Manufacturing Projects to Generate Fresh Demand for Industrial Sector

Newsroom 09/08/2023 | 11:21

Romania’s target of reaching 7 million sqm of industrial and logistics spaces by the end of 2023 seems rather ambitious considering the fact that the pace of development has slowed down since the beginning of the year. Nevertheless, Romania is building its profile as a logistics hub for the region, and the ongoing investments in critical transport infrastructure will generate demand for additional warehouse space in the years to come.

By Ovidiu Posirca

In Q1 2023 alone, leasing deals for industrial spaces exceeded 300,000 sqm, better than the first quarters of previous years.

“Whereas most of the activity so far has been generated by logistics companies, accounting for 50 percent or more out of the total, we believe the manufacturing sector might also bring some solid growth in the coming period,” says Victor Cosconel, director and head of office & industrial agencies at Colliers Romania.

Market players suggest Romania is well-positioned to attract more manufacturing investments amid the near-shoring or friend-shoring trends. The former refers to the development of a stronger production base in Europe to reduce supply chain disruption risks, while the latter enhances Romania’s role as a strategic geopolitical player in the region due to its EU and NATO membership. The country might also join the Schengen space this year, which should significantly reduce delivery times for transportation firms and create additional demand for warehouses, especially in cities near the border.

“It is quite visible now that Romania is starting to play a regional distribution hub role, and while some companies have already established and started such activities, others are in the evaluation/decision process as we speak,” Cosconel notes.

He adds that the country can attract more industrial investments thanks to a combination of its decent talent pool and labour costs, the advantageous prices of land and rent, as well as infrastructure upgrades uncovering new areas of development.

Romania still has significant room for industrial and logistics projects if we were to look at statistics covering Central and Eastern Europe (CEE). While the Czech Republic has the biggest stock of 1 sqm per capita at a population of 10.5 million, Romania is lagging at 0.3 sqm per capita with a population of 19 million, according to CTP research.

Meanwhile, only a few developers are still engaging in speculative construction, indicating a more cautious approach on the market.

“This shift can be attributed to various factors, including the increased financial and construction costs, as well as yield decompression. As a result, developers are opting for more selective and strategic projects,” says Victor Rachita, head of industrial & logistics services at CBRE Romania.

Despite the overall slowdown, recent announcements highlight several new projects, particularly in the east of the country, according to Rachita. This suggests that there is still potential for growth and development in specific areas. Romanian developer Global Vision has recently completed an industrial project in Mures area and is further looking to expand in Constanta and other cities such as Craiova. The company will add to its last mile portfolio the Otopeni City Logistics and Chitila City Logistics projects.

”We are currently engaged in discussions with two companies – one of them operates in logistics, while the other focuses on production and has expressed a strong interest in expanding its operations across different cities in the country. Moreover, we have discussions with companies operating in key industries such as pharma, retail, and light manufacturing,” says Sorin Preda, CEO & founder of Global Vision.

The manufacturing sector has the potential to fill a gap in demand from the e-commerce sector, which has to adjust to lower demand since people have returned to physical stores following the end of the pandemic.

“This shift in consumer behaviour may result in potential subleasing opportunities arising on the market as e-commerce companies adjust their operations accordingly,” says Rachita of CBRE Romania.

Although demand patterns are starting to shift, Bucharest remains a strategic region as it hosts roughly half of the national stock. However, regional cities are also building their own. The hot areas will be around cities like Oradea, Timisoara, and Arad, then slightly moving towards the centre through Cluj, Deva or Aiud towards Sibiu, Targu Mures, and Brasov. In the south, players expect Bucharest, Constanta, and Craiova to continue playing important roles, balancing well with the rest of the national development.

“I believe the demand outlook for industrial and logistics spaces by year-end remains positive. Romania continues to be one of the most attractive markets in the EU, offering favorable returns on invested capital,” says Global Vision’s CEO.

Looking at 2024, the pipeline is limited, with around 200,000 sqm of new projects slated for delivery across the country, according to Rodica Tarcavu, industrial agency partner at Cushman & Wakefield Echinox.

“We expect to see announcements of other investments over the next few months, so the new supply for 2024 could be larger,” she adds.

Cee Has Strong Legacy in Manufacturing

The CEE region’s importance as a manufacturing base has been growing over time, creating demand for industrial and logistics projects. According to CTP research, CEE (excl. Serbia) exported over EUR 370 billion of “machinery and transport equipment” in 2021, which represented 19 percent of the EU-27 total. Moreover, six out of seven CEE countries are among the top ten European countries with the highest share of jobs in the manufacturing sector.

“Five CEE capitals are among the top ten European capitals with the highest share of employment in transportation. Warsaw (11%) and Bucharest (10%) top this ranking. Budapest, Prague, and Bratislava have some of the highest shares of total employment in the high technology (incl. high-tech manufacturing) sector,” CTP’s report reads.

Across the CEE region, market fundamentals are in relatively strong shape. This is reflected in continued strong demand and market vacancy rates below the five-year average (except Budapest), suggest the report’s authors.

For instance, Bucharest had a 3-year average vacancy rate of 6.4 percent by the end of 2022, compared to Budapest’s 3.6 percent and Warsaw’s 5.2 percent. In contrast, the average vacancy rate in Prague stood at 1.3 percent.

”In the current geopolitical landscape, Romania has emerged as an important player, creating economic opportunities, particularly in the context of Ukraine’s reconstruction. Therefore, the north-east of Romania holds potential for developing production hubs that cater to materials to be delivered and assembled in Ukraine. At Global Vision, we have already made plans for development in the north-eastern part of the country,” says Preda.

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