Professional Documents
Culture Documents
Colliers Report Research and Forecast Report 2018
Colliers Report Research and Forecast Report 2018
18
Colliers International Romania
Research & Forecast Report
Soft landing path ahead
Accelerating success.
1
Content
p. p. p. p.
04 06 10 14
p. p. p. p.
18 22 24 26
Ilinca Paun Those who don’t change their mind, never change Your real estate project must be multilocation, virtual
anything. It is Sir Winston Churchill who made this accessible, multifunction and highly accessorized by
Member of the Board
phrase famous in his impossible situation as the comfortable services offering memorable experiences.
Colliers International
Kingdom’s Prime Minister of deciding between peace
ilinca.paun@colliers.com And we are here to help you.
talks with Hitler or going ahead risking many hundreds
of thousands of lives of the British army. Luckily, we are
We will invest more in the professional and personal
in a safer place and our market situation is not as bad as
education of our people and we will continue to work
Europe’s war zone in 1940.
on our promise to be the most loved and respected
The lesson to learn from is that of flexibility and leaving consultancy company on the market. Some of the best
room for doubt. We get wise because we have doubts. senior experts joined our core teams in 2017, and new
Don’t make assumptions and instead have a good services were launched or scaled up. We now have a
command of deep and broad information. Learn before great balance in terms of business lines and resources
Colliers International is a leader in
thinking you know. Because the mind that produces a spread and our top priority is to consolidate our
global real estate services, defined achievement.
problem cannot be the mind that solves that problem, too.
by our spirit of enterprise. Through
a culture of service excellence and Today you wonder what soft landing means, how hard Colliers International Romania has had its best year since
is ‘soft’, and how you can make your investments strong 2009, with a business revenue growth of 50% in 2017,
collaboration, we integrate the compared with the previous year. The Office leasing,
enough to resist the wind of change. While many say
resources of real estate specialists Industrial leasing and Investment Sales services brought
you should follow your heart and do what you do best
worldwide to accelerate the success of and things will be all right, I say this is exactly what you a sustainable revenue growth aligned with our focus.
our partners. We represent property should be doubtful about.
I do hope our research papers will make your lives as
investors, developers and occupiers in investors and developers in real estate easier and our
It is best to follow your reasoning systems and have a
local and global markets. Our expertise strict reality check process. Be your worse critic and advice will make your returns higher, while keeping a
spans all property sectors–office, let others appreciate you, if. Don’t build what you build focus on creating a better and happier way of living and
industrial, retail, residential, rural & best, the same product, but create diversified, multi-use working for people.
agribusiness, healthcare & retirement spaces instead and enhance technology like never before.
I wish you a successful 2018,
living, hotels & leisure. A project takes 2.5 to 3 years to build and digitalization
and artificial intelligence might evolve exponentially and Ilinca Paun – Member of the Board
surprise you. Just as an example, is your project equipped
for self-driving cars? Real estate is an old school type of
business and it needs a real revolution. Online retail and
‘work from home’ policies are demonstrating that the
old criteria “location, location, location” does not work
anymore. It is much more complex now.
3
TOP 10
1
Romanian economy to
slow down, still outperform
most EU countries
After 2017’s stellar GDP expansion of over 7%, Romania
was the fastest growing country in the European
Union. It was mostly a private consumption story, though
3
Migration (internal and
external) becoming ever
more relevant
Internal migration patterns are already suggesting a
growing preference for Romania’s major “magnet cities”
– Cluj-Napoca, Timisoara and Iasi – at the expense of
exports held up quite well amid an unexpectedly robust Bucharest, with surveys further supporting this. With both
Predictions
Eurozone economy. Barring “black swan”-type risks, GDP labour and living costs lower outside the capital, companies
growth is set to slow down to a more sustainable level might be rather inclined to expand/establish offices outside
in 2018 (around 5%), given the limited room for fresh Bucharest; such patterns would also boost other segments
2018
fiscal stimulus and expected monetary policy tightening. (especially retail). A key development we will be watching
Romania will remain among the top performing European out for is if Romanians working in other countries are
economies. Consequently, the outlook for office, retail starting to return home in larger numbers.
and industrial spaces remains quite rosy.
the show
2
Investment scene to steal
6 8 10
external migrants returning to their native country. “retail apocalypse” looks like a minimal risk for Romania.
5
Economic overview
This suggests that Romania might manage to grow its way
verheating fears
O
Landing path ahead, out of trouble to a certain extent. The external backdrop
7
• slow down the job creation pace, a negative for the
office segment;
Favourable outlook for 2% by early 2018 and might close in on 3% by year-end).
Of course, a sharper economic slowdown than we pencil
• pressure employers to be more generous with wage manufacturing in might mean lower inflationary pressures and limit the
hikes in order to keep attrition rates at tolerable levels; need for key rate hikes, but this is not our main scenario.
External demand has helped Romanian factories increase
• a consequence of the previous point: erode one of Meanwhile, the consumers’ solid spending appetite has
their output significantly last year (c.9%), overperforming
Romania’s major competitive advantages: its labour cost swelled imports and dented Romania’s external balances,
greatly compared to initial estimates. The auto segment
competitiveness. but it is important to note from the start that the country
remained a major driver, with exports growing by close
Thankfully, besides the generous “competitiveness is in much better shape than a decade ago. Still, the RON
to 8% compared to 2016’s record level. As over 20% of
reserve” we mentioned earlier, Romania also boasts a size might continue to underperform regional peers this year due
Romania’s total exports head to Germany, a closer look at
advantage relative to most peers and has seen the second to several factors:
Europe’s largest economy could shed some light about the
fastest labour productivity rise in the EU in the last decade, domestic manufacturing segment. The good news is that • the current account gap looks set to widen further
after Ireland. The caveat here is that we cannot discount towards -4% of GDP in 2018;
optimism regarding Germany’s economy will continue to
for a factor that could materially change the status quo: spill over as the widely followed Ifo Business Climate Index • higher central bank flexibility towards RON weakness –
the potential return of Romanian migrants to their native is hovering around a record high. Still, we cannot be overly also helping out in keeping inflation in check;
country. Fast rising wages have improved domestic living confident regarding manufacturing as, on an aggregate • the political backdrop is expected to remain noisy;
standards quite significantly over the last years, especially level, Romania still has a lot of slack, as industrial capacity • elevated policy uncertainty with potential negative
for those with higher qualifications, so people with utilization is around 78%, some 5 percentage points below surprises if the fiscal gap cannot be kept within the -3%
university degrees might start thinking about returning the 2007-2008 average; as such, an investment boom is not of GDP level.
to their native country provided that the political situation around the corner. Another negative news, in our view, is
returns to normal. the fact that infrastructure developments nationwide might hanging fortunes for
C
still continue to disappoint in 2018, as history has shown
A balanced picture: manufacturing, that governments in Romania tend to sacrifice capex when Romania’s regional cities
confronted with a tight budget. And indeed, this year’s state With just over a quarter of the country’s GDP generated by
agriculture and tertiary sector all expanding budget has quite limited space and the Fiscal Council has Bucharest, the distribution of Romania’s economic results
warned risks for fiscal slippages. places it in the middle-ground between Hungary (whose
GDP breakdown by sector, 2017 estimate capital makes up almost half of the country’s output) and
Financial markets gearing Poland (with Warsaw’s GDP share at below 20% of total).
0.5 We believe that over the medium term, Romania will move
2.2
up for the higher inflation towards the Polish model rather than Hungary’s, meaning
1.2 we expect a material overperformance of the major regional
Now that the tax cuts that depressed consumer prices
Retail Sales, Logistics
are behind us and private consumption has had a banner cities (Cluj-Napoca, Timisoara, Iasi, Brasov). We believe this to
Agriculture
year, inflation has returned with a vengeance, ending 2017 be the case as Bucharest has become overcrowded by many
Manufacturing
IT&C, BPO/SSC at 3.3%. As such, the central bank has started last year a standards and this is starting to weigh on quality of life: for
Other Sectors
new tightening cycle, at first by closing the gap between instance, it has one of the most congested traffic in Europe,
money market rates and the key rate, then by hiking the according to TomTom, while, at the same time, it is in the top
1.6 1.7
policy rate at the start of 2018 for the first time in a decade. 10 most polluted major cities in the EU. And as some studies
Given the inflation outlook, this is just the start and relevant have shown, millennials – probably the most important age
Data Source: INSSE, Colliers International money market rates are likely to climb further (relevant 3M group for employers – tend to be less materialistic, prioritizing
ROBOR moved from a low of 0.7% in September 2017 to experiences over “stuff”. This thesis is validated by changes
in both migration patterns and intentions.
9
Industrial Market
sharply; iii) companies seeking a better regional coverage to an attractive cost/benefits ratio (for instance, Dante
in CEE; iv) ongoing favourable momentum for the International, the company operating the largest online 1,150,000
manufacturing segment. store in Romania - eMAG.ro - is developing near Bucharest 910,000 920,000 940,000 940,000 940,000 940,000
a 120,000 sqm facility to be opened around mid-2018). 5.0% 5.0%
Almost two thirds of last year’s deliveries were in the
Bucharest outskirts; CTP and WDP were the most The trend in Romania among big companies is to buy/
2.0% 2.0%
active developers, each adding around 200,000 sqm to develop and hold, with CTP and WDP being the most
their portfolio. These developers are also the biggest in significant examples of this. Other large players have indeed
Romania, with CTP heading last year towards 800,000 changed owners over the last years, but these were part of 2010 2011 2012 2013 2014 2015 2016 2017* 2018F
sqm in storage spaces, WDP – around 400,000 sqm, transnational deals.
while the third place belonged to P3 – with around Stock (sqm) Vacancy rate (%)
370,000 sqm concentrated in a single park. * 2017 stock figure updated to include around 200,000 sqm in storage
spaces previously unnacounted for in Bucharest
11
Modern storage spaces
in Romania (sqm, 2017) 3,500,000 UKRAINE
Bucharest 1,700,000
Timisoara 370,000 Satu Mare Botosani
Ploiesti 280,000 Baia Mare Suceava
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
With the exception of the larger shopping centre in around 1,400 RON of goods and services versus 2,500
Ramnicu Valcea Mall (28,000 sqm) and a significant RON presently; in effect, this means a growth of over three
<100,000 100,000-250,000
extension of Shopping City Galati (21,000 sqm in new quarters of actual purchasing power, highlighting a much
>250,000 (except Bucharest) Bucharest
GLA) – both owned by NEPI Rockcastle, last year saw more sustainable consumption than before the crisis, as
mostly the delivery of smaller schemes and retail parks lending also plays a greatly diminished role. Overall, barring
(Prima Shops Oradea – developed by Oasis Development, Data Source: Colliers International
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
other entertainment services like cinemas or children’s Cities with more than
playgrounds. Aiming to allocate close to a quarter of the 30-40
250,000 inhabitants
Net wage (RON/month, constant 2017 prices, left scale)
total GLA could be important to improve catchment. We
also expect this trend to help out malls in their battle against Non-food retail sales (2007=100, right scale) Cities with less than
15-20
online retail, though given the current state of the Romanian 250,000 inhabitants
market, we expect both segments (online and offline sales)
Data Source: INSSE, Colliers International *Average rents obtainable for prime spaces in good performing centres
to thrive alongside over the medium term. for 100 sqm occupied by good brands;
**This represents the market average; there are big differences between
the cities depending on the level of competition;
15
Projects to be delivered in 2018
Project Baia Mare Value Centre Project Bistrita Retail Park Project Roman Value Centre
Developer Prime Kapital/MAS REI Developer Element Development Developer Prime Kapital/MAS REI
GLA sqm 22,500 GLA sqm 15,000 GLA sqm 15,000
Barbu Vacarescu
CBD
Pompeiu
Centre-West
Pipera
West
Timpuri Noi
Other
Piata Presei/
Dimitrie
50,000
Expozitiei
Floreasca/
projects delivered here in 2017 accounted for over one 0
third of total, while Timpuri Noi and Dimitrie Pompeiu each 2011 2012 2013 2014 2015 2016 2017 2018F
had a share of just under a quarter of total. Gross take-up Net take-up
19
Forecast migrated in previous years, offering a boost to the office
market. Due to labour market constraints, we would expect
of mixed-use projects with an office component). Overall,
currently announced projects (most with construction
We expect to see some 185,000 sqm in new class A office the Bucharest leasing market to cool down a bit this year: works yet to commence) add up to half a million sqm,
spaces this year. It is worth highlighting that developers we forecast total take-up at around 300,000 sqm, with net mostly in Centre-West and Piata Presei/Expozitiei.
are turning a bit more prudent, as the figure is over one take-up at 135,000. This would take overall market vacancy
third smaller than the figure we would have estimated
for 2018’s pipeline some 2-3 quarters ago. Currently,
towards 12% by end-2018.
Regional cities in focus
New large-scale projects offer opportunities for companies
companies would love to hire more people, but their demand We have been arguing that it is high time for regional cities
with a large domestic footprint to consolidate their offices
cannot be matched by the current workforce supply, as to steal the limelight from Bucharest, supported by internal
in Romania and developers might be pressed to offer the
unemployment for people with tertiary education is close migration patterns (see pages 8-9), and developers seem
new tenants options for both expansions or downsizing in
to all-time lows. We also cannot take into account potential to be gearing up for this. Though the current modern office
the future.
disruptions stemming from unforseen fiscal changes as stock in the major regional cities altogether (Cluj-Napoca,
the government’s limited budget room might yield some With the public transport infrastructure stretched to its Timisoara, Iasi and Brasov) is currently some 3.5 times
unpopular measures. The tight labour market suggests that limits in the northern part of Bucharest, developers are lower than in Bucharest, the pipeline in these cities for
activity may have peaked in 2016-2017 on the Bucharest expanding the Centre-West’s stock and exploring new 2018 stands at almost 150,000 sqm versus Bucharest’s
office market, but there are a couple of footnotes here. For hotspots in Timpuri Noi or Piata Presei/Expozitiei. The 185,000 sqm.
example, we cannot say precisely what will happen with latter still offers material untapped alternatives given the
Taking a closer look at these cities, Cluj-Napoca has been
external migration patterns, as higher domestic wages might plans for a metro line extension in that area, as well as still
rivalling Bucharest in terms of complexity of the services it
actually start drawing back some of the Romanians that holding large swaths of unused land (potential for a couple
can cover, based on workforce competence. The north-
western region of Romania, led by Cluj-Napoca, has been
2017 deliveries and pipeline by area (sqm) recently crowned by the Milken Institute as the fastest
growing in the EU in terms of hi-tech services expansion
75,000
in recent years. The city’s university is ranked as the
best in Romania by several institutions, while start-up
2017 rates among youths are comparable to Bucharest’s, even
50,000 2018 though its population is well smaller. Innovation, growing
entrepreneurship culture and skilled graduates make
Cluj-Napoca highly attractive for IT rather than lower-tier
BPO/SSC services. Cluj’s very low vacancy on the office
25,000 segment (below 5% end-2017) makes this very much a
developer market and land availability constraints mean
a limited pipeline over the medium term, even though the
town would be the most interesting proposition in Romania
0 other than Bucharest. Still, a solid pipeline for 2018 (47,000
sqm – mostly from UBC Riviera and Hexagon’s project)
Centre-West
Pompeiu
Barbu Vacarescu
CBD
Timpuri Noi
West
Piata Presei/
Dimitrie
Expozitiei
Floreasca/
migration patterns and the youngest population among Timisoara Vacancy 13.00%
the major economic hubs suggest it should continue to do Brasov Average rent 10.0
Average wage
well for years to come. Though it does not rank as highly (county level, EUR)
450
as Bucharest, Cluj-Napoca or even Timisoara in terms IT&C graduates
500
of service output complexity, it could certainly climb up per year
in the next years thanks to its high-quality universities
and – still – better labour force availability. Taking these
arguments into account, the city has been drawing
increasing attention from BPO/SSC companies and it won BUCHAREST
Emerging City of the Year at 2018’s CEE Shared Services Modern office stock 2,3 mil. sqm
and Outsourcing Awards Gala in Poland. Pipeline, 2018 185,000 sqm
Vacancy 9.75%
Brasov, though the smallest office market of the major Average rent 14.5
hubs in Romania, is quite an attractive opportunity over Average wage
651
the medium term, provided it will have an airport soon. (county level, EUR)
It is also interesting that Brasov outranks Timisoara and IT&C graduates
2,700
per year
Iasi in terms of the percentage of population with tertiary
education. This means a large pool of talent waiting
to be tapped as operating costs (both rents and labour
costs) are considerably smaller than for the other cities. Data Source: INSSE, Colliers International, Brainspotting
21
Co-working
towards the so-called gig economy, Romanians are
seeming keener than ever to start flying solo, with the very
strong GDP growth numbers to act as catalysts. The most
recent surveys from the European Commission do highlight
the fact that Romanians have a higher appetence towards
opening companies, with around one in four actively looking
into this, double the average share in the EU.
20-29 30-39
years old years old
Number of people
Global number of coworking members holding shares in 123,618 348,679
Co-working: mixing the (millions) companies (end-2017)
new and newer 6.0
Increase in number of
5.1 28,296 81,809
5.0 shareholders since 2015
4.5
23
Green Buildings
The most certifications (24 or 61% of total) were for
office buildings, though the overall share has decreased
compared to previous year as developers from other
categories of developers are seeking to have a green
stamp on their building. The number of retail-certified
buildings grew (12 or a share of 31%). A hotel and two
mixed-use projects rounded up the grand total.
Another change relative to 2016 is the predominance of
certifications for in-use buildings, which accounted for
over three quarters of the market last year.
Introduction buildings (around the 50,000 sqm GLA) were certified
during last year, taking the grand total towards 1.7 million Incorporating new technologies is also becoming
As the office market continues to mature in Bucharest and sqm of projects – built or in various stages of execution – important, with more and more buildings seeking to
offers an enticing growth outlook for the major regional with green certifications. This would suggest that the total provide tenants with charging stations for electric vehicles.
cities, the standards also continue to improve. What surface of green certified office buildings is around half of A mid-2017 Colliers analysis showed that some 20% of
we noted a year ago still stands true today: developers the nationwide total. Around 200,000 people currently work class A office buildings in Bucharest offered facilities for
are increasingly focused on the efficiency and long- in office buildings that have been deemed to have sufficient electric vehicles, while another 21% were incorporating
term sustainability of their buildings, while tenants are energy efficiency and to be sustainable in the long run. such technologies.
also becoming pickier when choosing a location. CSR The current pipeline remains quite solid, as there are
Basically, every new office building will seek a green
requirements for domestic foreign-owned companies currently 47 buildings seeking LEED certifications,
certification as this is almost a mandatory requirement for
mean an increased attention to environment friendliness whereas this time a year ago, there were 40 certifications
a good positioning on the market. Meanwhile, older office
and resource efficiency throughout a building’s whole in progress. That said, we would expect the market to
schemes, say, from a decade ago or even older, are also
life cycle, from planning to construction to operation. As slowly taper in several years, as most of the older projects
seeking to obtain green certifications for existing/in-use
such, green certifications have become almost mandatory will have received their green certifications by then.
projects in order to remain attractive for tenants.
for a successful high tier real estate project. We continue
to collaborate with developers/landlords to obtain green Green certifications in 2017 by sector Total number of green certifications
certifications, both for BREEAM (Building Research
Establishment’s Environmental Assessment Method) and
35
LEED (Leadership in Energy and Environmental Design) 8% BREEAM LEED
30 29
standards. This study is based on official data derived from 31% 61% 25
the certification bodies for LEED and BREEAM standards. Office 25
Retail 20
5
5 6 6 6
4
2 1 1
Last year saw 39 green certifications obtained by 0
0
Romanian buildings, both buildings yet to be delivered and 2011 2012 2013 2014 2015 2016 2017
those already in use. This an increase over 2016’s already
record-setting result of 29. Meanwhile, several large office Data Source: Colliers International Data Source: Colliers International
Regional split
As real estate projects outside Bucharest have increased
greatly in the last years, so too has interest in green
1149000
certifications in 2017. While Bucharest has nearly 1.7
million sqm in LEED or BREEAM certified buildings, the 161000
other regional cities put together neared this level and 129000
we would expect that by the end of this year or 2019, 340000
216000 53000 46000
these could surpass the capital. 111000 55000 103000 93000 20000 25000 21000 21000 14000 11000
Bucharest
Cluj-Napoca
Timisoara
Ploiesti
Targu Mures
Sibiu
Iasi
Pitesti
Constanta
Drobeta Turnul
Severin
Buzau
Deva
Brasov
Data Source: Colliers International
25
Investment Market Transactions and Investors
The year’s biggest deal was the partnership between
Iulius Group (owner of several malls outside Bucharest)
and Atterbury Europe, with the latter acquiring 50% of the
Romanian company’s shares for an estimated EUR 200mn.
Another large ticket was the purchase of Radisson Blu Hotel
Bucharest for EUR 169mn by the US company Cerberus
Capital Management and the regionally-focused Revetas
Capital. These two deals accounted for 38% of 2017’s total,
but overall, last year saw a more balanced mix of the turnover.
Prime yields 2017 Romania
The retail segment was the major driver this year, accounting
Investment market for just under 40% of the total turnover; besides the Iulius-
Atterbury deal, another notable transaction was Mitiska
Overview
Bucharest Warsaw Budapest Prague purchasing almost a dozen smaller schemes in various parts
Investor interest in Romania has strengthened thanks of the country for almost EUR 80mn. There was also some
Office 7.25% 5.15% 6.00% 4.85% to the robust economic growth (the fastest in the EU appetite for distressed assets, as evidenced by the sale of Era
Retail 7.00% 5.25% 6.20% 5.00% by far), increased appetite from domestic banks to fund Shopping Park Iasi, purchased by Prime Kapital/MAS REI for
transactions, high-growth potential for various segments EUR 45mn.
Industrial 8.50% 6.50% 7.75% 6.25% of the real estate market (especially office and industrial)
The Immochan purchase of Coresi Business Park in Brasov for
and a fairly generous yield differential compared to most
around EUR 50mn was the biggest deal on the office segment,
Data Source: Colliers International CEE countries and to western EU states.
marking a notable push towards regional cities by office
Liquidity neared the EUR 1bn mark in 2017, despite some investors. Another noteworthy deal involved the third building
large office deals have been postponed towards 2018 due of Skanska Green Court by Globalworth for EUR 38mn.
CEE Investment market to a lengthier negotiation phase. As such, actual turnover
stood at around EUR 960mn, some 5% above 2016.
The highlight on the industrial side was the China Investment
Corporation transnational Logicor deal, with the value of
2017 was an exceptional year in eastern Europe. Last Looking beyond administrative hurdles and delays, 2017
the four parks in Romania estimated at close to EUR 80mn.
year, investment volumes in CEE-6 (Visegrad countries saw a qualitative improvement of the market compared to
Globalworth’s purchase of the Dacia-leased warehouse near
plus Romania and Bulgaria) stood at just below EUR 13bn, 2016 as investor interest broadened and the number of
Pitesti for EUR 42.5mn was another important transaction.
some 6% higher than 2016 and 47% above 2015. It is also deals increased.
CTP consolidated its position as the largest industrial space
the best result since 2007. We saw some notable entries via transactions: Atterbury owner by concluding four investment deals amounting to
Amid stronger consumption-driven growth, the retail Europe, Cerberus Capital Management and China approximately EUR 40mn.
segment stole the show with 39% of total and office Investment Corporation, with the latter part of a large
Pricing
trailing with a 27% share; industrial deals also slowed a transnational deal (the biggest private equity real estate
bit. Yields continued to move largely south, with Prague deal in Europe). Still, we highlight that both recently active The increased interest for domestic assets has been placing
and Warsaw still seeing the closest yields to developed investors and those that remained passive in recent years ever more upward pressures on prices, with some prime
western markets, while Bucharest is still regarded as have shown interest in snatching up new assets (CTP, office properties receiving offers at 7.25% (down from 7.50%
riskier, but a high-growth potential alternative. Smartown Investments, Globalworth, GTC, Mitiska). a year earlier). Prime retail yields were flat in the last year,
27
Land Market
residential component as well. This transaction and others
are also emblematic of another trend: the appetite for
large surfaces, as developers achieved confidence that
the market can digest ever bigger projects (for instance,
residential developments with over 1,000 units). Still,
internal challenges and an increased number of residential
deliveries in 2018 might lead to a more cautious approach
in the future for big projects.
The newly-found strength in the real estate space has led
to the „re-activation” of some large investors that had been
Demand greatly in the past few years (please look at the retail
section of this report for a chart showing the dynamic of
dormant until now on the land market; this increasingly
competitive market has supported both asset prices and
The land market just ended its best year in the last decade, the CPI-adjusted net wage in the last decade).
made it easier to close deals. 2017 also saw the entry of
with the overall value of transactions for real estate
The office cycle led to a significant boost in interest for quite a few new players, which acquired land plots mostly
projects (office, retail, residential or mixed-use, without
land acquisitions, as developers wanted to establish a for residential developments.
industrial segment) increasing by an estimated 25-30%
good land bank for the next couple of years. This was the
relative to 2016, reaching around EUR 350mn. Some two
result of a fairly robust office leasing market, especially
thirds of the grand total came from deals in Bucharest.
With the residential segment accounting for close to half of
in Bucharest and, to a lesser degree, in the four major Supply
regional cities: Cluj-Napoca, Timisoara, Iasi and Brasov.
the transactions in the capital, the rest was almost equally The market has absorbed the excess supply in recent years,
The land deals likely lead the office development/leasing
split between retail and office. influenced by distressed owners who wanted to liquidate
markets. In Bucharest, the Expozitiei area saw the biggest
Keeping up with the pattern seen in recent years, total turnover, followed by central areas (Calea Victoriei). their assets in a limited timeframe. Given the favourable
demand for land plots aimed at residential projects was backdrop, several large owners (Immofinanz, Telekom, Plaza
Looking at demand-side forces nationwide, it would seem
focused on areas near office hubs. As such, the most Centers, Trigranit) continued to sell their portfolios – either
that the crown passed to the retail segment last year. This
active areas were the Centre and North of Bucharest: individually or in bulk. Some are exiting the market, but for
has been seeing strong interest throughout the country,
Bulevardul Expozitiei, Bucurestii Noi and the Baneasa-DN1 the most part, companies are seeking to dispose of non-core
maybe a bit less for Bucharest. Demand is coming both
- Jandarmeriei area - due to the future office hub in the assets and focus on their main activity/real estate segment.
from retailers and developers of retail parks, aiming for
Expozitiei area, but also the Floreasca-Barbu Vacarescu,
both smaller or larger schemes. Currently, retailers are The supply is still influenced by former factories within city
Aviatiei and Pipera areas. The improved interest in the
still having to fill gaps in poor coverage of modern retail boundaries. Fabrica Industria Iutei, Policolor, Tricodava in
residential segment is also helping deals close in other
schemes throughout the country, including in smaller cities Bucharest and part of Roman Brasov are some notable
cities. The vibrant economy, good disposable income
with population below 100,000. We note interest from examples of sales seen during 2017. A solid pipeline for
growth and low interest rates (for most of the year) have
food retailers (discounters, hypermarkets), DIY, furniture, future projects will continue to come from such former
pushed home purchase intentions towards post-crisis
cash&carry and others. industrial assets in urban settings.
highs, as European Commission surveys show. For now,
it is still too early to say how the start of a new monetary The highlight of the year was the sale of Policolor-owned We also note an increasing number of partnerships
policy tightening cycle and renewed political noise will land in the eastern part of Bucharest (nearly 14 hectares between land owners and developers (mostly for
impact the morale of consumers, but we would believe that bought for around EUR 22m by Raul Ciurtin, ERES); residential), with the former putting forward the actual land
the residential segment will continue to do fairly well as this deal strengthens an already existing retail hotspot, and the latter dealing with the project in all its intricacies,
the average consumer’s purchasing power has increased though it is likely to become a mixed-use project, with a including funding.
Forecast
2018 is shaping up to be just as dynamic as 2017, with
several large deals currently in various stages. Still, as Berceni
the active developers have acquired a good land bank ¤ 120-250 /sqm
(especially for office and residential), they might focus
more on bringing their real estate projects to the market
rather than looking at new locations. This means that new
demand might be a bit poorer than last year’s. Appetite
for larger surfaces might also suffer a bit for residential
projects as the market is set to receive an increased
number of units this year. Moreover, developers might The information is based on the deals closed or secured in 2017 and not
turn a bit more cautious due to internal challenges related, average asking prices for the specified areas. They highlight the most
for instance, to the higher RON interest rates constraining targeted type of land plots. As usual, the prices were influenced by size,
disposable income or uncertainties about state policies. destination, building parameters, status of the permitting process.
29
Bucharest is likely to retain its top spot in terms of The home ownership ratio in Romania stands at over The price-to-income ratio for Bucharest also looks better
attractiveness, but the major regional hubs (Cluj-Napoca, 90%, the highest rate in the EU and some 20% above the than most CEE capitals in the region (like Warsaw, Prague
Timisoara, Iasi) are increasingly popping up on the radar, member states’ average. The figure might be swelled a bit or Budapest).
as office and residential projects still see good interest by under-reporting of tenants amid tax evasion, but such In order to analyse market risks periodically, the European
from tenants/buyers. In addition, we expect investors numbers suggest it would be more appropriate to judge Central Bank came forward with several econometric
to still show interest with regards to retail schemes in the market from somebody actually using the apartment models to look at over/undervaluation of residential
towns with low coverage of modern retail. Otherwise, as rather than somebody seeking potential returns from an properties in the EU. The ECB’s main model shows that
land plots without adequate permits still carry significant investment in a housing unit. while Romania had some of the most overinflated asset
risks, we believe transactions will continue to focus on This leads us to the central and most relevant aspect, in prices in 2007-2008, it now has the most undervalued
those with zoning/construction documents. our view: disposable income has risen sharply in the last residential property prices in the EU. Of course, such
Given the adequate supply, we would not anticipate any decade, whereas housing prices are still well below their an approach does not lend any attention to regional
significant land price swings. Another aspect worth levels in 2007-2008. To put things into perspective, today’s differences, but it nevertheless offers a precious insight.
pointing out is that strategic/central locations should still average wage can buy two thirds more goods and services On the other hand, in a sign of strong demand keeping
do better as current asset valuations are less „bubbly” than the 2008’s average, while, on the other hand, the up increased deliveries, the share of units sold/booked
than they were a decade ago and projects in prime asking price per square meter in Bucharest, for example, off-plan has increased. While some years ago, the
locations are more appealing for developers. is nearly half its level recorded a decade ago. A useful percentage stood at around 20-30% for a lot of projects,
indicator to look at is the ratio between an apartment’s nowadays, residential schemes are reporting that they
We do not expect any major infrastructure developments
price and the average annual net revenue. For Bucharest, manage to sell in excess of 50% of their units before the
to positively and materially influence the market (the metro
this ratio has dropped some nearly three times in the project is finished. Despite this, the average price growth
extensions in Bucharest continue to progress slowly).
last decade. This means a great improvement in both for apartments has been more or less in line with that of
affordability and sustainability of the market.
Residential segment disposable income.
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17
Purchasing a house is definitely one of the lifelong
priorities many Romanians share and seems to be
deeply embedded from a cultural standpoint. Data Source: Colliers International
Market Overview the EU, among the ones in the 10-25 million passengers
per year category, Bucharest’s Henri Coanda airport was
The Bucharest hotel market remains the most competitive
in the country, with several international chains consisting
In tune with the macro trends, the hotel market in Bucharest 5th in terms of growth last year, expanding by 16.7%, to the biggest players: Radisson Blu Hotel (over 760 rooms
continued to improve in 2017. It is still mostly geared 12.7 million passengers. Meanwhile, Cluj-Napoca’s number with 3 brands), Hilton (around 560 rooms with three
towards business, with the leisure and MICE (meetings, of passengers grew by close to 50%, to 1.9 million. The brands), JW Marriott (just over 400 rooms), followed by
incentives, conferences and events) still quite subdued. constant increase in new destinations (both national and Sheraton and InterContinental Bucharest (both with under
All segments are likely expanding, with a robust outlook as international) remains a key aspect to look out for. 300 rooms). Overall, there are close to 150 hotels with
well, including for the leisure segment. It is noteworthy that more than 12,800 rooms, with the premium segment (4
The duration of stay in Romania remains fairly low, at
Bucharest made its way into Booking.com’s top 10 up-and- and 5 stars) accounting for close to half.
2 nights on average for foreign visitors, highlighting the
coming destinations tourists should visit in 2018, calling it a
fact that the country benefits mostly from business trips The Garden Inn by Hilton in Bucharest’s old town, with
„new to the alternative city break scene and a great option
(likely over 70% of total hotel business for Bucharest) and, 201 rooms, was last year’s notable addition, though a
because of its museums, parks, trendy cafés and mix of art
to a lesser extent, city break status. The capital city also Courtyard hotel (Marriott brand) has been announced in
nouveau and modern architecture.”
became a more sought-after leisure destination, which the north. The French company Accor has also secured
The number of foreign visitor arrivals in Romania’s hotels materialized in a higher share of the demand generated by a development land and might announce a new project
and other accommodation options grew by over 10% last the leisure segment, moving towards 20%. The average fairly soon, while it likely retains additional interest. In this
year, towards 2.8 million persons, with almost half of these expenditure per trip stands at around 470 euro per person respect, it is important to note that Accor-owned Orbis
in Bucharest. This remains well lower than CEE peers (who per trip, with the bulk – little over half – represented by Hotel Group announced previously that it plans to become
receive at least 2-3 times more foreign tourists per year). accommodation expenses. the largest player in Romania.
Romania is host to nearly 1,600 hotels, with the number
increasing slightly from year to year. The average
occupancy rate throughout the year improved marginally, Supply Demand
to 37.4% from 37% in 2016, which is one of the best levels Businesses travellers continue to be the prime clients of
Romania seems to be one of the attractive emerging
in the post-crisis period. Besides the steady rise in foreign high-tier establishments (4 and 5 stars), while the leisure
markets for new players in the hospitality industry:
visitors, we note that the robust increase in disposable tourism usually heads for hotels lower down the cost range.
Bucharest has little over 8 room beds in hotels per 1,000
income for Romanians has led to an increased spending
inhabitants compared to over 14 for Budapest and nearly 27 The average daily rate (ADR) increased in 2017 by close
appetite, with the transition towards services only natural.
for Prague. Also, close to 45% of the hotels in the capital to 10% in local currency terms for 5-star hotels, to reach
Highlighting the favourable outlook, we note that quite a city are branded, compared to an average of around 60% 96 euro in the second part of the year. This remains 10%
lot of airports in Romania reported very positive results. In for the major CEE cities like Budapest, Warsaw or Prague. to 40% lower than that of the major regional capital cities.
Forecast
As the outlook for the market remains quite optimistic,
companies are seeking solutions to expand their network.
While the traditional and potentially cumbersome
management contract is not viewed as an attractive
solution currently, new solutions are emerging. Some Great
higher-tier brands might be seeking to buy or invest Britain
Netherlands Germany
alongside developers, offering the latter an exit option if
need-be. Another solution that could help the domestic Belgium 0.5 1.2
market growth might be a “rental contract”, with a hotel
1.3
built by a local company then handed over to a hotel brand 0.4
for a fixed instalment.
France Austria 0.4
With Bucharest’s office stock expanding constantly over the Romania
last decade and foreign investments continue to pour in, we 0.6 (other towns)
continue to see room for the hotel market to grow on the
business segment. Underpinning this aspect is the renewed 0.9
investor interest for this segment, with last year seeing a
2.0
couple of smaller hotel deals and the largest transaction on
this segment so far in Romania: Radisson Blu, bought for 0.9 Italy
EUR 169m by a Revetas / Cerberus partnership. 0.4
The leisure segment retains a bright outlook as well, as Spain
highlighted by Bucharest’s growing appeal on specialty Greece
websites like Booking.com. Still, Bucharest cannot fully
33
New tax provisions in
is applied, is not taken into account nor can be used to offset
future profits. In other words, newly set-up companies
during the investment phase (when usually the turnover is
35
New rules for contracting construction.
Novelties and practical difficulties.
37
Contact our experts
Raluca Buciuc
Director | Valuation Services
and Hospitality Advisory Services
+40 724 290 922
Raluca.Buciuc@colliers.com
38
39
554 offices in About Colliers International Group Inc.
Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry leading
68 countries on
global real estate services company with 15,000 skilled professionals operating in 68
countries. With an enterprising culture and significant employee ownership, Colliers
professionals provide a full range of services to real estate occupiers, owners and
6 continents
investors worldwide. Services include strategic advice and execution for property
sales, leasing and finance; global corporate solutions; property, facility and project
management; workplace solutions; appraisal, valuation and tax consulting; customized
research; and thought leadership consulting.
United States: 153 Colliers professionals think differently, share great ideas and offer thoughtful and
Canada: 34 innovative advice that helps clients accelerate their success. Colliers has been ranked
among the top 100 global outsourcing firms by the International Association of
Latin America: 24 Outsourcing Professionals for 12 consecutive years, more than any other real estate
Asia Pacific: 231 services firm. Colliers also has been ranked the top property manager in the world by
Commercial Property Executive for two years in a row.
EMEA: 112 For the latest news from Colliers, visit Colliers.com or follow us on Twitter (@Colliers)
and LinkedIn.
$2.6
billion in
annual revenue Contact
2
Colliers International <<Romania>>
Floreasca Business Park
billion square feet 169A Calea Floreasca, Building A, 7th floor
under management 014459 Bucharest, Romania
Phone: (40-21) 319 77 77
professionals
and staff