2022 ended with solid activity levels for industrial and logistics, with some 830,000 square meters of leasing deals closed, significantly up from 675,000 square meters the previous year, according to the annual report released by Colliers, with the note that probably none of these results reflect the true depth of the local market, because the only information included is publicly available (either deals reported by the local research forum or deals communicated via press releases or in reports for investors in the case of listed companies).
Colliers consultants estimate that the one million threshold would be surpassed in each of the past three years if direct deals that often end up unreported would be included. The overall stock of modern industrial and logistic facilities in Romania reached almost 6.2 million square meters, up by over 0.5 million square meters compared to the previous year, and there is still significant room for growth compared to other CEE countries.
Around half of all deliveries have been in the proximity of Bucharest, while in terms of active developers, the most important remain CTP, WDP, Global Vision, VGP. Schemes involving multimodal transportation are gathering steam and Colliers consultants also note the addition of the first project with an air cargo from CTP in Oradea. Furthermore, more flexible arrangements aimed at SMEs or those seeking smaller surfaces are also becoming a more frequent occurrence.
Bucharest dipped further in terms of overall leasing share, at around 48% of total versus around 63% in the previous year, Colliers consultants explaining that this is mostly the result of some sizable deals outside the capital, but also the fact that newer/less established submarkets are rising. Therefore, there will probably be many more deals over the medium term in markets like Oradea or Constanta. Such deals should be fueled by the rapid development of infrastructure, with the many billions of Euros earmarked for Romania via EU funds enabling greater connectivity between certain regions, as well as opening up new ones, like Moldavia, which has been sort of cut off from the rest of the country.
“In terms of leasing deals, last year’s results are impressive when compared to the years just before the pandemic, when the average stood at a bit under the 500,000 square meters level. While the average deal size was more or less unchanged versus the previous year, at below 7,000 square meters, some quite sizable leasing transactions were closed. The year’s biggest was related to the new H&M distribution center in Ploiesti, to be developed by CTP, over a surface of c.88,000 square meters. This is one of the rare instances when a deal is around the 100,000 square meters level, but is a progress compared to 3 or 4 years ago, when no such sizable transactions were present. Furthermore, several other deals with more than 50,000 square meters were closed last year, with more such big deals currently being negotiated”, explains Victor Cosconel, Head of Office & Industrial Agencies at Colliers.
Almost half of all leases were generated by various companies selling consumer goods or large retailers/FMCG operators, plus e-commerce. Since most of the logisticians and couriers (another 17%) are likely to depend greatly on the consumer sector/work for other companies tied to this, it is safe to say that the market remains largely driven by how strong household spending has been in recent years. That said, Colliers consultants expect production to increase substantially in the next few years, given the re-shoring trend (amid the war in Ukraine and larger geopolitical shifts regarding Asia), but a larger part of these new facilities will turn out to be occupier-owned, so not showing up in statistics.
Vacancy rates remain at single-digit levels and are quite low in some submarkets, like Bucharest or Cluj-Napoca, though others do seem to have a bit of an oversupply issue, like Timisoara. Meanwhile, rents have remained under pressure from both the inflationary backdrop as well as the increased construction costs. This has meant that rental levels have gone as high as 4.5 euro per square meter in Bucharest, maybe around 4.3 euro per square meter on average, with levels in other parts of the country not that much smaller compared to the latter figure.
“Given the large flexibility developers have, like the ability to deliver a BTS in a short timespan, plus the low share of speculative developments in 2022, vacancy has remained largely subdued. This lack of spaces has meant that clients seeking smaller surfaces may have to go beyond the normal leasing length of around 5 years if they want to secure a deal in a built-to-suit space. Further, the good news is that the costs for construction materials have stabilized as of end-2022 and could even start decreasing a bit, particularly if they start following the dynamic of commodities in financial markets”, says Lucian Opriș, Director Tenant Services | Office 360 & Industrial Agencies at Colliers.
Also on the positive side is the fact that the number of high-speed motorways set to be opened this year could constitute a record for Romania: well in excess of 100 kilometers could be added, taking the overall motorway network to around 1,100 kilometers. The southern part of the A0 highway (the external ring-road for Bucharest) and parts of the new expressway linking Pitesti and Craiova are the big additions, putting a special emphasis on new potential destinations for industrial developments. In fact, the southern part of Bucharest is already being tapped by some of the established developers, with CTP expanding greatly a project it acquired in 2021 in Popesti-Leordeni (south-eastern part of Bucharest) and WDP recently purchasing a sizeable plot of land in the same region.
The outlook is still encouraging for the local industrial and logistics scene. While Romania has similar consumption levels (volume-based indexes) to Poland or Czechia, its warehousing stock per capita is 2-3 times smaller than in these countries. This means that both demand and development ought to remain strong going forward, even discounting the fact that both Poland and Czechia act as regional distribution hubs to a much larger extent than Romania.
Overall, 2023 looks to be a decent but challenging year in the context of higher interest rates. Regardless of how 2023 turns out, Colliers
Consultants remain very optimistic about the long-term evolution of the Romanian I&L scene, which is expected to reach 10 million square meters of modern leasable warehouses by the end of this decade.