Bucharest Office Market

An Introduction to Romanian Real Estate

The Romanian real estate industry is only in its infancy due to the country’s prolonged economic problems.  The development of the industry has been handicapped mainly by the high cost of domestic credit, or the general lack of its availability. 

Despite these problems a number of  large scale international class developments have already been realized including  the creation of the World Trade Center (’94) and The Bucharest Mall (’99). 

Romanian real estate is now becoming a focus of many international developers, construction companies and banks.  The main reason for this is the current stability of the Romanian Government and its commitment to catch-up with other Central European Countries to be considered for EU membership before the end of the decade.  Furthermore, Romania’s economic performance is noticeably improved.  GDP growth rate for Romania was nearly 5% during 2001.  Inflation was held in to 30% for the year 2001 and is forecasted to drop to circa 20% by the end of 2002.

  In the coming years the industry will become competitive and the market shall become mature.  The main beneficiary of these changes shall be occupiers as the supply of modern real estate assets increase and prices in all sectors gradually decrease and come in line with other emerging markets.

The office market in Bucharest has suffered a severe shortage of good quality office space ever since multinational companies began opening offices in Romania in the early 1990‘s.  Today rents paid for office space in Bucharest are higher than those paid for similar quality space in Hungary, Czech Republic or Poland.  Only four office buildings, the World Trade Center (94), Financial Plaza (97), Opera Center (01), Europa House (02) have been developed that could be considered of an international „A“ class standard.

Most of the existing office buildings are located in central locations have difficulties related to access, traffic and parking.  Many of the existing supply of buildings are converted residential premises and suffer from low ceiling heights, inefficient layouts and machinery & equipment which is either antiquated or does not allow for peak capacities.

Despite these facts, no more than 10 new office buildings will be delivered in the next 24 to 30  months in Bucharest.  This situation can be explained by the bureaucracy of the architectural planning commission, the poor juridical system regarding land ownership, the lack of finance and the unstable economic situation facing Romania as a whole.

At the beginning of  2001 the total supply of western grade office accommodation (Class A & B) in Bucharest was less than 200,000 sqm.  The total potential „users“ market for western standard accommodation  is estimated to be more than 650,000 sqm.

At the present time approximately 70,000 sqm of  Western-grade accommodation is under construction and shall be delivered intermittently over the next  18 months.  Since many local developers promote projects without proper financing it is very difficult, if not impossible to predict the date of delivery for many buildings.

Prime rents have decreased by 50%  to USD 15- 18/sqm/month since thier peak in 1998 mainly due to a lack of liquidity in the markets.  This can be explained by increased vacancy rates and competition that have been causebbd by a  significant increase in the supply of C class office accomodation and limited interest of multinational occupiers to relocated and expand because of continued economic uncertainty.

An example of the trends for the net prices  of A class office accommodation including the impact of tenant incentives such as fit-out allowances and rent free periods  is presented below:

Price Trends for 'A Class'  Offices (in USD/SQM/Month)

Take-up of A and B class offices is expected to reach 65,000 sqm during 2002 as many occupiers seek to make-up for lost time and are being encouraged to move by tenant incentives, hopes of improved economic conditions in the future.Tenants are also being tempted better quality buildings many of which are being developed by internationally investors.

Residential Real Estate Market

Residential Development has until very recently been soley driven by the rental requirements of expatriate employees of foreign companies and wealthly local entreprenuers.   Demand has been exclusivily for the northern green districts of the city and its immediate surroundings.

The asking prices for the Bucharest residential market are higher than in other Central European capitals. Rental rates and sales prices are expected to gradually decline over time as a the development market becomes more competitive and the stock of western-grade accomodation increases.

The future of residential development  will be directed to creating housing units which meet the requirements and budgets of Romania’s emerging middle class.  The market will grow dramatically with the implentation of mortgage programs at private banks in the coming years.

Residential development schemes are also desperately need in many major Romania cities and resort areas which have seen only limited private house building in recent years.

Prime residential land prices are considered high in comparison with other Central European capitals.  Prices will continue to grow due to  a general lack of infrastructure forcing builders to focus on limited development zones.

 Retail Real Estate Market

The opening of the first shopping mall in 1999 represented an important step for the Bucharest retail market.  The Bucharest Mall provides 26.000 sqm of  shopping space including a large supermarket, unit shops, food court and a multiplex cinema.

The success of this scheme has encouraged a number of other investors to consider starting similar projects.  At the present time, however, no new scheme are under construction.

Out-of-town retail centers will became a reality in 2001.  The French hypermarket chain Carfour will opened a  30.000 sqm development in Bucharest’s Militar District.  Carfour and several of its competitors are expected to open 15-20 centers across Romania during the next 5 years.

The industrial and warehouse real estate market can be characterized by high demand for western-grade facilities and a massive supply of antiquated premises.

During recent years developers have enjoyed rents in excess of $8/sqm/mo. for western grade accommodation. Prime rents have decreased to by 25% during the previous 24 months to USD 6/sqm/mo.   The total stock of western-grade warehousing in the greater Bucharest area is now more than 80.000 sqm.  The majority of this supply is occupied by logistic companies and freight-forwarders.

To meet the demand for space a number of developers have sought to establish industrial parks to focus on build-to-suite opportunities.  Although at least 5 industrial parks have been actively promoted, none have yet to reach critical mass to support the large scale infrastructure costs of a true industrial park.

Other than Bucharest, industrial parks are planned in  Ploiesti and Timisoara.  Great potential is also recognized in Constanta, especially if the proposed container terminal is undertaken.