romania too large to be ignored

7/28/2019 ROMANIA Too Large to Be Ignored

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RomaniaToo large to be ignored

advanceMay 2013


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Dear Readers,

Romania is one the most developed countries in the region when compared with its SEE peers, though it still has some way to go in order to

reduce the economic gap when compared with the more mature CEE economies. Maybe this is both the curse and the advantage of the

country? Which is the most similar and most relevant country to compare Romania with?

In this report we will look into Romania's opportunities from various angles. Regardless of how we approach the issue, please bear in mind

that Romania has been an EU member state for many years, obtaining membership on 1 January 2007 following years of implementation ofnecessary reforms. Its EU membership as well as its NATO membership (since 2004) are Romania's wild cards, placing the country into the

larger EU trade zone and into the pool of countries with a stable political and social environment.

This report is meant to offer a fresh, updated overview of the country's key macroeconomic indicators, investment opportunities, real estate

markets and to be an easy tool to be used by any multinational corporation interested in placing investments into Romania.

We would like to thank our partners, FiNEXPERT and Lugera - The People Republic, for their valuable input and interest in supporting the

initiative in highlighting Romania as an attractive business and investment location.

Gijs Klomp, MRICSManaging Director

Jones Lang LaSalle Romania

2Romania. Too large to be ignored


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With a population of some 20 million inhabitants (October 2011Census), Romania is simply too large to be ignored. In the

European Union, Romania ranks 9th largest in terms of area and

7th largest by population. These factors make Romania one of the

largest consumer markets in the EU, as well as an attractive

manufacturing hub.

The country is divided into 42 counties, with its capital and largest

city being Bucharest (and Ilfov) with almost 2 million inhabitants.

The metropolitan area of surrounding Ilfov County increases theThe modern economy began in the year 1990. After two decades of

capital's population by additional 320,000 inhabitants.

privatization, there are currently only a few companies that remainin the hands of the Romanian state. The banking sector is almost

entirely privately managed, with a couple of the commercial banks

being largely owned by the Romanian State (i.e. Saving Bank/

CEC). Historically, the first 10 years after the collapse of

communism were the most fragile. The following years, featuring a

more stable economy, are considered to have preparation years for

European Union accession. At present, the country is seeking to

join the Schengen area and in 5-7 years, to be part of the monetary

union and adopt the Euro.

Romania's economy is however highly dependent on its Western

European partners. With a weak recovery in consumer demand, a

low level of activity in the construction sector, a large agricultural

sector with its inherent unpredictable results, the country's GDPThe second tier cities are mostly selected by economic importance

growth is supported heavily by export.rather than population and include: Cluj Napoca, Constanta,

Timisoara and Iasi each having a population of some 300,000

The country's 5-year average forecast (2013-2017), places itsinhabitants. The third tier cities include, but are not limited to:

economic performance at a level of 2.9%, which is well above theBrasov, Sibiu, Targu Mures, Craiova and Galati.

EU average.

As in other CEE & SEE Countries, the capital city Bucharest, is

the most developed and represents the economic, social and

cultural center of Romania.

About Romania Macroeconomics

Source: IHS Global Insight, Country Report April 2013, 2013-2017 Forecast, * - INS data

2009 2010 2011 2012 2013 2014 2015 2016 2017

Real GDP (% change) -7.1 -1.3 2.5 0.7* 1.2 2.7 3.5 3.2 3.6

Nominal GDP Per Capita (USD) 7,631 7,670 8,519 8,000 8,662 9,228 10,153 11,386 13,081

Consumer Price Index (% change) 5.6 6.1 5.8 3.3 4.8 3.1 3 3.1 2.9

Policy Interest Rate (%) 8 6.25 6 5.25 5 3.75 3.75 3.75 3.75

Unemployment Rate (%) 6.3 7.6 5.4 5.1 5.2 4.6 4.5 4.3 4.2

Current Account Balance (% of GDP) -4.2 -4.4 -4.7 -3.9 -3 -3.5 -3.6 -3.3 -3.1

Exchange Rate (LCU/USD, end of period) 2.94 3.2 3.34 3.36 3.32 3.35 3.1 3 2.95

Key economic indicators

Romanian Athenaeum, Bucharest


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Romania benefits from an excellent geographic location in South RailEastern Europe. The country is crossed by 3 Pan European The rail network has a length of approximately 10,700 km out of

Corridors (IV, VII, and IX). Corridors IV and IX are for both road and which, 4,000 km operates electrified lines. Currently, ca. 3,000 km

rail, while Corridor VII is only partially serviced by road and rail. are part of the TEN-T network, part of the Pan European Corridors

IV and IX.

Roads

The length of the road infrastructure is estimated at 198,000 km,

out of which ca. 16,000 km are represented by national roads. Freight rail transportation is ensured by the state owned company,

Sections of these national roads are incorporated in the 7 main The National Freight Railway Company - CFR MarfaS.A. - which

European Roads and a further 10 secondary European Roads was set-up in 1998 from the Romanian National Railway Holding

spread throughout the country. The country started its highway (CFR) following the institutional reform. Today, it remains the

construction efforts only relatively recently, but made significant biggest rail freight operator in Romania.

progress in recent years. In December 2012, Romania had ca. 530

km of highways (including city ring-roads) out of which, only the Airports

Bucharest-Constanta A2 highway of 203 km is currently fully Romania is well connected by air with all major European cities.

completed. Other highway sections were delivered between The country offers a network of 15 airports out of which 12 are

Bucharest Pitesti (109 km), between Bucharest Ploiesti (62 km), international airports. The busiest airport is Henri Coanda

between Arad-Timisoara (32 km) and Gilau Campia Turzii (52 International Airport (Otopeni, 15 km from Bucharest city center). It

km). At the beginning of 2013, it was announced that one of the is worth noting that in November 2012 a new terminal was opened

major priorities of the current ruling coalition is the upgrade of (19,600 sqm) with 14 boarding bridges that are in line with the EU

infrastructure and mainly of the road infrastructure by attracting regulations to access the Schengen Area, providing a secure flow

partners in undertaking the highway development and exploitation. of Schengen passengers. With these upgrades, the airport's annualcapacity increased to 6 million passengers.

Ports

The country has direct access to the Black Sea with the Constanta

port (both maritime and river port) being the largest and also the

only deep sea port in the Black Sea area. The country offers 3

maritime ports, and over 10 ports along the Danube River. The

Constanta Port has a handling capacity of over 100 million tons per

year and 156 berths, of which 140 berths are operational. The total

quay length is 29.83 km and the depths range between 8 and 19

meters.

These characteristics are comparable with those offered by theThe three main highways proposed to be completed are as follows:

most important European and international ports, allowing the

accommodation of tankers with a capacity of 165,000 dwt and bulkA1 Bucharest Nadlac at the Hungarian Border

carriers of 220,000 dwt.Pan European Corridor IV, partially completed

A2 Bucharest Constanta

fully completed

A3 Bucharest Bors/Transylvania Highway

partially completed

(Source: Ministry of Transportation, Romania your Business Partner

2012)


A2 Highway, section Cernavoda - Medgidia, cnadnr.ro

Infrastructure


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Pan- European Corridors crossing Romania

Source: Jones Lang LaSalle


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II. Investment > 100 million - State aid scheme supportingregional development by means of investment stimulation (under

Decision no. 753/2008). Beneficiaries are the big enterprises

meeting the following three conditions:

?initial investment > 100 million (RON equivalent);

?investment eligible costs > 50 million (RON equivalent);

?minimum of 500 newly created jobs as a result of the initial

investment.

III. Investment using new technology and creating new jobs -

State aid scheme supporting investment promoting regional

development by new technology use and new job creation (under

Decision no. 797/2012). Application field:

?manufacturing (exception: beverages and tobacco products)

?electricity, gas, steam and air conditioning supply

?software publishing

?telecommunications

?computer programming, consultancy and related activities

?information service activities

?

scientific research and development

The information presented in this section represents a synthesis of

the most important aspects regulated by the state aid schemes that IV. Investment in research & development and innovation -foreign investors showed interest in. The selected state aid Regional state aid scheme Financing initial investment in R&Dschemes will be ending in December 2013, with no additional (Order no. 1293/2008). Beneficiaries are the following:clarification on the potential prolongation of the duration beyond the

?enterprises with R&D activities mentioned in their statutes,end of this year. implementing initial investments according to operation 2.3.2

Development of business R&D infrastructure and creation ofI. Investment of more than 5 million (inclusive) - State aid new research jobs;scheme ensuring sustainable development (under Decision no.

?productive enterprises not having R&D as main activity,1680/2008). Applies to the following 4 investment categories: implementing initial investments according to operation 2.3.3?initial investment between 5 and 10 million and creating a Promoting innovation in enterprises.

minimum of 50 new jobs;

?initial investment between 10 and 20 million and creating a


?initial investment between 20 and 30 million and creating a


?

initial investment >30 million and creating a minimum of 300new jobs.

Duration of the scheme: 2008 - 2012 with the possibility of

extending this period in 2013.

Duration of the scheme:

?period of financing agreements issuing: 2 years, 2012 - 2013

?period for aid payments: 2013 - 2018, within the limits of the

annual allocated budget

stDuration of the scheme: 2008 - 31 December 2013

Duration of the scheme: 2009 - 2013


State Aid Schemeswith the support of FiNEXPERT

CEC Bank, Bucharest


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Romania's human capital is one of the most educated in the CEE & A second foreign language, compulsory for all, is introduced whenSEE Region due to the country's long university tradition. In the students are 10. The obligation to learn two languages lasts until

academic year 2011-2012, the student population of 540,000 was students are 18 years old. All schools, for students aged between 6

enrolled in 108 universities with 614 faculties, out of which 57 and 18, therefore have some flexibility in designing the school

universities and 410 faculties were state owned higher education element of the core curriculum. The same report shows that

institutions. The largest university hubs are Bucharest, Iasi, English, French, German, Spanish and Italian are the most

Cluj Napoca and Timisoara. common foreign languages learnt in most European Countries,

including Romania.

We are of the opinion that proficiency in foreign languages in higher

education is highly dependent on achievements secured during

high school. This represents a major competitive advantage of

Romania in attracting larger FDI's in BPO/SSC/ITOs. However,

proficiency in a foreign language other than English can bring

employees better financial arrangements. Below is a selection of

salaries in SSCs/BPOs in Bucharest by spoken foreign language.

The most popular fields of education were the following: technical The same market research shows that on average salaries are

(28.3%), teacher training (26.3%), economics (21.2%) and law slightly lower in regional cities by 10-20%, compared with

(12.5%). Bucharest.

The 2011 evaluation of universities was based on criteria such as:

teaching and learning, scientific research, assessed university

relations with the external environment and institutional capacity.

The evaluation of universities is conducted every four years and the

ranking results are valid until the next institutional assessment.

The top Romanian universities were classified in four main

categories:

?Advanced research and education universities

?

Education and scientific research universities

?Education and artistic creation universities

?Universities centered on education

Romania can be considered one of the countries in the CEE & SEE

region where language skills are most proficient. The Key Data on

Teaching Languages at School in Europe 2012 Report, issued by

Eurostat, shows that in Romania, all students start learning a

foreign language as a compulsory subject from the age of 8.

Top Universities in Romania

Foreign Languages

12 universities identified under this category





Source: National Institute of Statistics

Source: Lugera - The People Republic

Labor Poolwith the support of Lugera - The People Republic

County City Universities

(state&private)

Faculties

(state&private)

Bucharest Bucharest 34 170

Iasi Iasi 11 50

Cluj Cluj-Napoca 10 48

Timis Timisoara 8 41

Positions Net Gross

Operations Manager 5,000 6,600

Project Manager 3,000 3,900

Team Leader 2,000 2,600

Customer Support English (0-2 years) 412 493

Customer Support French (0 - 2 years) 412 493

Customer Support German (0 - 2 years) 436 522

Customer Support Italian (0 - 2 years) 436 522

Customer Support Spanish (0 - 2 years) 436 522

Customer Support Dutch (0 - 2 years) 799 956

Customer Support English (2 - 4 years) 557 666

Customer Support French (2 - 4 years) 557 666

Customer Support German (2 - 4 years) 587 703

Customer Support Italian (2 - 4 years) 587 703

Customer Support Spanish (2 - 4 years) 587 703

Customer Support Dutch (2 - 4 years) 1,138 1,362


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Romania has one of the lowest fiscal burdens in the EuropeanUnion - a flat tax of 16% for both personal income and corporate

profit. Foreign individuals and legal entities can establish a

company in Romania. All companies must be registered with the

National Trade Register Office, organised by the Romanian

Chamber of Commerce and Industry. On average, it takes about 14 Corporate Income Tax:

days to establish a business in Romania. The most common types Corporate income tax is levied at 16%. Small businesses with a

of businesses in Romania are: turnover of less than 100,000 and fewer than nine employees may

opt to pay a much lower tax on revenue earned, instead of profits,

Joint Stock Company (SA): The minimum capital requirement for although the rate was raised from 1.5% when the flat tax was

establishing an SA is RON90,000 . This requires at least two introduced. Resident companies are taxed on their worldwide

shareholders (reduced from five in 2007), with no maximum. income, whereas non-resident companies are taxed on Romanian-

Amendments effective from 2007 also reduced quorum and voting- source income only. A company is resident in Romania if it is

majority requirements, and lowered the share capital required to incorporated as per the relevant legislation or, if Romania is its

call a general meeting from 15% to 10%, in a bid to improve place of effective management. From January 2010, residents also

shareholder rights. The management system was opened up to include legal entities that have headquarters in Romania but, are

allow a choice between unitary and dualist systems (such as the incorporated under EU rules.

choice of instituting a supervisory board).

Withholding Taxes:

Limited Liability Company (SRL): SRLs are the most popular Withholding tax on dividends is levied at a rate of 16%, unless

form for investors, requiring a minimum share capital of RON200, otherwise stated by a tax treaty. Dividends paid by a Romanian

with share values of at least RON10. SRLs can be formed by one legal entity to an EU resident are subject to a 10% tax, unless

shareholder and may include up to 50 (persons or legal entities). otherwise specified. Similar rules also apply for interest and

However, one person may be the sole shareholder in only one SRL. royalties.

There are restrictions on third-party share transfer. An SRL is

managed by one or more foreign or Romanian administrators with Capital Gains:

full or limited powers. Capital gains are only charged for gains made from the sale of

Romanian securities for individuals, but for companies it is

Branch: Foreign companies are allowed to establish a branch deducted as tax on earnings. Profits are taxed at a flat tax rate of

office in Romania. Branches can operate in the same activities as 16%.

their parent companies, and must have a foreign or Romanian

general manager. Branch Tax:The tax treatment of a branch is similar to that of other Romanian

business forms.

The basic rate for value-added tax (VAT) is 24%. There arepreferential rates of9% for certain basic commodities, such as

some food products, books, newspapers, and medicines; and 5%

for the supply of buildings.


Business Environmentby IHS Global Insight, Country Report April 2013

16%

0% 5% 10% 15% 20% 25%

Slovakia

Croatia

Poland

Hungary

Czech Republic

Romania

Serbia

Bulgaria

Source: IHS Global Insight Country Reports

Corporate Income Tax


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The Romanian real state market provides plenty of opportunities inall market segments. The opportunities lie mainly on the

development side, where to date, the market has attracted only a

few institutional developers. In each market sector there is a blend

of both local and international developers with the predominance of

local developers. A non exclusive overview of international office

developers include: GTC, AFI Europe, Portland Trust, Skanska,

Nusco Group, Anchor Group and Bluehouse. In the retail sector,

Sonae Sierra, GTC and AFI Europe are active. The industrial

sector is much more complex but, is still not comparable with other

CEE countries. The main industrial developers currently shaping

the Romanian industrial market are: Prologis, Portland Trust, WDP,

Alinso Group and Graells & Llonch.Following the boom and bust cycle of 2005-2010, developers have

acknowledged the need to deliver high quality developments inWhile industrial developers are placing projects throughout the

accordance with specifications required by international tenants. Incountry, office developers are much more in favour of developingaddition, developers have started targeting green certification from

projects in Bucharest or top secondary cities with a long universityearly stages of design, with very few of them ignoring the need totradition. Retail developers are present in all cities with a highimplement sustainable technical features in newer projects. The

population density, and a lower modern retail stock.trend is relatively new, with the first green building pre-certified in

early 2008-2009. EU legislation and an increased view on

importance from developers, means that only a limited number of

pipeline office projects, are not targeting green certification.

Furthermore, iconic office buildings are retroactively in the process

of obtaining green certification for building operations and

maintenance. The most common sustainability rating system used

is BREEAM followed by LEED.

The increased interest in sustainability is proven by the variety of

certified buildings: administrative, libraries, big box retail units,

office buildings, shopping centers and production facilities.

Geographically, certified developments are being completedThe real estate market however features a number of influential throughout the country.local developers. Their projects range from the small to some of the

largest schemes completed in Romania to-date. On the one hand,

local developers ensure development continuity but, have lower

appetite in exiting/selling their projects. Consequently, this

represents an important barrier in the progress of the investment

market in Romania. A list of the noteworthy local developers

includes, but is not limited to: Genesis Development, Baneasa

Development, Primavera Development, Iulius Group and Modatim.


Real Estate Market

Bucharest Financial Plaza, view from Dambovita River

City Gate, Bucharest


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preference of developers due to existing connections to utilities,relatively central locations and good access to public transportation.

With the exception of Bucharest, which features an extensive metro

network (consisting of 4 main lines, 69.25 km of double track and

51 stops) the rest of Romania's public transportation system is

limited to above ground transportation (bus, tram, trolley-bus and

shuttle bus).

Today, we can only speak about office development clusters or

location preferences in Bucharest. In the regional cities, the majority

of projects with a high probability of completion, are scattered

throughout the central areas.

The history of the Romanian office market starts in the early 1990's.

In the 20 years of modern, post communist development, only 22

million m of offices were completed in Bucharest. By local market

standards, 50% is considered Class A. By international standards2

(new development, over 5,000 m GLA) we can probably discount

the Class A office stock to closer to 30%. The story repeats in major

secondary cities, in which only a very limited number of speculative

developments can be graded at international standards (except

owner occupied buildings, mainly developed as bankheadquarters). In the category of major secondary cities, we include

cities with a population of over 150,000 inhabitants with a long

university tradition, served by an airport connected either directly or,

via Bucharest, with Western European capitals.

The list of secondary cities comprises: Cluj Napoca, Timisoara, Iasi,

Brasov and Targu Mures. The largest modern office stock can be2

identified in Cluj and Iasi (est. 120-150,000 m ), followed by2 2

Timisoara (est. 90-110,000 m ), Brasov (est. 80-90,000 m ) and2

Targu Mures (est. 50-70,000 m ).

Between 2004 and 2006, the strong presence of multinational

companies in Bucharest and our selection of secondary cities,

encouraged reputable local and international developers to invest in

larger office projects. The increased number of outsourcing

operations in Romania, which generate the majority of new

demand, shifted the development pattern from business center type

developments, to multi-phased business parks.

In Bucharest, projects located within close proximity to a metro

station and university hubs, drive the development pipeline. In

regional cities, former industrial areas (brownfields) take top

Office Market in Romania



Liberty Technology Park, Cluj Napoca

Project City GLA

(m2

)

Green

Certification

Green Court Ph I Bucharest 19,000 Yes

Hermes Business Campus Bucharest 18,000 Yes

Green Gate Bucharest 30,000 Yes

AFI Park 2 Bucharest 15,000 Yes

Liberty Technology Park Ph I Cluj 5,600 Yes

Cluj Business Center Cluj 19,800 N/A

United Business Center Cluj 9,800 Yes

United Business Center 4 Iasi 6,400 N/A

City Business Centre 5 Timisoara 9,000 N/A

Coresi Business Park Brasov 15,000 N/A

The Science City Tg Mures 2 buildings N/A

2013-2015: Business parks pipeline in Romania (selection)

0 1,000 2,000 3,000 4,000 5,000

Belgrade

Zagreb

Bratislava

Bucharest

Prague

Budapest

Warsaw

'000 m2


Modern Office Stock in CEE & SEE Capitals

SEE or CEE?Bucharest has the lowestoffice stock in the CEE...


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The modern office stock in the capital city is graded in line withlocation and technical specifications. While location is of high

importance in Bucharest, this is less important in the smaller

regional cities. For example, in Bucharest the highest vacancy is

recorded in the northern peripheral locations poorly served by

public transportation, though in these locations, which emerged as

office submarkets in the last 5 years, some of the top quality office

buildings/business parks have been developed in Romania to date.

The modern, Class A developments by technical specifications offer2

larger and open floor plates (of over 1,000 m /floor), 4-pipe HVAC

system, raised floors, glazed faade, minimum 2.7 m floor to

suspended ceiling height, incorporated lighting system (LED's for

green certified bui ldings), CCTV, 24/7 security, BMS, heavy traffic

resistant carpeting in the office areas and prestigious main lobby Recent market assessments show that average rents for non-CBD2areas. locations in Bucharest are in the region of 14-16/m /month while

decentralized locations for similar Class A accommodation2These features are applicable to Class A buildings completed in command headline rents of 10-12/m /month with net effective rent

Bucharest, as well as projects recently completed or, in the pipeline decreasing to 1 digit rental price. Secondary city offices are2in secondary cities. The trend emerged due to occupiers' interest in currently marketed at 13-15/m /month, with the net effective rent

selecting good quality office accommodation for their Romanian depending on the leased area, lease length, expansion

operations as real estate plays an important role in achieving and opportunities and covenant of the occupier.

maintaining a good attrition rate of the qualified workforce.

Service charges and parking space rent are additional to the office

Given the stock difference between Bucharest and the secondary rent. For the vast majority of modern buildings, leases are triple A,

cities, indisputably the real estate offer is more diverse in the capital with all costs included in the service charges, which are reconciled

city, both in existing and pipel ine offer. However, the cost gap is not annually.

that wide considering that the comparison should be made between

average rent in Bucharest and the prime rent in secondary cities.

The reason behind this rationality is that occupiers interested inregional cities are also assessing non-CBD locations in Bucharest.



Market Practice Bucharest Secondary

cities

Prime Rent 18.5 15

Average Rent Class A 14-16 13-15

Lease Length

Indexation

Add-on Factor Typically 6-8%

Rent Reviews Rarely, more common in case of

expansion within the same park

In case of lease renewals

Incentives Fit-out contribution

Rent free period

Free parking

3-5 years

Annually, with Euro CPI

Service Charge 2.5-4/m2/month

All costs recovered by the Landlord

Triple A leases

Charles de Gaulle Plaza, Bucharest

America House, Bucharest


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These cities are mainly established manufacturing hubs withsufficient tertiary populations to accommodate outsourcing

operations.

The gap is also explained by the size of operations. Very few2

operations outside of Bucharest exceed 1,500 or 2,000 m .

Therefore, an increase in demand is expected in the medium term,

due to an increase in larger space enquiries for various cities in

Romania. These active searches are encouraging developers to

assess potential development sites and enlarge the market beyond

Bucharest.

The increased presence of international companies with their

BPOs/SSCs/ITOs (Outsourcing and Shared Service Centres) has

greatly influenced real estate development activity in Romania. In

early 2005, only a few companies were present in Romania with

such operations. Over the following 3-5 years, the number of new2

openings increased the annual take-up from a level of 119,000 m

in 2009 to the highest take-up ever recorded in Romania of2

270,000 m , in 2010. In this time frame, real estate developers,

whether established or opportunistic (local and international), havetapped into the Romanian market and secured land for further

development. Larger projects were completed between 2009 and2 2

2010 and increased annual stock by 370,000 m and 275,000 m

respectively. As new supply outstripped take up, the market also

witnessed an increase in the vacancy level from 1-2% in Q4 2008

to 15-16% in Q4 2009. Vacancy, however, is concentrated in the

peripheral areas of Bucharest such as Pipera North and Baneasa.

This is reflective of the market activity in Bucharest, however,

developers were more cautions in secondary cities, with smaller

scale office developments completed speculatively. These

developments sufficiently accommodated the real estate demand,

due to the smaller scale of operations opened in these cities. Today,

secondary cities are competing with Bucharest in attracting existing

or newer requirements, by offering highly competitive office

There still remains limited cross county development activity withaccommodation, both financially and technically.

Iulius Group and Modatim being the two main developers with

activity outside of their city of origin.Although there is still a gap in demand between Bucharest and the

secondary cities, we do expect a further increase in demand for

secondary cities as well as interest in other cities than those

identified in this report. We expect the rise of cities such as:

Craiova, Galati, Oradea, Constanta and Ploiesti, to list just a few.


Emerging Outsourcing Location


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2

The modern retail market began in 1996, which corresponds with floors, with a GLA of between 20-30,000 m in secondary cities,the opening of the first cash and carry store of Metro in Bucharest. have also been very successful. Bucharest has again a different

Soon after, the German retailer was followed by Selgros which development path with the largest projects proving to attract the

opened its first store in Brasov. The next stage of the retail market highest traffic and generating the highest turnovers.

was marked by the opening of the first shopping center by Turkish

Group - Anchor, with Bucuresti Mall. The same group completed the After a hectic development decade, the market finally settled.

second mall in Bucharest, in 2004, Plaza Romania. This also Although the pipeline is constantly revised, the market still

represented an important milestone as Inditex opened its first witnesses a few important openings each year. Though the retail

Romanian Zara store in Plaza Romania and was considered for a market can be considered as almost saturated, on a nationwide

few years as the best performing store in the network. basis, case by case opportunities can be identified, even in

Bucharest or in certain larger secondary cities which still lack

In 2001, Carrefour opened its first hypermarket in Romania. In modern retail supply. For example, Galati, one of the top 5 regional

2003, it was shortly followed by the second unit, in an unusual cities by population, still has no modern shopping center.

central location in Bucharest. Anecdotal sources, place this The pattern of modern retail stock varies from region to region: in

centrally located Carrefour Orhideea among the best performing

stores in its global network. Anecdotal or not, the need for modern

retail was tremendous at that time in both Bucharest and Romania.

Any modern retail scheme performed very well and delivered the

best financial results.

In just 10 years, the retail market has witnessed an incredible path

of development. Many developers have even secured adjacentlands in secondary cities. The demand for modern retail has

increased the pipeline to unsustainable density levels especially in

the context of the drop in consumer spending in 2009 caused by some locations, retail parks are in demand, in other cities retail

the economic slowdown. With very few exceptions, most of the galleries attached to hyper- or supermarkets are sought after and in

pipeline shopping center projects remain on hold in their planning several cities, medium sized shopping centers have been

stages. completed. Apart from this, the development pattern has changed in

the last couple of years, from a strong shopping center pipeline, to

During this decade, a few concepts have emerged as being highly a current pipeline consisting of either retail parks or retail

successful in Romania. Retail parks can be considered the most agglomerations.

successful retail format in Romania. Shopping centers over 1-2

Retail Market



Crt Shopping Center GLA Completion City Major Retailers - Selection

1 AFI Palace Cotroceni 80,000 2009 Bucharest Real, Inditex Group, H&M, Humanic, Cinema City, Imax, C&A, Deichman

2 Baneasa Shopping City 80,000 2007 Bucharest Carrefour, Peek&Cloppenburg, Inditex Group, Sport Couture, Collective, H&M

3 Sun Plaza 80,000 2010 Bucharest Cora, H&M, Douglas, Zara

4 Iulius Mall 67,000 2005/2009 Timisoara Auchan, Zara, World Class Health, Camaieu

5 Polus Center 63,000 2007 Cluj Carrefour, C&A, Zara, H&M, Takko, Decathlon

6 Electroputere 55,000 2011 Craiova Auchan, Zara, LC Waikiki, H&M, Intersport

7 Ploiesti Shopping City 55,000 2012 Ploiesti Carrefour, Zara, H&M, Cinema City8 Palas Iasi 54,100 2012 Iasi Auchan, Zara, H&M, Cinema City

9 Maritimo Shopping City 51,000 2011 Constanta Auchan, Peek&Cloppenburg, Domo, Altex, Humanic, H&M, C&A

10 Iulius Mall 49,800 2008 Suceava Auchan, Zara, H&M, Cinema City

Selection of completed shopping centers in Romania

0 50 100 150 200 250

Czech

Republic

Poland

Slovakia

Croatia

Hungary

Romania

Serbia

Total GLA in sq m / 1,000 inhabitantsSource: Jones Lang LaSalle

Shopping Centers Stock Density per Capita in CEE & SEE

Romania showsretail development

potential


14/20

High Street Big BoxRomania's cities mainly because of historical reasons suffer from a Big Box supply is well represented and diversified throughout the

lack of high street retailing. High street retail supply presents country. Relatively recent market entrants IKEA and Leroy Merlin

numerous opportunities in any major city of the country, but street are the exceptions with each having only 1 box in Romania,

fashion is one of the most under developed market sectors. Pre- respectively in Bucharest. The rest of the major players have at

90's state-owned companies were responsible for managing the least 1 box in each of the larger regional cities. In the last 3-5 years,

high street portfolio. Once privatized, the new owners were a number of consolidations were recorded, the latest major one

interested in maximizing the rent roll. The results were translated being the purchase of the real hypermarket stores by Auchan (20

into a lack of high street fashion retail, and a high occupancy rate out of 24 stores existing in Romania), while the Bricostore network

generated by the banking sector, during the peak of retail banking was acquired by UK-based company, Kingfisher.

between 2005 and 2009, and by the pharmaceutical industry, with

numerous privately owned pharmacies generating active demand.

High street retail is still patchy today with very few success stories

recorded in Romania. In Bucharest, the main reason is that high

street retailers opted for shopping galleries attached to luxury 5-star

hotels instead. In the secondary cities, Sibiu is one of the few

exceptions, having an attractive pedestrian retail location, due to

intensive refurbishment works of the city center prior to 2007 when

it was designated as a European Capital of Culture.

Factory Outlet Centers

In 2008, the first factory outlet center was opened in Romania.2

Fashion House Outlet Center Bucharest, is a 16,000 m scheme

developed by Belgian company - Liebrecht & wooD. Despite the

project opening with a high occupancy rate of close to 80%, the

decline of the retail market also influenced the performance of the

center and placed other outlet projects on hold.

Source:?????



Source: companies websites

Retailer Location

Burberry Radisson Hotel

Boss Hugo Boss Calea Victoriei street unit

Emporio Armani Calea Victoriei street unit

Ermenegildo Zegna Radisson Hotel

Escada JW Marriott Hotel

Gucci Athenee Hilton

La Perla Calea Victoriei street unit

Louis Vuitton JW Marriott Hotel

Max Mara Calea Victoriei street unit

Moschino Calea Dorobantilor street unit

Paul & Shark Calea Victoriei street unit

Roberto Cavalli JW Marriott Hotel

Valentino JW Marriott Hotel

Selection of luxury retailers and their locations in Bucharest(listed in alphabetical order)

Type Big Box Retailer No of Boxes

Cash&Carry Metro 32

Selgros 19

DIY Praktiker 27

Bricostore 15

Leroy Merlin 1

Hypermarkets Carrefour hypermarkets 24

Auchan+real 10+20

Cora 10

Supermarkets Kaufland 83

Billa 72

Discounters Lidl 158

Penny 136

Profi 151

Furniture Ikea 1

Kika 2

Sportswear Decathlon 10

List of Major Big Box Occupiers in Romania


15/20

RetailersRomania's long history of limited modern retail, helped international

retailers, especially fashion retailers, to achieve high turnovers per

store, once they entered the market. Mass market fashion retailers

opened their first stores in 2004 in the Plaza Romania shopping

center. Zara, Mango, Promod and Marks & Spencer all opened their

first units in Romania almost 10 years ago. The next milestone is

set by retailers that committed to the Romanian market in the late

2000's, in the so called third generation shopping centers

completed in Bucharest: Baneasa Shopping City and AFI Palace

Cotroceni. In these centers, the retail market witnessed the opening

of the first Peek & Cloppenburg multibrand store, Douglas,

Reserved, Max Mara Weekend and Massimo Dutti units. H&Mexpansion opportunities to those international retailers with a solidentered the market in March 2011 with their flagship store in AFIfinancial background, proven results and that have the ability toPalace Cotroceni. Today, the H&M network has 22 stores and plansnegotiate excellent, long term financial packages with shoppingto open up to 50 further stores throughout Romania, compared withcenter owners and developers. These packages may include:the 106 currently trading in Poland.discounted rents, step rents, turnover rents, fit-out contributions and

for the some of the highly desired retailers, turn-key retail units.The vibrant activity of new retailers entering the market slowed

down in 2012, when only 2-3 new mass market retailers openedIn these market conditions, with retailers eager to take advantage ofstores in Romania. Among these Subway has already opened 13

the favorable leasing conditions, we do not forecast an increase ofunits in the country and is targeting a network of 40 stores by 2016.the vacancy rate. Furthermore, rents for shopping centers and

street units have stabilized to a sustainable level and no furtherLuxury retailers have also opened flagship stores in Bucharest, withsoftening is expected for 2013.Max Mara being one of the first luxury retailers with a constant

presence since 1999, while La Perla, Valentino and Escada are

some of the latest entrants in Romania.

With a limited pipeline, both in Bucharest and the regional cities, the

active retailers are re-leasing the units either recently vacated or,

those that are to become vacant by local retailers due to their weak

financial performance. In addition to the local retailers, some

international retailers have stepped out of Romania, creating

Prime rent definition: Represents the top open market rent that

could be expected for a notional prime position shop situated in a

specified shopping centre or for a notional prime position unit in a

prime retail location in the market, as at the survey date. Standard2

unit area: 100 m .


Source : Jones Lang LaSalle, Q1 2013

Prime Rents

(/m2/month)

Bucharest Regional

Cities

Shopping centers 55-65 20-35

Prime retail street 55-65 20-40


16/20

Compared with other real estate sectors, the industrial and logistics Representative BTS units were recently completed in Bucharestmarket is the least developed, considering the country's potential. West, WDP Oarja and Ploiesti West Park.

The current modern industrial stock is estimated at almost 1.82 2

million m , with close to 1 million m located in the surrounding The main market standards are as follows:

industrial hubs of Bucharest. Other modern industrial hubs have ?Longer lease terms of 5-7 years or longer

been established in Ploiesti, Timisoara, Arad, Brasov, Oradea, ?Longer negotiation periods

Constanta and Cluj-Napoca. ?Handover of the space: between 6-9 months after concluding

the lease agreement

With a country level vacancy rate estimated at between 12-14%, ?Selection of the site is subject to the agreed site plan of the park

the market is mainly developed on a built-to-suit (BTS) basis, with

fewer speculative projects in the pipeline. Who are the occupiers?

?New entrants, looking to establish production facilities in

The most common leasing market drivers are the following: 1. lease Romania with regional distribution

of an existing vacant unit, or 2. secure a BTS unit through a pre- ?Existing companies looking to upgrade their production facilities

lease in an existing logisti park. or strating up a new project

1. Leasing space in an existing warehouse park It is also possible for occupiers to purchase BTS units in some of

the existing logistics parks. The development process could be

This scenario applies to distribution and logistics companies. It is undertaken either by the park owner or, by any other third party.

rare that existing units can be easily converted into production

facilities. However, some of the existing units, with lower clear The decrease in land prices for logistics development has

height (up to 4m), an inner-city location and access to existing increased the interest of some industrial occupiers to purchase well

public transportation, could be converted into production facilities. located industrial plots and to move into owner occupied premises.

This mainly applies to larger production companies such as, Saint

The process is straightforward as in any lease agreement: Gobain or, major 3PL companies such as: Gebruder Weiss and FM

?standard lease length of 3 years Logistic.

?use of space in line with existing technical specification

?fit-out of the space in line with occupiers requirements

?leasing space in special industrial parks might offer lower

occupation costs

Who are the occupiers??Companies that need to lease space immediately / relocate

?Companies which are comfortable with the existing industrial

stock

?Logistics operators, distribution companies, e-commerce

?Companies requiring smaller light industrial facilities

2. Built-to-suit in an existing logistics park

Romanian industrial developers that can accommodate such

requirements usually own larger plot of lands, often with

infrastructure and utilities in place. BTS units can either be leased

or, at hand over, they will enter into the possession (freehold) of the

occupier.


Logistics


Prime Rents

(/m2/month)

Bucharest Regional

Cities

Distribution centers 3.8-4.0 3.5-3.75

Distribution centers

(exceeding 20,000 m2)

3.5-3.7 3.25-3.5

Light industrial 3.5-4.25 3.5-3.75

Service charges 0.7-1.0 0.7-1.0

Other costs


17/20

The manufacturing sector is well diversified but, with fewer In particular, the spare parts and car system production facilitiescompanies under each category when compared with Poland for have developed around the main car production locations.

example (see report - Made in Poland). As in other CEE countries,

with former centralized economies and industry driven by the state, Another criteria that was considered in establishing such facilities,

we identified a mix of greenfield and brownfield investments was the ease of access to Western Europe, due to the more

(production units formerly owned by the Romanian state). developed highway infrastructure and shorter commuting time from

Romania to Western Europe. Spare parts and car systems are high

Automotive Industry up the value chain of car brands and the country is currently

With over 50 years of automotive tradition, Romania is an important producing components for: Volkswagen, Audi, BMW, Porsche,

automotive hub in the CEE and SEE region. Through privatization, Mercedes-Benz, Ford, Renault and Nissan, amongst others.

2 major car producers are present in Romania. Renault has a 10

year presence in Romania through the successful privatization of

the former Dacia plant. The second car producer is Ford, who took

over the Daewoo factory in 2007. Initially Daewoo took over through

privatization the former Romanian car production plant of Oltcit, a

joint venture of the Romanian state and French car producer

Citroen.

Romania's long tradition in car manufacturing played a major role in

establishing various automotive related industries. The majority of

these automotive related production facilities are located in the

western half of Romania where larger manufacturing plants of tires,

car seating, steering wheels, electrics and electronic systems,

plastic components and exhaust systems can be found for

example.


Manufacturing

Source: Romania Your Business Partner 2012

Source: Romania Your Business Partner 2012

Type of components Companies

Selection of automotive components producers

Lisa Draxlmayer

Delphi Packard

Alcatel

Lear Corporation

Leoni Wiring System

Yazaki Corporation

Siemens Automotive

Continental

Valeo

Borla

Honeywell Garett

Johnson Controls

Faurecia

Dow Automotives

AD Plastik

BOS Automotive

Hutchinson

Renault

Daimler ChryslerDCI Wallbridge

Star Transmission

Continental

Michelin

Pirelli

Takata Corporation

Magneto Wheel

Ina Schaffers

Thyssen Krupp

Koyo Seiko

Auto Chassis International

Dura Automotive System

Steering Wheels

HVAC Systems

Exhaust Systems

Seating

Plastic & Rubber Components

Electric & Electronic Systems

Gear Boxes

Tires

Car Manufacturer Main Figures

Present since 1999

18,000 employees

4 million cars

80% of the cars exported

R&D Center in Titu, investment value est.

at 450 million

Car production capacity: max 330,000

units / year

Presence since 2007

3,500 employees

90% of the cars exported

Romanian made Ford BMax since 2012Car production capacity: max 350,000

units / year

Renault

FORD


18/20

Other manufacturing industries such as petrochemical,pharmaceutical, heavy industry and machinery are also present in

Romania due to the countries long tradition over the last 30-40

years in the afore-listed manufacturing industries.

FMCG companies

A number of large multinationals have opened brand new

production facilities in Romania or, have converted existing

brownfield sites into modern production units. These companies

entered Romania in the early 1990s and through privatization,

entered via the possession of former state owned production sites

related to their businesses. Representative examples are Pepsi,

Coca Cola, P&G, Kraft Jacobs Suchard and Colgate Palmolive.

Today, some FMCG companies are controlling their SEE and

Republic of Moldova operations from Romania, while a few of them

have even relocated their production facilities from Romania in the

past 3-5 years, into countries with cheaper labour costs, such as

Moldova and Bulgaria.

As 35-50% of Romanian's household expenditures go towards food

and beverages, this industry has a wide presence in Romania. A

balanced mix of local and international companies cover milk and

meat processing, fruits and vegetables, sugar and oil production.

The beverage industry is well represented by local and international

companies for both non-alcoholic and alcoholic beverages.

Furthermore, international tobacco brands have opened production

facilities, mainly in Bucharest and surrounding industrial hubs of the

capital city. The industry is well organized and represented in

relation to the local authorities. The industry was subject to major

tax increases over the past 10 years as Romania was producingthe cheapest cigarettes when compared with Western European

countries. The producers present in Romania include: Japanese

Tobacco International (JTI), British American Tobacco (BAT) and

Philip Morris.

Domestic Appliances & Electronics Sectors Electroluxprivatization of a former state owned production unit,

Very few domestic appliances and electronics companies have privatized in 1995.

established production facilities in Romania. Philips started the production of coffee machines in 2011, in the

Those that are present in Romania include the following production unit previously owned by Saeco.

companies: DeLonghi undertook the former Nokia plant in Jucu, near Cluj

Arctic former state owned production unit, now owned by Turkish Napoca. Production started in early 2013.

group Arcelik, since 2002.



FMCG Producers

Selection of FMCG Manufacturing Companies

Danone

LaDorna

Napolact

Albalact

Hochland

Bunge

Cargill

Dr Oetker

Agrana

Nestle

Supreme Chocolat

Boromir

Hutton

Orkla Foods

PepsiCo

Coca Cola HBC

RioBucovina

European Drinks

RomaquaAlcoholic Domeniile Halewood

Beverages Ursus Breweries / SABMiller

Heineken Romania

URBB (Tuborg, Carlsberg)

Bergenbier / StarBev

Romaqua

Unilever

P&G

Henkel

JTI

BAT

Philip Morris

Non -alcoholic Beverages

Detergents

Tobacco

Food


19/20


Source: Lugera - The People Republic, Bucharest commands salaries with 10-20% higher compared with the country level

Major Automotive Companies in Romania

Turnu MgureleZimnicea

SATU MARE BAIA-MARE

ZALUORADE A

CLUJ-NAPOCA

BISTRIA

ARAD

TIMIOARA DEVA

ALBA-IULIA

TRGU-MURE

REIATRGU-JIU RMNICUVLCEA

SIBIUBRA OV

MIE RCURE ACIUC

SUCEAVA BOTOANI

PIATRA NEAM IAI

BAC U VASLUI

GALAIOC ANI

SFNTUGHE ORGHE

DROBETATURNUSEVERIN

CRAIOV A SLATINA

PITETI

ALEXANDRIA GIURGIU

TRGOVITE PLOIETI

BUZ U

CLRAI

SLOBOZIA

BR ILATULCEA

CONS T AN A

UrziceniBUCURETI

Bihor

Arad

Timis

Hunedoara

Autoflex SRL (Bosal)Ficamt (JV Ficosa)

Takata-Petri Romania SRLLeoni Wiring Systems Arad SRLEKR-Elektrokontakt Romania SRLBos Automotive Products RomaniaNexans Romania SRLYazaki Component Technology SRLValvetek SRLCoindu Romania SRLERT Group Automotive SRL

Continental Automotive Products SRLDelphi Packard Romania SRLKromberg & Schubert Romania SRLEybl Automotive Romania SRLSiemens Vdo Automotive Romania SRLDPR Draxlmaier Procese de Productie Romania SRLEybl-Automotive-Components SRLDSR Draxlmaier Serviceleistungen Romania SRLHella Lighting Romania SRLDura Automotive Romania SRLHella Electronics Romania SRLMahle Componente de Motor SRL

Sews Romania SRLKey Safety Systems SRL

Satu MareDRM Draxlmaier RomaniaSisteme Electrice SRLPhoenix Romania SRL[Phoenix Automotive AG]Schlemmer Romania SRL

Salaj

Cluj

Silvania [Michelin] SAMichelin Romsteel Cord SA

Automobile ComponenteElectrice SRLEckerle Romania SRLTrelleborg Romania SA

Bistrita-Nasaud

Mures

Brasov

Prahova

Bucharest

Leoni Wiring Systems Ro SRL

Parat Ro SRL

Autoliv Romania SAIna Schaeffler Brasov SRLRolem SRLStabilus Romania SA

SC Victoria [Michelin] SAYazaki Romania SRLFreudenberg Flexibile de Frana SRLCalsonic Kansey Romania SRL

Honeywell Garrett SRL

ArgesLisa Draxlmaier Autopart Romania SRLJohnson Controls Romania SRLLear Corporation Romania SRLAuto Chassis International Romania SRLValeo Cablaje SRLEuro Auto Plastic Systems SRLBorla Romcat SARonera RubberDow Automotive SA

Automotive Complete Systems SAValeo Electrical Connective Systems SRL

SibiuThyssenkrupp Bilstein Compa SAThyssenkrupp Compa Arcuri SAKuhnke Production Romania SRLFaurecia Seating Talmaciu SRLBrandl Ro SRLSNR Rulmenti SRL

Takata Petri Sibiu SRLContinental Automotive Systems SRLMarquardt Schaltsysteme SCSCaucho Metal Productos SRLKromberg & Schubert Romania Me SRL

Alba

Valcea

Star Transmission Cugir SRL

Magnetto Wheels Romania SA

Cord Romania SAPirelli Tires Romania SRL

Source: Central Europe Trust Company

Annual

Net Salary Gross Salary Company Taxes Total Costs Gross Salary

Production Manager 2,619 3,734 1,049 4,783 57,392

Quality Manager 2,024 2,885 811 3,696 44,356

Technical Manager1,667 2,376 668 3,044 36,532

Finance Manager 2,381 3,395 953 4,348 52,176

HR Manager 1,667 2,376 668 3,044 36,532

Logistic Manager 810 1,154 326 1,480 17,757

Quality Manager 1,071 1.528 430 1,958 23,496

Buyer 905 1,290 364 1,654 19,846

HR Officer 619 883 250 1,132 13,588

Payroll Specialist 619 883 250 1,132 13,588

Receptionist 476 678 192 870 10,442

Operator - Skilled 333 468 134 602 7,223

Forklift Operator 310 433 124 557 6,686

Operator - Unskilled 214 294 85 378 4,538

Competitive Wages in the Manufacturing Sector in Romania (except Bucharest)

Position Monthly Costs ()


20/20

May 2013Advance publications are topic-driven white papers from Jones Lang LaSalle that focus on key real estate and business issues.www.jll.ro

Front page photo by Diana Iorgulescu

COPYRIGHT JONES LANG LASALLE IP, INC. 2013. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means withoutprior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offerany warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them

Content Partners

Manuela FurduiManaging PartnerFiNEXPERT145 Calea PlevneiBucharest, Romania+40 21 311 44 65

[email protected]

Marius DobrescuBusiness Development ManagerLugera - The People Republic98 Vulturilor StreetBucharest, Romania+ 40 21 318 71 [email protected]

Jones Lang LaSalle

Victoria Center145 Calea Victoriei, 10th FloorBucharest 1, 010072Romania

Gijs KlompManaging Director Romania+ 40 21 302 [email protected]

Kevin TurpinHead of Research CEE+ 420 224 234 [email protected]

Levis VladHead of Research Romania+ 40 21 302 [email protected]

romania too large to be ignored

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