Good news, bad news

Who knows what is really going on in the Romanian industrial sector? The latest data continues to paint a picture of a troubled market, but developers and leasing agents are increasingly making positive sounds that the market is finally moving in a good direction. What is the real picture? “Our forecast varies month-to-month, sometimes day-to-day! I believe that in our part of the CEE region we will be lucky enough to experience a slight GDP recovery in 2011, maybe 1–1.5 pct and a maximum of 1.5–2 pct in 2012 – but I’m an eternal optimist,” says Leslie Warren, the leasing director of Helios Phoenix Real Estate, the developer behind Olympian Logistics Parks network across Romania. “Leasing is tough right now for all of us. We have just leased out 4,500 sqm at Olympian Park in Braşov in a ten-year deal, we are about to lease 3,500 sqm at Olympian Park in Cluj, and we have seven meetings with potential tenants in our diary this month. The reality is that we are talking to four or five potential tenants a week for space – so the interest is there and real, but financial confidence at senior board level is stifling the local enthusiasm to expand.”
Buckle up, please
Indeed, the first six months of 2010 saw a modest recovery on the industrial market in Bucharest, where the vast majority of warehouse space in the country is located. This year the Romanian economy is still faced with some serious challenges after the difficult year of 2009 (-7.2 pct GDP growth). According to the European Bank for Reconstruction and Development, Romanian GDP growth will continue to be negative at around -3 pct (July 2010 forecast). In March 2010, the bank predicted zero GDP growth for the country. It also revised its forecast for 2011: while initially the Romanian economy was expected to grow by 3 pct in 2011, currently the bank expects zero growth in 2011. Nevertheless, an increasing number of companies are preparing for an eventual recovery.
The first half of the year, naturally, was still marked by market insecurity. According to The Advisers Prime Property, Knight Frank’s partner in Romania, the total take-up of class ‘A’ space increased to almost 50,000 sqm. “This figure represents more than double the total recorded during the same period of last year. Overall, in 2009 65,000 sqm of warehouse space was leased. Nevertheless, both tenants and developers have remained very cautious. Investors and developers have put everything on hold, while tenants have been very prudent, looking for medium terms in their leasing deals, and for excellent overall terms to allow the tenant to relocate or consolidate,” claims Mihai Paduroiu, a senior consultant in Advisers’ industrial division. On the bright side, a stabilisation of rents has been observed, while on the other hand the vacancy rate has increased from  10 to 12 pct. So far the largest closed deal is a 10,000 sqm pre-lease signed by an automotive parts retailer in the western part of the capital. In general, FMCG and printing industries accounted for the highest demand for warehousing space. By the end of 2010, 20,000 sqm of new warehouse space is expected to enter the market, with the result that total stock will not reach the 1 mln sqm mark this year.
Which way to go?
What good news is there, then? “We are a long way away from the situation two years ago, but we can now see the light at the end of the tunnel. There is a trend for local managers needing additional logistics and distribution space. However, I think that financial management in Western Europe has vetoed their expansion plans due to a lack of confidence in the financial storm ending any time soon,” believes Leslie Warren. Helios Phoenix, which has a cooperation agreement with GE Real Estate, is not planning to leave Romania any time soon. The Olympian Parks network currently includes complexes in Braşov, Timişoara, Bucharest, Cluj and Constanţa, but the company is monitoring tenant interest in all the major cities in Romania.  “If we see some serious interest from anyone, we’ll develop,” declares Leslie Warren.
Changing market
The age of speculative development seems to be long gone in Romania. “There are only four examples of speculative projects nationwide. The majority of developers are now  focusing on BTS-type deals,” comments Mihai Paduroiu. MLP Group, the Polish BTS warehouse developer, is also active on the Romanian market, with ambitious plans for a scheme in Bucharest. Eventually as much as 250,000 sqm of warehouse space could be delivered on the site in question. In the meantime, a 6,000 sqm leasing contract with Golden Foods has already been signed. “By the end of 2011 we are planning to complete the first stage of the MLP Bucharest Project, which will contain 60,000 sqm of warehouse and production space,” reveals Radosław Krochta, a member of the management board of MLP. He goes on to add that: “We also hope we will be able to lease all that space by the end of the next year. In any case, we are able to respond fast enough to the changes on the market. There is a positive increasing FDI trend in Romania, which also eventually leads to increasing demand for warehouse space in the country.”
Mladen Petrov