Property Market Analysis – Romania Gets Back on the Investors’ Radar?

The search for high yields is making the private equity funds to turn their attention to the new markets, including to Romania, but also to take into consideration other properties than the top ones, shows a report released yesterday by Jones Lang LaSalle (JLL). “These investors who have significant private capital can take advantage of their regional presence and of the fact that they have access to credits in special conditions. Whereas in the past few years, the investors focused mainly on the prime properties, today even the secondary products whose incomes could e increased through better management, especially those from Bucharest, are becoming increasingly liquid. Along direct investments, the private equity funds aim to buy distressed assets or to place new mezzanine-type loans”, shows the report. In attracting companies, Bucharest is competing especially with Krakow, Prague, Warsaw and Bratislava, declared Gijs Klomp, CEO of JLL Romania. Bucharest is attractive because of its salary level, but also because of the training of the experts compared to other secondary cities from Poland. “For example, compared with Prague, Bucharest is three times cheaper for a back-office company”, declared Gijs Klomp.

In this year, there is the potential for the yields to decrease mainly because of the massive investments in Central and Eastern Europe, but also because of Romania’s solid economic performance. In JLL’s vision, in 2015, the yields will most likely be stabile considering a slight increase of the monetary policy rates. The volume of transactions registered in 2013 is estimated at 330 million euro by the JLL specialists, who mentioned yesterday in a press conference that the largest transaction from last year was the acquisition of the commercial center City Park Constanta by NEPI. In 2013, NEPI was the most active buyer from the local market.

2013 – spectacular growth of the finished offices
The overall surface of finished offices reached last year at 119,000 square meters, almost 2.5 times larger than in 2012, according to the JLL report. JLL estimates the overall stock of modern office spaces from Bucharest at 2.08 million square meters. “The north side of the Capital, especially the corridor Floreasca – Barbu Vacarescu and Dimitrie Pompeiu Avenue was the most interesting area for the office developers lately. However, some of the most important office projects announced for 2014, such as Green Gate (30,000 square meters), AFI Business Park stage II and III (24,000 square meters) and City Offices (25,000 square meters), are located in the center and west part of the city, or in center-south side. Considering the large number of office buildings that will be completed in the first half of 2014, we are expecting the average vacancy rate of the offices to increase temporarily in the following months”, declared the JLL experts. The vacancy rate of each area from Bucharest is very different, starting at less than 10% on Dimitrie Pompeiu Avenue, Victoriei Square area, the west side of the city and center-west, and reaches at some 35% in Pipera and Baneasa. JLL estimates the offer of new office spaces expected to be completed in 2014 at 120,000 – 140,000 square meters. “Because of the large volume, certain projects might postpone the inauguration for 2015. We are expecting the occupancy of spaces to increase compared to the previous years, especially because of a larger weight of the lease contracts signed by new companies or by companies who are expanding their current office surfaces”, shows the report from JLL. The center-west area of Bucharest has the greatest potential for office developments, because it has good infrastructure, a low stock of office spaces and a low vacancy rate, declared the representatives of JLL. Floreasca – Barbu Vacarescu area is becoming risky, added the experts.

The demand for offices land plots is increasing
Attila Peli, the head of land and development department of JLL, declared that the demand for land plots will increase in the following years, especially for office developments, and then for the other commercial segments, and in the end, for the residential one. “The projects will be built in areas with minimum risk, meaning in Bucharest and as close as possible to the Capital’s “hot spots” such as Victoriei Square, the Center-North area, Floreasca-Barbu Vacarescu, Dimitrie Pompei Avenue and Center West. The other areas pose a larger risk and a developer wants to be in a risk-free area”, declared Attila Peli. According to him, in the following period, the Center – West area, where there is a small stock of offices – some 70,000 square meters, and a low vacancy rate, will be extremely attractive as it also has good infrastructure and is well connected with the rest of the city. “This area has great potential and is becoming attractive. Floreasca tends to get saturated and risky because it delivers too many projects. There were many developers who have secured land plots in this area, most likely without knowing of each other”, added Attila Peli.

Many international retailers are re-assessing the opportunities from the local market 
JLL estimates the stock of commercial spaces at 890,000 square meters in Bucharest and about 1.66 million square meters in the rest of the country. In 2013, the offer of new commercial spaces was rather limited, with only five projects delivered, with a total of 128,000 square meters, according to JLL. Many international retailers, who are not present in Romania, have started to evaluate again the opportunities from the local market. “umbo, Tchibo, Kazar and H&M Home are just few of the brands who have opened their first units in Romania in Q4 2013. D&G opened its first unit here towards the end of last year, in The Grand Avenue, the commercial galleria of Marriott Hotel, along Louis Vuitton, Valentino or Cavalli”, shows the JLL report. The prime rents, in both commercial centers and on high street commercial centers, remain at 55 to 65 euro/ sqm/ month. The largest rents are charged in AFI Palace Cotroceni and in Baneasa Shopping City. The JLL predictions indicate that the volume of deliveries in 2014 will be smaller than in 2013. “Only two projects are announced to be inaugurated this year, both developed by NEPI – Vulcan Value Center (35,000 sqm) in Bucharest and Shopping City Targu Jiu (27,000 sqm)”, shows the report.
Attila Peli claims that in the next two years, the demand for land plots from retailers will continue to decrease, considering that in this period, the developers will return on the market and the prices of land plots will start to increase.

Bucharest concentrates half of the modern stock of industrial spaces
At the end of 2013, the stock of modern industrial spaces was estimated at about 1.8 million square meters and over 50% of this stock is located in Bucharest and nearby areas. According to JLL, another three important projects are under construction. Lear Corporation will rent some 12,000 square meters in Solo Industrial Park from Letcani, near Iasi City. Another 25,000 square meters are under construction in Ploiesti West Park, and another 7,200 square meters in VGP Timisoara. On national level, in 2013 have been rented some 205,000 square meters of industrial spaces, a record, representing a growth rate of 20% compared to the year before. The cities with the largest volumes were Bucharest (about 50% of the overall surface traded), followed by Oradea, Timisoara and Ploiesti. The prime rents range from 3.8 to 4 euro/ sqm/ month. The rents for light industry spaces is 3.4 – 4.25 euro/ sqm/ month. For large industrial spaces, of over 20,000 square meters, the rents are smaller, of about 3.5 euro/ sqm/ month.

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