CONTENTS
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Supply
Around 120,000 sqm in new modern industrial & logistics spaces are estimated to have come online in the first semester of 2020 throughout Romania (100,000 sqm in the vicinity of Bucharest), which is less than half the level seen a year ago. That said, a big part of the speculative developments were indeed put on hold amid the coronavirus pandemic and some companies have decided to postpone their expansion plans for 2021, meaning that we can expect the overall supply for 2020 to be nearly 30% lower than estimated at the start of the year. Still, on the flipside, it is worth underscoring that the second half of the year is seen to be much more active (nearly 300,000 sqm in new deliveries expected, two thirds in Bucharest) as quite a few big contracts were signed fairly recently and the tenants are expecting to move in. This took overall modern I&L stock to 4.7 million sqm at the end of June, with Bucharest amounting to 2.4 million sqm.
Per capita, Romania’s I&L stock is at half of Poland’s and 4 times below Czechia’s for almost the same consumption
Source: Eurostat
Demand
Total demand reached 249,000 sqm in the first half of the year, roughly unchanged compared to the first semester of 2019. The good result was achieved largely thanks to two large deals involving Profi, a chain of supermarkets, which accounted for nearly half of the total GLA leased in 2020. The retail/FMCG sector in total generated nearly 50.2% of all deals, followed at a great distance by production activities (19.4%) of total and 3PL/logistics (14%).
At this point, it is important to underscore that for some tenants in the I&L area, it has been business as usual during the pandemic, with some seeing big spikes in activity. Big box retailers and supermarkets have seen consumption rather unchanged compared to last year, at least for the food category. E-commerce has increased by around 40% in 2020, according to official statistics. Even some productions were not impacted, like those for FMCG (plus the logistics it entails), pharmaceuticals (plus its logistic chain) or for some construction materials. That said, the heavy industries have been severely affected during the lockdown and subsequent decrease in demand, though some have subsequently recovered partially; we are speaking here about sectors like automotive or aviation.
FMCG / retail driving demand for I&L spaces in 2020, replacing automotive (sqm)
Source: Colliers International
Rents & Vacancy
Healthy competition on the developer side has helped cap rents in spite of the strong leasing market in recent years. Consequently, rents are quite good for tenants, in the area of 3.8-3.9 EUR/sqm for prime I&L spaces around Bucharest and around 3.7-3.9 in other parts of the country (but in very good areas). We note that amid the pandemic, incentives are higher, with landlords offering more rent-free months than before; this means that, in some instances, the net-effective rent can reach some 20% below the headline (versus around 13% before).
Otherwise, vacancy is still comfortably in single digit territory. It is hovering around 7-8% and has not seen any material changes amid the coronavirus situation. Such levels are consistent with a neutral market, but with the significant pipeline of speculative developments (including such deliveries in recent years) plus a competitive market tilting the balance in favour or tenants.
Outlook
The current crisis has seen many opportunities arise, though Romania may not be too prepared to fully take advantage of them. Infrastructure, though improved significantly throughout the last decade, is still a mess compared to regional peers. The country also lags quite a lot in terms of the quality of public administration. That said, what it offers may be too enticing to pass up, particularly now that words like near-shoring or re-shoring are hot topics. So, what does Romania offer? 1) A decently-sized labour pool (particularly now that quite a lot of temporary migrants to Western European countries have returned home amid the pandemic) with productivity and labour costs comparable to China’s; 2) a strategic geopolitical location; 3) much bigger upside than many countries provided that promised improvements to areas like infrastructure do take place. Just to emphasize the latter point, per capita, Romania’s I&L stock lags Poland by half, for instance.
Labour costs favour CEE if re-shoring becomes major theme, with Romania looking especially good
Source: Conference Board, Colliers
No major infrastructure completions are expected in the immediate future, though we would make a special mention to authorities breaking ground on a new ring-road highway around Bucharest, which, if completed within a few years, should significantly increase demand for warehouse spaces in the southern part of Bucharest. Also, a big chunk of the EUR 80bn in coronavirus aid and EU structural funds allocated to Romania by 2027 should be directed to infrastructure and has the potential to open up new markets throughout the country or greatly increase demand for I&L spaces in certain areas.
We remain fairly bullish on I&L in general, seeing as the segment is much more pandemic-proof than other commercial real estate sectors, and this will likely mean that funds will seek an exposure to it. And as Romania has delivered some of the best results in Europe in the last decades, on a macroeconomic level, we would expect good news for the storage spaces in the next years as well.