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June 14, 2017

The fastest growing economy in the EU, Romania is attracting international developers and investors who believe that the Central Eastern European (CEE) state is at a turning point.

Investment volumes in CEE rose 30 percent last year, reflecting five percent GDP growth and 14 percent annual wage increases. The Oregon Park office development, just north of Bucharest, is an example of the energy-efficient, high-tech construction which is drawing U.S. investors and leading multinational employers such as Allianz, BASF and Saint Gobain.

More and more new players are putting down markers in the Romanian real estate market. South Africa’s Growthpoint Properties, for instance, made a dramatic debut with the country’s biggest prop-erty transaction last year – the €186 million investment in the office sector. Another notable arrival was the Singapore wealth fund, GIC which took over P3, the owner of the country’s largest logistics park.

“The industrial and logistics asset classes are seeing a great boom now,” says Silviana Badea, JLL’s Head of Capital Markets in Romania. “They are grossly undersupplied in comparison with Poland and the Czech Republic.”

A decade of development

With a population of 20 million, the former Communist state is starting to draw interest from the world’s largest e-commerce and logistics players. So far, 70 percent of investment has gone into the capital city but Badea predicts that more investors and developers will diversify away from Bucharest in order to meet pent-up demand. And the East-West Carpathian Mountains split the country in half, meaning that retailers need to set up networks on both sides if they are to cover the whole territory.

Opportunities in the market are rapidly developing. It is only since 2014 that Romania clearly entered a recovery phase from the global financial crisis and the last two years have been the busiest since JLL opened its doors there a decade ago. Over sixty new brands have come into the Romanian market since 2014 – including Pepco, Debenhams, Forever 21, Sportisimo, Jumbo, Tally Weijl and COS. Prime yields are now nine percent on industrial/logistics, 7.5 percent in office and 7.25 percent in retail.

The South African player NEPI (New Europe Property Investments plc) is the biggest name in the commercial sector, having entered Romania in 2007 and subsequently deciding to maintain capital injections during difficult years. The Johannesburg-listed company carried out the most sizeable retail transaction of 2016, acquiring Sibiu Shopping City for €100 million – the largest single asset deal outside Bucharest since the global financial crisis. Other South African players have followed suit, joined by investors from the United States, Israel and Asia Pacific.

Ripe for diversification

With consumption growing at 10 percent in 2016, Badea believes that cities such as Cluj-Napoca and Lași will provide strong returns, particularly in the office sector.

“The prices are closer to Southern Europe than to Poland and the Czech Republic,” she says. “In a secondary city, an international developer could find that it had the advantage of being the only one buying into the market.”

There is a similar story in retail. While NEPI and three other investors dominate this market in Bucharest and secondary cities, there are gaps to be filled elsewhere. “There are opportunities in the tertiary cities,” she says. “Developers would be alone in those locations. These would be defensive investments in the long run.”

But how far has the professional services infrastructure developed? And to what extent can the real estate sector be confident about the advice and data it receives? “Romania is much more robust now than it was in 2007/08,” says Badea. “The fundamentals are there regarding real estate. We have transparency, we have professional advisers; It’s a much more mature market now. There’s no turn-ing back.”

Click to read about whether EMEA’s positive fundamentals will extend into 2018

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Silviana Badea

Head of Capital Markets, JLL Romania

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