Constanta port sails on despite infrastructure issues

When it comes to logistics, Constanta has the most favorable geographical position in Eastern Europe. Its location, next to the Black Sea, near the Danube Channel and with connections to two Pan-European transport corridors, should have made it the second biggest maritime hub and logistics development in the European Union. But while the volume of cargo is growing annually, developers’ reservations have left ambitions for the port all at sea.

Andreea Ceasar

According to data from Constanta Port in 2010, its volume of cargo posted an 11 percent year on year increase, reaching 47 million tons of goods. Some 9.6 million tons of crude oil, oil products and natural gas, 12 million tons of cereals, 5.3 million tons of ferrous ore and 2.5 million tons of metal products passed through the port.

“After the previous two years of global recession, 2010 brought real signs of recovery for the port of Constanta. With a traffic increase of 13 percent in 2010 on the previous year and the infrastructure projects that have already started, we are confident, and we are preparing the port for the expected growth,” says Aurelian Andrei Popa, general manager of the National Company Maritime Ports Administration, Constanta.

Unfortunately, these figures have not influenced the development of the area in terms of logistics parks and warehouses. Companies need facilities, infrastructure and economic stability, and until this happens investors are still contemplating the potential of the area and waiting for better times to come.

Like any modern port Constanta needs professional logistics activities. “These activities require a logistics park where storage and value added services can be performed. Interest is mounting in these activities, but firms are very often disappointed by the relative absence of many of the necessary ingredients,” says Robin Martens, managing director of European Gateways Platform, stressing that such ingredients include infrastructure accessibility, the availability of good quality labor at competitive costs, education, legal and procedural aspects, transparency and stability, a good political climate and advantageous taxation.

These issues are problematic for Constanta. “At this moment, the volume of goods coming into the port is delivered to the logistic parks in Bucharest and then distributed through the whole country,” says Dana Bordei, senior broker, industrial, of the real estate consulting company CB Richard Ellis (CBRE).

National real estate agencies have little or no information on this area, as they have focused their attention on the capital and some western cities. “We don’t have statistics regarding the state of logistics development in Constanta, but the area has no class A industrial development, although the logistic players have often shown their interest in these types of investments and industrial developers have already bought land in strategic parts of the city. Despite all this, no major industrial park client has agreed to sign a build-to-suit contract,” adds Bordei. The economic situation seems to have dissuaded logistics players from signing five-year lease contracts for a minimum 5,000-10,000 sqm. Today the Constanta area and port have no new industrial parks being developed. The current logistics and warehouse stock is old, consisting of B and C class spaces. The owners have renovated their spaces to make them suitable for use.

Supply and demand

Because of Constanta’s lack of logistics and warehouse spaces, the rent per square meter has remained at the same value as in 2008 and 2009, EUR 4-7 per sqm, depending on the rented surface, the contract duration and the quality of the space. “The area has huge potential as there are many companies that would like a European distribution center in Constanta. The main problem is the lack of infrastructure, which leads to a small capacity of places to deposit,” confirms Dragos Geletu, managing director of integrated logistics provider KLG Romania, who complains that the prices of depositing in Constanta have not dropped at all and are comparable to those in Bucharest.

The company currently has a 21,000-sqm warehouse on the A1 Bucharest-Pitesti motorway and plans to develop another 20,000 sqm in the same area. In Constanta, KLG has rented a 1,000-sqm space, but plans to build its own property on the long term.

“Today we transport electronics, IT, toys and industrial equipment from Constanta, and the volume hasn’t changed in recent years,” states Geletu. “We could demonstrate that this port is truly the Eastern European gate, but for this we must offer some facilities like VAT deferment or tax-free property. We could still attract investors.”

Facilities for investors are the refrain that could change the face of the area. “Constanta could become an important logistics hub for the goods entering Europe from Asia and the Middle East. But this type of cargo instead goes through Western ports, thanks to the attractive fiscal framework for transferring the goods and their impeccable infrastructure,” says Bordei. Figures show that the price and delivery of Asian goods would benefit from an Eastern European gate. This is why Constanta should be the second biggest maritime hub of the European Union, but has not managed to increase the volume of cargo channeled into Romania, to the detriment of Western countries, because of the fiscal conditions and infrastructure. “We annually receive requests for logistics spaces in the port’s area, but investors are holding back because of the uncertain legislative and fiscal framework,” concludes the CBRE representative.

Strategy: buy land and wait

Even though the Belgian industrial developer Warehouses De Pauw (WDP) has two large projects in Constanta, it is not interested in speculative developing. Instead it is waiting for the right clients. One project is in Kogalniceanu, close to the airport, and one is in Agigea, both with a surface of more than 10 hectares bought in 2007.

“We believe in the potential of this area, and even if the interest is today quite low, as soon as we find the right mixture of clients we will start developing the sites,” says Valentin Stanciulescu, business development manager of WDP. In Romania, the firm currently owns approximately 2 million sqm of land in ten locations close to Bucharest, Pitesti, Ploiesti, Constanta and Brasov.

And WDP is not the only investor scanning the horizon in search of potential tenants. Mercury Development Real Estate, a private Romanian-owned company developing real estate projects, has for two years been trying to sell a huge project with a total surface area of 68,000 sqm in Ovidiu, part of the Constanta Metropolitan Area. The position of the investment land seems advantageous as it is close to the new Constanta Ring Road, the Danube Black Sea Channel and Kogalniceanu Airport, and also has a 200m fluvial loading ramp.

“Customers just seem to find it hard to decide,” confirms Raluca Capalneanu, representative of Mercury Development Real Estate.

The developer of the newly built Swan Office & Technology Park in Pipera has also built up a stock of 100 hectares in south Constanta since 2007, and like every developer in the area it is analyzing the market.

“The area has great potential on the long term, which is why an investment here in logistics space is extremely positive and strategic. We cannot blame Constanta for the current situation, meaning the lack of contracts signed for logistics developments. The situation must be viewed in the context of the general economic climate. And the balance between risk and returns is currently tricky,” said David A. Allen, managing partner of Chayton Capital, stressing that the road infrastructure is getting better and better. “It’s very unclear for us when we will start building. It is clear, though, that we will not build speculatively and nor will we sell the land. As the surface of land is huge, we are looking for a joint venture,” says Allen, adding that the only land the firm sells is to increase the attractiveness of the zone.

The future opportunities of the area have piqued the interest of Sorin Preda, manager director of Global Vision, one of the biggest players on the property management market, evaluated today at EUR 100 million.

“We administrate there is 600,000 sqm of office space in Bucharest and Timisoara, and in the next two years we will be opening five new regional property management offices which will cover the top ten cities by demographic and economic growth,” says Preda. One of them is Constanta, a city with what the MD sees as the right opportunities.

“We appreciate the potential of property management services for industrial and retail buildings, and in this area there is an increased need for them,” comments Preda. According to Allen, Capalneanu and Stanciulescu, who don’t want to sell anything their company has bought, in the medium term the area will attract ambitious companies that will become tenants of the present on-paper projects.

andreea.ceasar@business-review.ro

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