Romania in the spotlight

Until 2020, GDP had grown every year since 2016. Despite falling back in 2021, the economy is now forecast to grow by around 6.6 pct and the prognosis remains optimistic for 2022 and 2023 as well, with growth forecasted of 4.3 pct and 3.6 pct respectively. According to the recent ‘Market Outlook 2022’ report published by CBRE, total investment volume in Romania came to EUR 920.1 mln in 2021 – 60 pct higher than the previous year. This also marks a return to the long-term average annual volume in Romania of EUR 1 bln, indicating that the market is continuing to grow. During the second half of last year, investment volumes picked up noticeably, leading to an overall increase in trading activity.

The retail is in the details

When it comes to retail, the trend towards smaller formats seen on other markets is also clearly prevalent in Romania. According to Vlad Săftoiu, the head of research at Cushman & Wakefield Echinox: “A clear preference towards retail parks has been seen, as these projects have been less impacted by the pandemic and the subsequent government restrictions, a fact which has been confirmed by their financial results in 2020.” The CBRE report states that at the end of 2021, Romania’s modern retail stock, comprising shopping centres and retail parks, reached 4 mln sqm after around 103,000 sqm had been added throughout the year. Specialised formats (mainly comprising retail parks) took a larger share of the space, gaining 2 pps to the detriment of traditional retail formats (shopping centres). Now 37 pct of the total stock is accounted for by retail parks, while the remaining 63 pct comprises shopping centres. At the end of 2020, traditional formats were also the dominant type of retail development throughout the country when they made up 65 pct of the market.

The overwhelming majority (96 pct) of the 2021 supply comprised retail parks that were built throughout the country. Nine retail parks were delivered in 2021: three developed by Prime Kapital (Sepsi Value Centre in Sfântu Gheorghe, Covasna county, Prahova Value Centre in Ploiești and Bârlad Value Centre in Bârlad), with a combined 55,200 sqm gla; two were developed by Mitiska REIM and Square 7 Properties (Shopping Parks in Baia Mare and Medias), with a combined 14,200 sqm gla; two were built by Scallier (Funshop Parks in Roșiorii de Vede and Focșani), with a combined 11,200 sqm gla; one was developed in Bucharest – namely, Fashion House Pallady by Liebrecht & Wood with 8,700 sqm gla; and one opened in Sibiu, the Prima Shopping Center (9,000 sqm gla) developed by Oasis Retail & Development. In the final quarter of last year, 4,400 sqm of shopping centre space was added to the total in the extension of the Electroputere Parc mall developed by Catinvest in Craiova.

Around 235,000 sqm is expected to be added to Romania’s modern retail stock by the end of 2022. The predominance of retail parks since 2020 can also be seen in the future supply for 2022, as they account for 86 pct of the space under development. Despite the advantages reaped by retail parks during the pandemic, shopping centres continue to generate high footfall and vacancy remains low at under 3 pct. And in spite of the restrictions imposed on entering shopping centres in October and November 2020, the value of the average shopping basket rose and December sales also remained strong. Since last spring, restaurants and bars have been allowed to reopen and – with the strength of consumer spending – some brands, including Italian fashion brand Anson, decided to enter the country.

Many more retailers have become aware of the importance of incorporating an omnichannel approach into their sales strategies in an attempt to remain relevant and close to their customers. According to figures from Statista, the value of e-commerce rose by over 40 pct in 2021 compared to the previous year.

At the end of Q4 2021, prime rents were stable at EUR 70 per sqm a month in shopping centres. By the end of 2023, Romania’s modern retail stock should have risen to 4.4 mln sqm.

Coming back to a brand-new office

As with other office markets across the region, the pandemic resulted in leasing decisions being delayed. According to Vlad Săftoiu of Cushman & Wakefield Echinox: “The Covid-19 pandemic played a direct part in the increase of the proportion of renewals in the total office take-up (46 pct in 2020 and 43 pct in 2021, compared to 20 pct in 2019), as a large number of tenants took the option of extending their current leases due to the uncertainty caused by the pandemic.”

Bucharest’s modern office stock had reached 3.2 mln sqm by the end of 2021 due to the completion of ten new office buildings totalling 245,800 sqm, according to CBRE’s report. The vast majority of the completions occurred in H2. The largest share of new supply at 27 pct was seen in the city’s Centre-West submarket, where two buildings were completed: Campus 6.2 (19,800 sqm) developed by Skanska and acquired by S Immo in the first half of 2021, as well as the first phase of One Cotroceni (46,000 sqm gla) developed by One United Properties. One building, making up 19 pct of the new supply, was completed in the North-West submarket. This was J8 Office Park, with an area of 46,000 sqm, which was developed by Portland Trust. Two buildings were developed in the Centre submarket (17 pct of the new supply): Matei Millo (9,700 sqm gla), and phase one of U-Center (32,800 sqm), both projects developed by Forte Partners. Projects in the CBD submarket accounted for 13 pct of the total new stock, which included Tiriac Tower (16,500 sqm gla) developed by Tiriac Imobiliare, and the Dacia 1 building (15,000 sqm) developed by Atenor and acquired by Dedeman in the last quarter of the year. The Floreasca / Barbu Văcărescu submarket accounted for 12 pct of the annual deliveries, after the development of Globalworth Square (28,400 sqm) by Globalworth, while the Băneasa-Otopeni and West submarkets garnered shares of 9 pct and 3 pct respectively, with the development of Miro Offices (22,900 sqm) by Speedwell and Politehnica Business Tower (8,000 sqm) by a local developer.

By the end of 2022, another six office buildings totalling 135,700 sqm should increase Bucharest’s stock up to 3.33 mln sqm. Around 65 pct is to be built in the Centre-West submarket, where AFI, One United Properties and River Development are developing AFI Tech Park 2 (22,000 sqm gla), the second phase of One Cotroceni Park Phase (34,500 sqm) and Oslo & London’s Sema Park II development (31,600 sqm). In the Centre submarket, Forte Partners’ Tandem project (19,700 sqm) and Hagag’s Tudor Arghezi (7,000 sqm) are under development and account for 20 pct of the 2022 pipeline. The remaining 15 pct is in the North–West submarket, where the first phase of @Expo is to be completed (21,000 sqm) by Atenor Group.

Total leasing activity over 2021 came in at 280,500 sqm, 16 pct higher than 2020. Take-up (total transactions excluding renewals and renegotiations) represented 58 pct of the overall activity, which was 15 pct above the level of 2020. Pre-leases accounted for a quarter of the yearly take-up, with the first major transaction of this type being Wipro’s 11,000 sqm lease in Globalworth Square. Another major transaction signed in the early part of the year was Provita’s 11,000 sqm lease in Iride Business Park. Renewals and renegotiations totalled 117,700 sqm, representing a rise of 16 pct on the previous year. While 2020 proved to be a ‘wait-and-see’ year, 2021 saw the resumption of leasing decisions being taken and all the submarkets saw increased transactional activity. The largest share (22 pct) of total leasing activity was taken by the Floreasca / Barbu Văcărescu submarket. The North-West and Centre-West submarkets each saw rises of 14 pct, while the CBD, Dimitrie Pompeiu and Centre submarkets took shares of 13 pct, 12 pct and 10 pct respectively. Together, the Pipera North, West, Băneasa-Otopeni, East and South office areas accounted for 15 pct of the total space leased in 2021. IT and tech companies made up 34 pct of the activity, while the consumer services & leisure and manufacturing & energy sectors accounted for 24 pct and 18 pct of the space leased respectively.

At the end of the year, the vacancy rate in Bucharest stood at 13.1 pct, marginally higher (by 0.7 pps) than at the end of the previous year. However, class A office projects enjoyed a lower vacancy of 10 pct. Prime rents per month remained the same as in Q4 2020 at EUR 18.75 per sqm, while landlords continued to show flexibility when negotiating incentive packages and lease terms, thus lowering net effective rents.

Putting the ‘where’ in warehouses

As has been the case in other countries, much of the warehousing development is being driven by the rapid growth of e-commerce. “This is a trend that we were already seeing before the pandemic, but which was only strengthened by the situation in the last couple of years. I’m talking about the rise of e-commerce and though Romania is still lagging when it comes to the adoption of e-commerce compared to Western Europe, we believe that the difference between Bucharest and other developed cities in Germany or France could now be much smaller,” explains Silviu Pop, the head of research for Romania at Colliers. Vlad Săftoiu is also upbeat about the warehouse and logistics markets: “2021 has been a solid year for the industrial and logistics market, as a take-up level similar to 2020 has been recorded, close to the 1mln sqm mark, in line with the consistent new supply of 500,000 sqm.”

CBRE’s report reveals that Romania’s modern industrial stock had reached 5.63 mln sqm at the end of 2021, with 543,000 sqm having been delivered since the beginning of the year. Bucharest, with 63 pct of the year’s new supply, easily maintained its position as the most developed industrial hub with half of the country’s standing logistics stock. Supply has been on the rise since 2015, with annual new deliveries above 0.25 mln sqm in 2016 and 2019 and close to or even higher than 0.5 mln sqm in 2017, 2018, 2020 and 2021. Outside Bucharest, the development in the southern and western / north-western regions of Romania respectively accounted for 18 pct and 13 pct of the new space, while the central and eastern/north-eastern regions accounted for 6 pct. Bucharest had a total volume of 2.8 mln sqm of industrial space at the end of 2021 in six separate areas around the city. Over the year only three of these areas saw further development, with around 333,000 sqm built. The West part of the city accounted for half of the supply, while the North submarket took a 32 pct share. The third area, the North-West submarket, is the newest industrial hotspot, where such developers Logicor, Global Vision and Catted have now chosen to build. By the end of 2022, another 500,000 sqm is to be added to Romania’s total stock, as around 522,000 sqm was under construction at the end of 2021. Developers have yet to lease out around 60 pct of the future space, since so much of it is speculative. However, by the end of 2022, the total industrial stock should come to more than 6 mln sqm. Of the future pipeline, 37 pct is in the Bucharest area and another 37 pct is in the western/north-western region of the country. Such location decisions are largely determined by the country’s road infrastructure. The central, southern and eastern/north-eastern regions together account for a quarter of the 2022 pipeline. Developers including Element Development, Global Vision, ICCO, Sofimat, Transilvania Construcţii, VG Group, and WOP are all looking to identify future hotspots and to enlarge their portfolios with properties in the Brăila, Constanța, Argeș, Brașov, Bacău, Hunedoara, Buzău, Neamț and Dolj regions.

Romania’s industrial vacancy rate was 3.9 pct at the end of 2021, while in Bucharest it stood at 4.2 pct. Headline rents per month in logistics parks remained relatively unchanged from last years’ final quarter at EUR 3.9 per sqm, while the net effective rent was EUR 3.5 sqm for a 5,000 sqm unit. Total leasing activity in 2021 came to 856,000 sqm, down 8 pct on the record year of 2020. However, compared to 2017 it is up by 40 pct and 70 pct and 80 pct higher than in 2018 and 2019 respectively. Take-up (excluding renewals and renegotiations) accounted for 72 pct of the total leasing activity. Bucharest accounted for 70 pct of the year’s total demand, while the west / north-west of the country took a 12 pct share, the south region accounted for 11.5 pct and the central region had 6 pct. The east / north-east of the country barely contributed 0.5 pct to the total. Most tenants in Bucharest chose the West submarket (61 pct in terms of area leased), while the North and North-West areas had a share of 32 pct, and the East, South and South-West submarkets had a combined share of 7 pct. 2021’s largest deals were signed during the first and last quarters of the year. At the start of the year, automotive company Dacia renewed a 68,000 sqm lease in premises owned by Globalworth in Argeș county, while at the end of the year Network One Distribution renegotiated a lease of app. 50,000 sqm in CTPark Bucharest West. Around 43 pct of the space was for storage purposes, while distribution, logistics, production and other purposes accounted for 15 pct, 10 pct, 6 pct and 26 pct of the total respectively. Retailers and automotive companies dominated the transactions with a joint share of 40 pct of the total leasing activity.

Romania can accurately be described as a buoyant economy, but Silviu Pop of Colliers goes further, comparing the country’s rapid growth that of Ireland and even some of the former Asian Tigers. As he explains: “We remain quite bullish about the Romanian real estate market for a variety of reasons, but if we were to summarise why in just two points, I would say the following: Firstly, in the last two decades, Romania has had the fifth-highest growth rate in the world – if we judge this in terms of GDP per capita, rather than just in terms of simple growth rates, since this method is far from perfect. Instead, when looking at GDP per capita relative to the average for advanced economies, Romania has grown from around 20 pct in 2000 to around 50 pct at present. This 30 pp increase is the fifth-best in the world, behind only Singapore, Taiwan, Lithuania and Ireland. Furthermore, certain locations in Romania, such as Bucharest and Cluj, are already on par with Western European levels of economic productivity. And yet, while all this has been taking place, the real estate scene in Romania has not been able to keep up with the brisk economic growth. Romania’s per capita stock of modern office, retail, industrial and residential space are well below those seen in other regional markets, such as Poland or the Czech Republic, let alone in Western Europe.”