As macroeconomic indicators started to ease in Romania, we noted an improvement in investor sentiment towards the end of 2010.
The total investment volume recorded in 2010 was €293 million (excluding forward funding and forward acquisitions), more than double the total volume in 2009. In addition, 2010 witnessed the first major real estate transaction resulting from a bank foreclosure.
Despite the tepid economic recovery, 2010’s office leasing activity and office take-up registered a 65 percent y/y increase over that of the previous year. New take-up was estimated at 203,000 sqm, to which we add lease renewals/renegotiations to the amount of at least 57,000 sqm. This activity contributed over 30-40 percent of total occupational market activity.
The overall vacancy rate is close to 17.5 percent, although it is particularly important to separate the sub-markets and recognize that the vacancy rate for prime, centrally located offices approaches 10 percent – a respectable level. Moreover, the more competitive, downtown schemes still see solid demand from prospective tenants, while decentralized projects are struggling.
Current prime rental levels – E19/sqm/month – are considered to be near or at their low. In 2010, prime rents decreased by an average of 10.5 percent over those of 2009.
A total of 20 new buildings were completed in 2010, delivering over 280,000 sqm. Of this, about 85,000 sqm was in non-speculative developments/owner-occupied. The 2011 pipeline is estimated at 120,000-150,000 sqm and consists primarily of projects which were delayed or otherwise not delivered in 2010.
There are increasing signs of conservative optimism in the retail market. Key international retailers have significant expansion plans and work has restarted on some of formerly frozen projects. With only five projects totaling 150,000 sqm completed in 2010, the pipeline for 2011 consists of eight schemes with a total GLA of 250,000 sqm.
Retailer expansion is focused on the best performing shopping centers in Bucharest and proven schemes in the larger secondary cities. This trend is likely to continue until promising pipeline projects are restarted.
It is worth mentioning that Q4 2010 brought a few notable high street openings in Bucharest, such as Emporio Armani and Gucci, both located along Calea Victoriei.
Retail demand, fueled mainly by international entities, should increase and diversify in 2011. The main focus of expanding retailers – such as H&M, Inditex or Decathlon – will be on existing schemes, where they will replace well-located but non-performing retailers.
Prime shopping center rents now range between €65-80/sqm/month, while prime high street units are seeing similar rents to those of the previous quarter, between €60-70/sqm/month.
With limited speculative modern industrial supply and a lack of proper transport infrastructure, the market still outperformed expectations last year. Around 100,000 sqm was leased in 2010, with an additional 40,000 sqm was leased in major secondary cities across the country. In addition, important land transactions involving end users were recorded, a trend which will continue to characterize the industrial market for the near term.
The logistics’ pipeline for Romania this year is estimated at 100,000-150,000 sqm. Take-up is estimated to surpass 2010’s activity.
Looking ahead, we see a much-constrained supply pipeline, particularly in the office segment. The leading institutional developers have spotted this as the right moment to move forward with new projects, and these developments should further support renewed interest among institutional investors.
With regards to the retail sector, we expect that the gap between truly prime projects and less-well performing and/or first generation shopping centers will continue to widen.
Proper asset and property management will become increasingly paramount for retaining and, in some cases, increasing value.
In the industrial market, we expect continued growing demand for quality logistics units as well as land transactions to end users. Though green building features are not yet determining the option process of industrial accommodation, the trend of sustainable development will become increasingly important as developers realize that this will directly impact investor interest and therefore the pricing at exit.