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Will Romanian industrial and warehouse space market begin to recover in 2011?
2010-07-27
After a steep decline in 2009, when the industrial and warehouse space market was reduced to the 2005 level in terms of construction output, the market in Romania is primed to recover in the next few years.
The poor infrastructure in the country remains a significant obstacle to the development of this industry. Furthermore, investors are cautious about pumping money into new structures when tenants are reducing capacities. Nevertheless, with the economic outlook expected to brighten in 2011, this market area is expected to start picking up slowly next year. However, the economic difficulties which have discouraged investors are expected to slow the development of this subdivision of the industry for another two or three years.
Overview of industrial and warehouse space construction
Industrial and warehouse construction and assembly boasted the most substantial amount of construction output in the non-residential subgroup of construction in Romania for over a decade. However, there has been a constant reduction in its share of total construction output in the country, reaching, according to the National Institute of Statistics (INSSE), only about 14% of total non-residential construction output in Romania in 2008, a figure which almost matches that of office construction.
Industrial and warehouse construction output has grown steadily since 2001, reaching a total value of around RON 4.9bn (€1.1bn) in 2007, a significant increase of more than 48% in comparison with 2006. Industrial and warehouse construction continued to increase in 2008, by more than 27%. That year’s increase, however, fell short of the initial prediction of a 40% year-on-year improvement. In 2009, according to the preliminary estimates of property consultancies, industrial and warehouse construction output slumped by 60% in comparison with the previous year to approximately RON 2.5bn (€585.5m). This was mostly a result of the economic crisis, which forced many developers to delay indefinitely or abandon projects which were in the pipeline before 2009.
The total stock of industrial and warehouse space in Romania at the end of 2009 was around 1.4 million m². About 65% of this space was concentrated in Bucharest. Most of the remaining 500,000 m² was in the cities of Timisoara, Arad, Ploiesti and Brasov, according to DTZ Echinox.
In 2009, a mere 60,000 m² of new industrial and warehouse space were added to the Romanian market, 35,000 m² of which appeared in Bucharest. The remaining 25,000 m² outside Bucharest in 2009 was delivered in the city of Brasov. This consisted of one 15,000 m² project built by the Cyprus-based developer Helios-Phoenix and another, which accounted for the remainder of the space, developed by the Brasov-based company ICCO.
Potential for growth
Despite the reduction in the construction of industrial and warehouse space in Romania in 2009 and the bleak economic outlook for 2010, developers operating in Romania still claim that there is significant potential for development on this market. So far, the growth of this subdivision has been impeded by the poor road infrastructure in Romania and the lack of available parcels of land for such construction.
The internal traffic of goods is expected to increase by a CAGR of 50% over the next ten years from the current 350 million tonnes per annum to 500 million tonnes in 2020, according to Archicom. This will be one of the factors expected to boost the development of industrial and warehouse construction in the country.
One of the recent trends in industrial and warehouse construction activity in Romania is the migration of developers to other regions after a decade of concentration in the capital. In 2009, most of the transport and logistics companies operating in Romania built logistics centres in the main industrial, production and export destinations in Romania.
The international transport company International Lazar has a logistics platform near the city of Ploiesti, 60 km north of Bucharest, and warehouses being developed in Constanta, the largest Romanian harbour. The property developer Alinso is carrying out work on the first stage of the construction of a 250 ha logistics park in Ploiesti. In early 2010 the transporter Gebrueder Weiss, which is also developing a logistics platform in the village of Bolintin Deal, near Bucharest, began the construction of a second logistics complex in the city of Sibiu, in central Romania.
However, despite all of these developments, the bulk of recent industrial and warehouse transactions still took place in Bucharest, which has retained pride of place in this field. Six of the seven largest rental deals on the logistics market in Romania in Q4 2009 were signed in Bucharest, according to King Sturge.
Forecasts for 2010-2013
The volume of delivered industrial and warehouse space started to fall significantly in Q4 2009 in Romania. During the last quarter of the year, only around 33,000 m² of such space were delivered, a 90% reduction in comparison with the corresponding period of 2008. Demand for industrial and warehouse space in 2010 involves only small halls taking up several thousand square metres, according to King Sturge.
The total amount of industrial and warehouse space delivered this year is expected to reach 150,000 m². This greatly exceeds the 54,000 m² originally forecast. The latest strategies of companies operating in Romania, of focusing on reducing their capacities and warehouse space, are expected to push down the occupancy rate in the industrial and warehousing arena. The vacancy rate has, as a result, increased in this field in Romania, from 12% in 2009 to 14% in mid-2010. These trends have had an adverse effect on the rents for such space, which fell, according to King Sturge, by as much as 10% from €4.5-5/m² in 2009 to €4-4.25/m² in mid-2010.
The amount of warehouse and industrial space ready to be delivered in 2010 is not indicative of the actual potential of this market. Most of the established developers in this business in Romania own vast sites of land in the country on which they plan to build such complexes when the economic outlook improves. The total area of planned industrial and warehouse centres in Romania at various stages of implementation is estimated by Colliers International to be approximately 2 million m². Many of them already have building permits but are waiting for demand for such space to pick up. This market area could, therefore, recover quickly, given the short period needed to build a warehouse and logistics centre. Improvements in this arena are not expected until 2011, when the economy is expected to stir from its current moribund state. There will be steady growth from that moment onwards, but the real potential is expected to be exploited by developers only after 2013. Bucharest is expected to remain the focus of investments in this field, but in the medium and long term, logistics and industrial park developers will increasingly move outside Bucharest, a trend which had already started to gain momentum in 2009.
Marius Dragomir
PMR Correspondent
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