The number of international retailers that chose to implement and consolidate logistics hubs in our country is on an upward trend, setting 2022 on a course to reach the highest record in history for the industrial segment and the trend will continue next year, according to CBRE Romania, the leader of the real estate consultancy market.
During the first nine months of the year, a total of 868,000 sq m of industrial and logistics spaces were leased in Romania, with a value almost double compared with same period of the 2021 and already overpassing the total leased area during the entire previous year.
Take-up (total leasing activity excluding renewal and renegotiations) represented 82% of the total leasing activity. The elevated percentage confirming tenants’ interest for new spaces, either existing or built dedicated for them. The country’s most desired region was Bucharest, with 63% of the total leasing activity, followed at a significant distance by the Southern region, with 20% from the leased area.
Despite the geopolitical context, and the rising prices of building materials, the efforts of local and international developers active on the market to keep the rents stable set Romania as the most competitive market in the region in terms of occupational cost. However, the upwards pressure on developers’ yields is expected to intensify, due to the rising cost of capital, which will, in turn, inevitably lead to an increase in the rents of logistics spaces. Even with this increase in mind, the rent level in Romania is expected to remain below the level of the countries in the region.
”There is a great interest from international retailers to implement and strengthen logistics centers in our country. Basically, this is the driving force behind the record-breaking year 2022, and the trend will continue next year. The contribution of private developers investing in air cargo or intermodal terminals is very important and will generate new opportunities for companies interested in opening production/logistics facilities on the territory of our country. We see great potential in the manufacturing business, as we have discussed with companies operating in different industries. There are many opportunities for them in Romania: the prices for lands with industrial PUZs are still competitive, the developers are experienced, the workforce is qualified, and the State Aid Schemes are attractive. We are still deficient in infrastructure, but we will recover in the coming years. There is still a lot of work to be done, but through the consistent efforts of developers, us – the consultants and with the support of the Authorities I am convinced that we will see more and more companies interested in Romania. I’d like to see more Asian companies active in our market that go beyond the few attempts currently recorded“, says Victor Răchită, Head of Industrial & Logistics CBRE Romania.
The largest deals of the year were two pre-leases of over 80,000 leasable sq m each that were leased in the first and the third quarters of the year. The first one was signed in the Southern region of the country, while the latter one for a project which is going to be developed in Bucharest.
More than half of the total nationwide leased area was for Logistics and Storage purposes and retailers managed to establish themselves as the main source of demand since the beginning of the year, given that the great majority of the TLA was generated by them.
In total, the modern industrial stock in Romania reached 6.12 mln sq m at the end of Q3 2022, half of it being in Bucharest and its proximities. The year-to-date new supply accounted almost half a million sq m that were inaugurated throughout the country, out of which 110,300 sq m during the third quarter of the year.
At the end of Q3, approximately 562,000 industrial and logistic sq m were under construction nationwide and are expected to be delivered by the end of 2023. The projections are optimistic and, considering exclusively this future new supply, without considering the planned projects with the same estimated delivery date which haven’t started yet, the modern stock will rapidly expand to 6.7 mln. sq m and, in matter of one year, the 7.0 mln. sq m threshold could be easily overpassed.
“The big challenge now is the cost of utilities and their predictability. Some of our customers are manufacturing companies in various industries, with one or more locations across the country, all of whom have problems in defining their budgets which makes it extremely difficult to decide regarding a possible expansion of their operations in Romania”, added Victor Răchită, Head of Industrial & Logistics CBRE Romania.
Headline rent in logistic parks was maintained at the same value throughout the year, at EUR 3.90 sq m/month, therefore at the end of Q3 it stands unchanged. However, net effective rents continue to fight the inflationary pressure as well other external factors such as overall costs increase, all that contributing to a future upward trend including for headline rents.
2022, the year of regional retail projects
Despite the previous two years’ events that could have impaired the retail market in terms of not only demand but its evolution, 2022 proved to be a flourishing year since its first months. With constant quarterly deliveries, the year-to-date new supply amounts 58,500 sq m, out of which 38% inaugurated in the third quarter of the year.
Now, Romania’s modern retail stock reached 4.05 mln. sq m after the delivery of a total 22,000 leasable sq m in three regional retail parks during the third quarter of 2022.
“The retail market has once again demonstrated its resilience, with turnover in January-September significantly higher than in 2019, with 2019 considered the best year ever for Retail. Although up until now there have been many discussions and scenarios on the impact of the development of online trade on bricks-and-mortar retail, after the pandemic period, when practically all the prerequisites were in place for online trade to take a strong bite out of the market share of bricks-and-mortar retail, shoppers preferred to return to the in-store shopping experience, with sales in the fashion, food & beverage and entertainment areas recording strong increases. We are also pleased that very strong brands have chosen Romania for international expansion, at the same time or ahead of other CEE countries”, says Carmen Ravon, Head of Retail Occupiers for CEE at CBRE.
Another 69,000 sq m are expected to add up to Romania’s modern retail stock by the end of the year, Bucharest benefiting of 50% from the new spaces. 77% of the total under construction area to be delivered by the end of the year is designed as a retail park, while the remaining 23% of the area as a shopping center concept. In addition, 72% of future shopping centers deliveries are extensions to existing schemes (Electroputere Parc in Craiova and Mall Alba in Alba Iulia).
Multi-use developments in Bucharest, respectively Afi City, developed by AFI Europe, envisioned in conjunction with residential use and One Cotroceni Park, developed by One United Properties, along with office and residential components, that are planned to be delivered in the year’s future, are reflecting the preference for mixed-use projects, a trend highlighted as well in the post-pandemic era.
In terms of prime rent for high street locations, at Q3 2022, it is maintained at 45 EUR/sq m/month, the same level as the one registered during the same quarter of the previous year. Moreover, high street retail maintained its attractivity throughout the year, even though chosen by niche tenants especially from Food&Beverage sector. This sector registered the quickest recovery in terms of sales and footfall backed by the warm summer and early autumn weather.
At the same time, prime rent in shopping centers increased with approximatively 7%, reaching at 75 EUR/sq m/month.
By the end of 2023, Romanian modern retail stock is expected to reach 4.32 mln. sq m, considering the projects found in different phases of construction at the end of Q3 2022. The reforming period we have been going through lately indicates a steady development of the brick-and-mortar stock, with new trends structurally affecting its composition, not its expansion.