Romania is the Balkan’s best kept

secret, with enormous potential for rapid

economic growth and development over
the next five years…………..
Source DTZ 2008

Why Romania

Why Constanta
 The Rise of the Balkans
European logistics report

Contents
Executive summary ................................................................................................ 1
Economy and trade ................................................................................................ 4
Infrastructure ......................................................................................................... 8
Market Comparison – Romania and Bulgaria ...................................................... 13
Industrial Rents .................................................................................................... 15

After years of conflict, the Balkans has entered a new, more positive era and businesses
and investors alike are keen to take part. The prospect of EU accession is opening doors
to both business and market reforms. Roads, railways, ports and airports are being
upgraded and expanded as trade flows begin to surge. The Balkans’ strategic location
between Europe and Asia gives the region huge potential to become a key hub for direct
trade between the two continents. The following report provides an introduction to the
Balkans region and analyses its industrial and logistics property markets.

Executive summary
• The history and location of the Balkans put them ‘undeniably at the heart of Europe’.
The EU recognises its role in helping the region to achieve this and has offered these
countries EU membership. Indeed, Romania and Bulgaria have already joined and
others are set to follow. With the prospect of membership comes the added bonus
of billions of euros to aid in the countries’ development. Investors, too, are eyeing
the region more closely.

• Transport infrastructure is vital to industrial and logistics property markets; the

Balkans’ infrastructure is historically fractured and of poor quality. However,
conditions are improving, both within and surrounding the region, mainly due to a
number of significant infrastructure projects, such as TRACECA, TEN-T, and Pan-
European corridors. Eventually, the Balkans will be fully integrated into EU transport
systems. The new Silk Road presents another opportunity for the region and will
help facilitate its increasing role as a transportation hub between Europe and Asia.
Ships are currently the main mode of transportation for trade between the EU and
China. However, many companies are exploring the possibility of rail and land routes
as it is much quicker – the transport of cargo by rail can take half the time of
transport by sea.

• Logistics operators will seek those locations with excellent access and connections,
such as in and around ports, airports and transport corridors. Ports and airports, in
particular, are benefiting greatly from improving infrastructure and rising levels of
worldwide trade – several have already started expanding. The port of Constanta in
 Romania is one of the fastest growing ports in Europe and boasted the title of the
fastest growing port in the world in 2005.

• Increasingly, China is driving the Balkans’ logistics markets and this will result in the
development of a number of logistics hotspots. Trade between China and Europe
has grown significantly in recent years, and, in 2007, the EU overtook the US as the
main destination for Chinese goods.

The credit crunch that emerged at the end of 2007 will continue to influence the
world in the medium term. The turmoil in the credit markets began in the financial
sector and rapidly spread to the wider economy. However, we believe that as the
European industrial market recovers, the Balkans will increasingly establish itself as
Southern Europe’s key industrial hub providing access to all West European markets
via the increasingly important Rhine –Danube navigation link. We believe that the
developing transport infrastructure in the developing Balkans region will help to
drive their economies forward out of the Global recession at a faster rate than
elsewhere in Europe.

The purpose of this report is to provide an insight into the primary Balkan countries with
seaports on the Black Sea or Aegean and to analyse their industrial property markets.
The Central European Free Trade Agreement (CEFTA) has been recognised as an
effective tool for opening the region to competition and growth and helping prepare the
Balkans for EU accession. It was therefore decided to expand the agreement in 2006 so
that it now includes Albania, Bosnia and Herzegovina, Croatia, Serbia, Kosovo,
Macedonia, Moldova, and Montenegro. This agreement will greatly benefit the
industrial sector by encouraging trade and investment in the region.
Economy and trade
Macroeconomics and the performance of the industrial property markets
are closely linked.

Logistics operations are not confined to operate within one country’s borders.
Therefore, strong economic growth in one country can raise demand for logistics and
distribution property in another. The following section provides a brief overview of the
economies of the Balkans and their performance over the last few years.

Emerging from hibernation The last decade has seen the Balkans continue its
transition from primarily centrally-planned economies towards fully fledged market
orientated democracies. The region has generally outperformed the rest of Europe this
decade, driven by trade growth, large inflows of investment and private consumption.

Relative political stability and economic reforms have underpinned large investment
flows into the Balkans over the last 6 years. Indeed, gross fixed investment (as a % of
GDP) was higher than the EU average in all countries, except for Serbia and Turkey, last
year. This ongoing process of modernisation has been paramount to developing a
manufacturing base to satisfy growing EU demand for cheap manufactured goods.
Unsurprisingly, those economies with greatest access to EU markets have tended to
achieve the greatest gains. The consequence of economic reform and development has
been strong employment and real wage growth across the region. These labour market
developments have been joined by an expansion in the availability of consumer credit –
which grew at double-digit rates across the region last year. This appetite for borrowing
has been a major boon to consumers, who have been happy to borrow amid low
interest rates and expectations of permanently higher future income streams. Indeed,
private consumption was the largest contributor to growth in seven of the 12 states in
2007. Despite these positive trends, the region remains very diverse with respect to
income, standards of education / healthcare and infrastructure. For example, GDP per
head varies from a high of $32,000 in Greece to a low of $1,200 in Moldova. The varying
speed of integration with the rest of the EU has been shaped by several factors: regional
tensions, varying access to EU export markets, and varying success in liberalising the
economy.

Declining inflation and structural reforms have been important achievements over the
last decade, yet there is much more to achieve. In particular, the business investment,
property and labour markets remain more restrictive than their Western European
counterparts. The current market turmoil from the global economic downturn
represents a significant downside risk to the short-term outlook. Going forward,
policymakers will continue to face the challenge of managing credit inflows while
minimising the risks of flights of capital and economic instability. An over-reliance on FDI
and rising credit growth has contributed to some of the largest current account deficits
in Europe.

Trade
Trade is growing in the Balkans, but their huge current account trade deficit is a risk to
the economy. The Balkans have witnessed strong growth in both exports and imports
over the past ten years. As can be seen from the charts featured here, export growth in
the region has consistently outperformed the EU average. If we look deeper into the
figures, it may not be a surprise to see that the EU25 accounts for more than half of all
trade with the Balkans. In 2006, the EU25 accounted for 57% of the Balkan’s exports and
51% of total imports in 2006 (WTO). Surprisingly, trade with the US is minimal. Turkey
exports the most to the US, but as a percentage of total exports, it accounted for just 6%
in 2006 (EIU).
Buzzing skies and the Black Sea boom
The north-western range of ports and airports (such as the ports of Rotterdam and
Antwerp) continue to dominate freight transportation in Europe. However, over the last
five years, ports and airports within the Balkans have witnessed strong growth and are
gradually emerging as logistics hotspots.

The fact that the region is surrounded by several seas – the Black Sea, Mediterranean
Sea, Adriatic Sea, Ionian Sea, Aegean Sea, and Marmara Sea – makes maritime shipping
a prime area for growth going forward. Moreover, the region’s ideal location between
Asia and Europe gives its ports a competitive advantage and opportunity to develop into
major trade hubs.

Historically, levels of container transport in the Balkans have been relatively low. This is
changing. The Black Sea in particular has witnessed strong growth in sea traffic in recent
years. As a result, a number of countries on its shores have implemented plans for port
expansion.

Bulgaria boasts 380 km of Black Sea coastline with two container ports – Bourgas and
Varna. Varna is home to two container terminals with a through-put of 100,000 TEU.
Bourgas also has a container terminal and is linked by road and rail networks to several
of the Balkans’ other major industrial inland areas. There are plans to add more
container terminals to Bourgas, which could increase cargo handling to 150,000 TEU by
2010.
 Romania has the smallest amount of Black Sea coast at just
Rising Constanta 240km and only two container ports. One of these – Constanta –
can claim to be the biggest port on the Black Sea.

In 2006, the port handled over one million TEU, more than any
other port on the Black Sea. The port even held the title of the
fastest growing port in the world in 2005, when the number of
Fastest Growing Port in
TEUs handled grew by 99%. In fact, between 2002 and 2006,
the world (2005) growth in the number of TEUs handled averaged 57% per year.
To put this in context, Rotterdam – Europe’s largest port –
experienced growth of only 10% over the same period.

To maintain high growth rates the port is expanding and has

Rapidly Expanding built a new South Container Terminal which will increase
capacity to 2 million TEU a year.

In contrast to Rotterdam, which suffers from a lack of space, the

Plenty of space port of Constanta has plenty of space available for further
expansion.

Deepest port on The port is the deepest port on the Black Sea meaning that it can
the Black Sea accommodate the largest container ships.

Constanta is being incorporated into the trans-European

transport network – a massive ongoing pan-European transport
infrastructure programme. Also, its location on the Danube River
Improving (also undergoing expansion) means that it is directly connected
hinterland to the port of Rotterdam. This will benefit both ports, as cargo is
connections transferred from one to another. Going forward, cargo from
China bound for Rotterdam may seek to stop at Constanta in
order to make use of the inland waterway as an alternative to
the sea.
Infrastructure
TEN-T – With an estimated cost of €600bn, the EU’s trans-European transport network
(TEN-T) is one of the largest and most expensive transportation projects in the world. Its
aim is to provide a highly efficient and integrated transportation system for EU member
states through new and expanded roads, railways, canals, shipping lanes, airports, and
even a European satellite system – Galileo – that could rival the US GPS system.
Following EU enlargement in 2004, it was decided to focus investment on 30 key
projects. These were designated ‘priority axes and projects’. Six of these pass through
the EU Balkan countries of Greece, Romania, Bulgaria, and Slovenia and will, therefore,
be a major boost to industry and trade. Each axis is briefly described in the table below:

Pan-European Corridors – TEN-T only covers EU members. In order to improve

infrastructure links with neighbouring non-EU countries, the EU has introduced what is
known as the ‘Pan-European Corridors’ programme. These corridors were created in the
early 1990s and consist of several transport routes across the CEE and the Balkans. Prior
to expansion, the corridors lay outside the EU, but, with the entry of 12 member
countries in 2004 and 2007, this has now changed. As a result, the European
Commission set out a new policy in January 2007 called the ‘Guidelines for transport in
Europe and neighbouring regions’. The policy identifies the five most important
transport axes between the EU and its neighbours. It also aims to strengthen regional
cooperation and integration with countries such as the Balkans in the long term.

This €15.5bn motorway project will pass through the heart of

the Balkans to connect the main cities, airports and ports of the
region. When completed in 2010, a series of motorways will
Motorway priority
zigzag the countries of Greece, Bulgaria, Romania, and Hungary.
axis no. 7
Moreover, with connections to five ports (such as Constanta in
Romania), eight airports and nine major roads, the region will
increase its position as the gateway of South eastern Europe.

The 1,542 km Rhine-Main-Danube axis is an often congested

trade route running from the North Sea (the port of Rotterdam)
Inland waterway priority to the Black Sea (the port of Constanta), but large vessels are
axis no.18 restricted because the river is not deep enough. A total €1.9bn is
being invested to deepen the river, which will encourage trade
through the Balkans via waterways.

Motorways of the Sea is literally the creation of a network of

‘water motorways’ and aims to improve the efficiency and
reliability of freight transport, thus providing an alternative to
Motorways of the Sea often congested land routes. Four Motorways of the Sea have
priority axis no. 21 been identified, one of which directly concerns the Balkans. This
is the motorway of south-east Europe and connects the Adriatic
Sea to the Ionian Sea and the eastern Mediterranean including
Cyprus.

From the heart of the EU to Southeast Europe, this 2,100km line

will pass through eight EU countries to form the backbone of the
Railway priority eastern Europe railway network. With links to the ports of
axis no.22 Athens, Constanta, and Thessaloniki, the railway will allow
connections between the Baltic Sea, Aegean Sea, and the Black
Sea.

The railway axis of the Ionian-Adriatic corridor consists of two

interlinked railway lines connecting the ports of Greece –
Railway priority
axis no.29
Igoumenitsa, Thessaloniki, Volos, Alexandroupoli, Piraeus,
Patras, Astakos, and Kalamata – with each other and the rest of
Europe.
The five axes are estimated to cost €45bn. The two axes that pass through the Balkans are the
Motorways of the Sea and the South Eastern axis. Motorways of the Seas link the Baltic,
Barents, Atlantic, Mediterranean, Caspian and the Black Sea of the Balkans, as well as an
extension through the Suez Canal towards the Red Sea. The South eastern axis links the EU with
the Balkans, TRACECA in Turkey, Armenia, Azerbaijan and Georgia, and further with southern
Caucasus, the Caspian Sea, Egypt, and the Red Sea. The Balkans’ dedication to this project was
cemented when they signed a resolution of commitment in December 2006.

Western Europe has grown accustomed to the steady decline and exodus of
heavy industry and logistics operations to lower-cost countries such as India and
China. More recently, a growing number of companies have chosen to locate
closer to home in CEE where they can still get the cheap labour and space they
are seeking.

Because of its lower labour costs and dramatically improved economic and political conditions,
the Balkans are also now appearing on the radar of investors and companies looking to
outsource. In January 2008, Nokia announced its plans to shift the manufacturing of mobile
phones from Germany to Romania. Labour costs are rapidly rising in the CEE, and, as a result,
we would expect to see a spill over of industry into the neighbouring Balkans; in 2007,
manufacturing wages in Poland were estimated at $9,891 a year, compared to $4,068 a year in
Romania (Business Monitor International). The following section looks at why the Balkans are
gaining in interest and examines the region’s industrial property markets in more detail.

Main drivers of growth Apart from cheap labour, there are a number of other reasons
behind the fast expansion of the Balkans industrial property markets, including:
• Rapidly expanding economies
• Rising disposable incomes
• Improving transport infrastructure throughout the region
• A strategic location between Europe and Asia

The Balkans are already desirable as a strategic transportation hub between Asia and Europe,
and those locations close to good transport links will be in most demand. Apart from airports
and ports, which will always be the most popular for logistics operators as they benefit the
most from globalisation, transport corridors are also important. Transport infrastructure is
rapidly improving through TEN-T and the other policies. The transportation corridors that pass
through the Balkans will strongly impact the decisions of where logistics operators choose to
locate. EU accession is also a driving force for the industrial market. A study by the European
Stability Initiative shows just what a difference EU accession can make. As an example, Romania
and Bulgaria’s textile industries have boomed since their accession in January 2007.
Macedonia’s textile industry has also been revived as a result of EU membership prospects.
Bulgaria
Bulgaria’s industrial market is immature and
demand is small, although growing. Occupier and
developer interest has been rising as result of EU
accession, strong economic growth, increased
foreign investment, and the rapid development of
the retail sector. The capital of Bulgaria, Sofia,
dominates the industrial market. Other important
locations are Plovdiv, due to its strategic
geographic location, and the Black Sea ports of
Varna and Bourgas.
Like Romania, Bulgaria’s infrastructure has
suffered from underinvestment. But, flush with EU
funds, Bulgaria has pledged to spend €5.5bn on
road infrastructure projects by 2009 and a further
€2bn by 2015. Investment has also gone into the
country’s main airports – Sofia, Burgos, and Varna
– and ports – Varna and Bourgas. All of this should
boost the country’s industrial and logistics
markets. The country is also located at the
crossroads of the Pan-European corridors, thus
guaranteeing the rapid development of the
logistics sector.
Much of the existing stock in Bulgaria is old and
outdated. Development is slow and large
companies prefer to build warehouses themselves.
New industrial zones are forming throughout the
country. Construction in Sofia has been most
intensive around the ring road, along the TEN-T
priority axis, and the international airport. The
largest scheme that dominates new supply in Sofia
is the Sofia Airport Scheme, located 300m from
the new airport terminal. This is a 165,000 sq m
Class A business park that incorporates 22,000 sq
m of logistics space. Prime industrial rents in
Bulgaria have remained stable over the last couple
Romania
Romania is the Balkan’s best kept secret, with
enormous potential for rapid economic growth
and development over the next five years.
Bucharest dominates the country’s industrial and
logistics sectors and is popular due to its strategic
location – 225km from the port of Constanta,
850km from Budapest, and at the junction of two
Pan-European corridors. Other secondary locations
are now becoming popular, such as Timisoara,
Cluj, Arad, Sibiu and Brasov and Constanta. Cefin,
Eyemaxx, CTP, Phoenix-Helios, VGP, WDP and
ProLogis all have major projects planned or under
construction in these areas. Manufacturing,
particularly car production, is located in the west
and north of the country. Multinational car
producers are attracted to the north and west
because of its close proximity to Hungary, lower
labour costs, and better availability of more
competitively priced land compared to Bucharest.
Industry and logistics are currently hampered by
poor infrastructure, but the situation is improving.
There are a number of large scale infrastructure
improvements, such as the new A2 motorway
between Constanta and Bucharest. In addition,
three of the TEN-T priority projects pass through
Romania, all of which should lead to new emerging
logistics locations, as accessibility to regional cities
improves.
Industry and logistics are currently hampered by
poor infrastructure, but the situation is improving.
There are a number of large scale infrastructure
improvements, such as the new A2 motorway
between Constanta and Bucharest. In addition,
three of the TEN-T priority projects pass through
Romania, all of which should lead to new emerging
of years and currently range between €54 and €60
per sq m per year.
logistics locations, as accessibility to regional cities
improves. The market is currently characterised by
high demand for modern warehouse space.
Demand for new flexible space continues to grow
each year and is driven primarily by large
multinational companies entering the market or
those relocating from unsuitable old facilities. The
retail sector plays an increasingly important role in
the logistics market and the arrival of large
multinational companies signals stronger demand
going forward.
The modern warehouse sector is generally
undeveloped in Romania. However, the western
and north western regions are witnessing
increased development activity due to their
attractive locations and good connections with the
rest of Europe. Most new developments are
located along the A1 highway to the west of
Bucharest.
Prime industrial rents in Bucharest ranged
between €48 and €55 per sq m per year at the end
of Q3 2007.
Institute of Metrology – Romania

Research Institute of Metallurgy - Romania

National Institute of Research and Development for Non-Ferrous and Rare Metals

NATIONAL INSTITUTE OF RESEARCH AND DEVELOPMENT FOR

NON-FERROUS AND RARE METALS
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