Analysis. Baneasa Developments aims to turn northern Bucharest into major mixed-use project

Ovidiu Posirca 03/11/2017 | 11:40

After investing EUR 165 million in a retail center in northern Bucharest, Baneasa Developments aims to put another EUR 300 million into the Baneasa area in the next decade, aiming to trigger a massive influx of capital that would turn this part of the city into the biggest market for mixed-use projects in Central and Eastern Europe (CEE).

Baneasa Developments, the company founded by businessmen Radu Dimofte and Puiu Popoviciu – who has been sentenced to seven years in jail by a Romanian court – says that the development of its commercial center, which has a surface of 80,000 sqm and 364 stores, attracted additional property investors to the Baneasa platform between 2005 and 2016.
A KPMG study commissioned by Baneasa Developments found that the conditions have been created for one of the biggest mixed-use projects in Romania, as office and residential projects have emerged in the same area.

In the past decade, the total area of residential developments in Baneasa stood at 74,000 sqm, while office and commercial spaces accounted for 27,000 sqm and 80,000 sqm, respectively.

Investment impact of EUR 6 billion in ten years

“The company’s long-term expansion plan would be the catalyst for additional greenfield development (commercial, office and residential) in the area, spanning a total of 1.4 million sqm of usable area (with residential accounting for 76 percent), which would lead to Romania having the largest mixed-use project in CEE,” said the company, citing the results of the study.

The analysis further showed that the existing and greenfield development project, consisting of commercial, residential and office areas, could potentially yield an estimated total economic impact of approximately EUR 6 billion over the 2017-2026 period. The estimate is based on direct, indirect and induced impact contributions. The project would sustain more than 30,000 jobs in 2026, according to the same study.

Dinu Bumbacea, partner at KPMG Advisory, said: “The objective of the study was to capture the economic and social value created through the mixed-use development (commercial, office and residential) in the Baneasa area, by looking both at the past performance of the existing development and future performance of the existing and envisaged development.”

The Baneasa platform has already triggered investments in infrastructure, entertainment and tourism, said Georgios Argentopoulos, chairman of the board of directors at Baneasa Developments, the company that operates Baneasa Shopping City, Feeria Shopping Gallery, Grand Cinema & More and KFC Drive-in. The company also manages the Baneasa commercial area, including Carrefour, Mobexpert, Metro and BricoDepot.

Last year, Baneasa Developments registered revenues of more than EUR 49 million and EUR 16 million in net profits. The company plans to add 127,000 sqm of lettable area in the next decade, effectively doubling its area, as part of the EUR 300 million investment program.

Meanwhile, controversial businessman Puiu Popoviciu has been sentenced to seven years in jail by a Romanian court. He posted bail in London in August and the Romanian authorities said they had initiated extradition procedures against the businessman, who also has American citizenship.

Anti-graft prosecutors accused Popoviciu of complicity in abuse of office and bribery. His trial started in 2012 and he was initially sentenced to nine years in jail, a ruling that was appealed.

In short, investigators found that Baneasa Investments, the firm controlled by Popoviciu, had struck a deal with the University of Agricultural Science and Veterinary Medicine (USAMV) through which 226 hectares of land was illegally transferred into the private firm’s share capital. The land was sold for USD 1/hectare, while the market price in that area stood at EUR 150 per sqm. The transaction was carried out between 2000 and 2004.

The deal cost the state around RON 335 million, and the university RON 619.4 million. Other state officials were also sentenced to jail, including the head rector of the USAMV at the time of the transaction.

Focus on expanding existing retail space

Investors have continued to focus on the retail sector due to the favorable economic conditions. After growing by 11 percent year-on-year in 2016, consumer spending is set to remain in the green, albeit with growth gradually slowing to 6 percent in late 2017-2018, according to a report by Colliers International, the real estate consultancy.

Some 30,000 sqm of modern shopping centers were delivered in the first six months of the year, with another 150,000 slated for completion by the end of 2017, says the report.

“During this period, retail schemes in the main cities of Romania, such as Bucharest, Cluj Napoca, Timisoara and Iasi, will focus primarily on extending the existing space and increasingly on entertainment options. This focus on entertainment will be particularly important in order to maintain the positive evolution of footfall, even as consumers increasingly shop online. Cinemas and food courts have been the main focus thus far, but we expect increasing demand for retailers to provide family-oriented entertainment,” said the analysts.

Colliers International sees a trend in the commercial spaces across big cities, where developers could focus more on providing new retail and entertainment schemes for newly built office areas. This means that new brands could be brought on the market with a strong focus on the upper-middle income segment.

In terms of the office projects that complement the commercial areas, the price of office space per sqm in Baneasa, for instance, stands at around EUR 11-13 per sqm, with a non-occupancy rate of 8 percent. Moving slightly eastwards to Pipera, prices start at EUR 8 and the office vacancy rate stands at 34 percent, which is among the highest in the city, says the Colliers analysis.

The investment triggering effect that the KPMG report mentions for the Baneasa area is already starting to become apparent on the land market. Last year, real estate developer Vastint, which is working on two office projects in Bucharest, bought 480,000 sqm of land in Baneasa for a residential project. This was the biggest land deal in 2016, according to a report by C&W Echinox, the real estate consultancy. The buyer cited proximity to the Straulesti terminal, which has a subway station and park-and-ride facilities, as well as the easy access to Baneasa Shopping City and the Henri Coanda international airport.

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