The local real estate market has entered a new year of expansion in all its major segments, as investors plan to deliver industrial, retail and office spaces with a cumulated area of 1.2 million square meters, a new market record, according to Cushman & Wakefield Echinox data. In comparison, new spaces of around 850,000 square meters were delivered in 2018.
By Claudia Ariton
The positive trend is supported by a sustained demand from tenants in the last three to four years, as pre-leasing contracts have been signed for more than half of the new spaces that will be delivered this year, real estate experts with the consultancy company say. The 2018 property investment volume in Romania is estimated at around 900 million euro, a value slightly below the one registered in 2017. However, several transactions in different stages of negotiations were postponed and they are most likely to be concluded during the first half of 2019, as Jones Lang Lasalle analysts have pointed out. According to the same sources, the overall number of transactions decreased, although, the average deal size increased, standing at approximately 30 million euro. Bucharest accounted for almost 80 percent of the total investment volume, mainly due to two very large office transactions which were closed last year. Market volumes were dominated by office transactions, taking 50 percent, while retail accounted for some 35 percent.
The total retail stock exceeded 3.7 million square meters at the end of 2018, almost similar to the office one, while the industrial and logistics stock was around 3.5 million square meters. Some 600,000 square meters of industrial and logistics space, over 400,000 square meters of office space and 200,000 square meters of retail space are expected to be delivered in 2019.
As for Bucharest, around 300,000 square meters of industrial space and 300,000 square meters of office space will be delivered, while the Colosseum and Veranda Mall projects will be extended with a cumulated area of around 25,000 square meters. The largest transaction registered in 2018 was the acquisition of The Bridge, a 52,000-sqm office park in Bucharest, by the Romanian group Dedeman, according to Jones Lang LaSalle. “Against the backdrop of declining results in Central and Western Europe, retailers have again turned their attention to Romania in 2018 by expanding their store networks. The positive evolution of sales over the last few years, coupled with the rise in average wages, has made most retailers increase their investment in new stores in both primary and also in secondary and tertiary markets, and we expect their growth to be accelerated during the next period. Moreover, we also expect new retailers to enter the market this year,” said Bogdan Marcu, Partner, Retail Agency, Cushman & Wakefield Echinox.
In Bucharest, new office buildings with a combined area of around 500,000 square meters are currently under construction, while office projects with a cumulated gross leasable area of 300,000 square meters are expected to be delivered by the end of 2019. The most active developers in terms of deliveries will be Portland Trust, with a total of 63,000 sqm in two projects, Expo Business Park and Oregon Park, Vastint, with 62,000 square meters in its Business Garden and Timpuri Noi Square projects, Globalworth, with 42,000 square meters in Renault Business Connected, and River Development, with 38,000 square meters in The Light and Sema Offices projects. “As far as developments are concerned, we will witness a series of consolidations or extensions of existing shopping centers to accommodate the new retail requirements and trends. Developers pay close attention to secondary and tertiary cities that do not yet have modern shopping centers or are under-supplied in terms of retail stock. We also expect more and more office or residential projects to accommodate generous retail locations, with the purpose of providing more facilities and creating a community around the occupiers of these projects,” added Bogdan Marcu. The office building sector is also developing in other major university centers, such as Timisoara, Cluj-Napoca, Brasov and Iasi, as new buildings with a total area of around 130,000 square meters will be delivered this year.
In 2018, the retail, office and industrial yields compressed by 25 bps over the year, with prime retail yields standing at 7.00 percent, prime office yields hovering at 7.25 percent and prime industrial yields reaching 8.25 percent, according to Jones Lang LaSalle. “A large part of the office spaces is absorbed during the construction phase, with demand coming from companies that rent 2,000-3,000 square meters. These tenants that come from existing projects plan to increase their number of employees and do not have enough space for expansion. If there were more coworking centers in areas such as Center, Center-North and West, the flexibility issue could be partially covered by these operators. As for the rental values, we believe that they will remain stable in semi-central areas. At the same time, we also notice that developers are increasingly paying attention to the duration of contracts, seeking to sign agreements over seven to 10 years, compared to the standard five-year term,” said Mădălina Cojocaru, Partner, Office Agency, Cushman & Wakefield Echinox.
Meanwhile, a new concept has started to gain ground. The retail and office mix brings services closer to employees. According to Colliers International Romania, for every 1,000 sqm of offices there are 35-40 sqm for the sale of various goods and services. In total, in the Floreasca/Barbu Vacarescu area there are around 10,000 sqm of such spaces at the ground floor of the office buildings, with the rents generated by these spaces accounting for four – five percent of the total cashed in by the landlords. “In the past, there were only simple retail concepts near office buildings: cafeterias and coffee corner type areas. In line with the new consumer requirements, a transition has been gradually made towards premium restaurants and cafes, as well as other categories of products. In turn, services have diversified – hairdressing areas, cleaning or medical services – so that employees can solve their everyday problems in the proximity of the workplace. We expect this diversification to continue through other concepts such as afterschool programs or kindergartens, in order to improve the lives of employees,” said Brindusa Grama, Associate Retail Agency at Colliers International Romania.
Developers are starting to experiment by expanding the retail component: some office owners are trying to create a lifestyle hub, while in other areas of the Capital there are already restaurants and bars that stay open well beyond the working hours of nearby offices. The trend is expanding at national level, with mixed projects – offices and retail and, possibly, residential – becoming a priority for many developers. “The extraordinary results of these retail schemes come as a consequence of the timely association between high employee incomes and a good location, sought by both HoReCa operators and residential developers. We see a real success of the retail space adjacent to office buildings, a success that we hope to be replicated in the rest of the country,” Brindusa Grama added.
2019 will bring a peak forindustrial & logistics sector
After a six-year stagnation, between 2009 – 2014, the industrial and logistics sector resumed its growth in 2015 and will reach a peak this year, when developers are planning to build new warehouses with a gross leasable area of around 600,000 square meters. “It is a dynamic market where developers have realized its potential and have decided to expand their portfolios by acquiring new plots of land. We are specifically referring to companies such as Global Vision, P3 or VGP, but also to Element Development and MLP, players that have recently entered the sector and have already announced deliveries for 2019. These decisions have been in direct correlation with the active demand for warehousing space from major retailers or logistics operators in Bucharest, Cluj and Timisoara, and from the automotive component manufacturers in Sibiu, Pitesti or Oradea, respectively,” said Rodica Târcavu, Partner, Industrial Agency, Cushman & Wakefield Echinox.