After a Q1 when GDP grew by 4.3 percent, the positive trend is expected to continue in 2015 when, according to Oxford Economics reports, GDP will increase by 3.1 percent, with all sectors of the economy having a positive contribution. The National Bank of Romania decreased the monetary policy rate in Q1 to the lowest level in history at 2 percent. The exchange rate remained very stable over the quarter, oscillating between RON 4.40 and 4.51 for 1 EUR. Government debt decreased below 38.5 percent of GDP, the third lowest in the EU, while the estimated government deficit in 2014 was of 1.5 percent of GDP.
In terms of investment market, although there has been a relatively slow start to 2015, with just over EUR 20 million of real estate investment volume in the first quarter, it is expected another strong year. This is on the back of a 2014 where the total volume exceeded EUR 1.2 billion, putting Romania very much in the bag of key investment destinations within CEE, with only Poland and Czech Republic witnessing higher volumes. It is however expected the total volume in 2015 to be lower than 2014 figures, with early expectations between EUR 800 million – 1 billion, based on the fact that a number of key office and industrial buildings within Romania are expected to transact this year.
As regarding the investment trends, despite the favorable macroeconomic environment, there is still a major pricing gap between Romania and the main CEE markets, with prime yield levels at least 150 basis points higher than those in Prague and Warsaw. The weight of money and the compression of the yields in markets like Poland and the Czech Republic have prompted more investors to look at Romania which translates into the highest level of interest since 2008. This trend could be observed even in 2014, enticed by the opportunity to acquire trophy assets (such as Promenada Mall) but is now much more obvious. On the financing side, over the last 12 months, there have been signs that the number of banks willing to lend to the right project and developer has increased and financing terms have improved, as proven by the recent financing of HBC office project, where JLL represented the developer, Atenor.
The vacancy rate registered a marginal growth q-o-q of 10 basis points to its current level of 13.4 percent. This was largely due to the delivery of city offices which brought 27,000 sqm of office space to the market that was not covered by the net take-up figures. However, due to the increasing volume of future deliveries, it is expected that the vacancy rate will marginally increase by the end of 2015 / beginning of 2016. Vacancy rates continue to be uneven between the sub-markets, fact which is reflected in the evolution of the rental levels. While in Capital’s South, Baneasa and Pipera North vacancy is above 30 percent, vacancy in the CBD, Center-North, North, West, Floreasca Barbu Vacarescu and Dimitrie Pompeiu is below 10 percent.
Existing shopping centers with proven good performance are still the main destination of new entrants, due to the limited options in terms of new supply and high street retail. Among the new retailers entering Romania, JLL advised Nespresso into opening their first boutique in Bucharest, in the Dorobanti area and Debenhams re-opened their first unit in Bucuresti Mall after a 2 year long break. Moreover, Marc Cain – the women’s luxury fashion brand from Germany, opened its first unit in the Radisson Blu Hotel commercial gallery, joining Burberry and J. Kristensen.
As for transactions and online retail, as part of the recent changes in the Romanian restaurants and fast food market, it was announced that McDonalds sold their local business to a Russian based company which will take over the operations of approximately 70 units in the country. Moreover, the Starbucks franchise which comprises 14 cafes in Romania and 5 in Bulgaria, was taken over by AmRest, the Polish company which owns the operations in the rest of the CEE countries, in a transaction estimated at around EUR 16 million. The online retail market in Romania was estimated to surpass the EUR 1 billion mark in 2014, with more than 5,000 retailers competing for approximately 10 million Internet users. In Q1 2015, H&M launched its online store in the country joining the Inditex Group which made that move earlier. Fashion is the second largest online market, after electronics and is estimated at close to EUR 150 million.
The completions reported in 2014 include the 3,000 sqm extension in Otter Logistics Park in Bucharest, a 12,000 sqm automotive seating plant in Solo Industrial Park Iasi, an extension of 7,500 sqm in VGP Timisoara, 27,000 sqm in PWP and 45,000 sqm in Timisoara Airport Park. No new space was delivered in Q1, but close to 247,000 sqm are expected to be delivered in Romania by the end of the year. Globalworth plans to extend Timisoara Airport Park with close to 52,000 sqm, while Olympian Timisoara will be extended with 20,000 sqm for TT Electronics. Other projects which will add new space to the market are Yazaki Braila, Ploiesti West Park, VGP Timisoara, WDP Ploiesti, CTP Turda and Transilvania Logistic Park Cluj. In Bucharest, two new speculative projects are expected to be finished by the end of 2015: the 75,000 sqm extension of P3 Logistic Park and the new 45,000 sqm Log Center Mogosoaia.