expected to remain the key source of
and the Japanese Takata Corporation with a plant in Arad. Other
GDP growth in 2014, as it has during the last few years.
important names include Delphi, TRW Automotive Safety Systems,
The manufacturing sector is well diversified, however automotive
Leoni Wiring Systems, Johnson Controls, Star Transmission
has become the most important branch of the Romanian industry.
(Daimler Benz), Lear Corporation, Bosch, Yazaki, Schaeffler and
Other key branches are FMCG and the oil and gas related
Hella.
industries. Romania also has a long tradition in furniture production,
pharmaceutics, heavy industry, machinery and home appliances.
FMCG industry
Automotive industry
Romania has attracted many of large multinationals in this industry
that have opened production facilities around the country. Moreover,
With over 50 years of automotive tradition, Romania is an important
some FMCG companies, such as Unilever and Procter & Gamble
automotive hub in the CEE and SEE region. Romania is the 9th
are controlling their SEE operations from Romania.
largest car producer in the EU, ahead of Italy, and in 2013, has
This industry is of particular importance considering the size and
registered the highest growth rate at 22%. The 2 major car
growth potential of the market, but also given the fact that almost
producers present in the country, Renault and Ford, together with
45% of Romanian's household expenditures remain directed
Continental, are the dominant players in the Romanian automotive
towards food and beverages. All branches of this industry are well
sector, all registering turnover figures in excess of € 1 billion locally.
represented by both local as well as international companies.
Renault has a 15 year presence in Romania after the acquisition of
The largest company in the FMCG industry by turnover is British
the Dacia plant in Pitesti in 1999. Currently, the four most successful
American Tobacco, with a history of over 20 years in Romania,
Dacia models out of a total of seven are produced here as well as
operating a plant in Ploiesti. The other top spots are completed by
parts for cars assembled in other plants of the group.
JTI, Philip Morris, Coca Cola, SAB Miller, Procter &Gamble and
Ford took over the former Daewoo factory in Craiova in 2007. The
Heineken.
Ford B-Max model is assembled in this unit, which is also producing
several modern engines for other Ford vehicles.
Oil and gas
Romania has not only attracted car manufacturers, but also various
Romania has a long history of oil extraction, which began more than
automotive related industries producing tyres, car seating, steering
100 years ago. Currently, the country is the 4th largest oil producer
wheels, electrics and electronic systems, plastic components,
in Europe and still has many important and unexploited reserves on
exhaust systems, etc.
the Black Sea continental shelf. OMV Petrom (Austrian group OMV
is the main shareholder) is the largest company in Romania and the
largest oil and gas company in SEE. It employs over 20,000 people
and had a turnover of almost € 6 billion in 2013. Other important
companies are Rompetrol (owned by the Kazakhstan national oil
company), Lukoil, Mol, ExxonMobil and Chevron. Besides the
companies dealing with extraction and processing, a large number of
companies providing equipment and support have been attracted by
the country. Last year, Texas based Lufkin Industries opened their
second production unit in the Eastern Hemisphere, in Ploiesti West
Park, where they manufacture oil extraction equipment. Other
important names in this segment that are present on the Romanian
market are the Cameron, Tenaris, Wheaterford and the
Schlumberger Group.
31 Romania, Back in the Spotlight
Manufacturing
Ploiesti West Park
Car manufacturer Main figures
– Present since 1999
– 18,000 employees
– 80% of the cars exported
– Car production capacity: max 424,000
units/year
– Present since 2007
– 3,500 employees
– 90% of the cars exported
– Car production capacity: max 350,000
units/year
Ford
Renault
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JLL
Victoria Center
th
145 Calea Victoriei, 10 Floor
010072, Bucharest, Romania
Tel: +40 21 302 3400
Fax: +40 21 302 3401
Gijs Klomp
Managing Director
Head of Capital Markets
JLL
Bucharest, Romania
+40 21 302 3400
gijs.klomp@eu.jll.com
Andrei Vacaru
Head of Research &
Consultancy
JLL
Bucharest, Romania
+40 21 302 3400
andrei.vacaru@eu.jll.com
Andrei Drosu
Junior Consultant
Research & Consultancy
JLL
Bucharest, Romania
+40 21 302 3400
andrei.drosu@eu.jll.com
Cristina Clujescu
Manager | Tax Advisory &
Compliance Services
EY
Bucharest, Romania
+40 21 402 4000
cristina.clujescu@ro.ey.com
Gabriela Dragulin
Head of Real Estate Finance
UniCredit
Tiriac Bank
Bucharest, Romania
+40 21 200 1783
gabriela.dragulin@unicredit.ro
Content Partners
Palas Iasi
Venkatesh Srinivasan
Tax Partner
EY
Bucharest, Romania
+40 21 402 4000
venkatesh.srinivasan@ro.ey.com