Fresh blood There’s more to Romania than Count Dracula and the Cheeky Girls. Michael Donnelly looks at the untapped retail potential along the Danube
Think of Romania and you probably think of vampires – or, possibly, the Cheeky Girls. It isn’t particularly well known for its retail offering or investment market but, with its recent accession to the EU, the country is looking to the future and beginning to catch up with its European neighbours.
Charles Crick, associate director of the Bucharest office of Jones Lang LaSalle, believes that interest in the country is growing. “A lot of the institutional developers that we’ve seen elsewhere in central Europe have not only acquired property [in Romania] but have developments under way – not only in Bucharest but in secondary cities.”
Crick adds: “In terms of Romania versus the Czech Republic or Hungary, for example, Romania’s secondary cities have larger populations, so there is a bigger market there right away.”
Razvan Gheorghe, managing director of Cushman & Wakefield in Romania, agrees. “Some people say that we are 10 years behind Poland, but in terms of retail, that perspective is questionable because we are seeing a lot of international retailers coming to Romania – many of them directly, rather than through franchises.”
After Poland, Romania is the second-largest market in Eastern and Central Europe, with a population of 22.3m. The country also has one of the fastest-growing economies in Europe. According to the Romanian National Institute of Statistics, GDP rose by 7.7% last year and consumer spending by 10.8%. Not only that, but wages have increased and inflation has fallen, resulting in a significant boost to the population’s disposable income.
Crick says that these and other factors combine to make the country attractive to retailers, developers and investors. He says: “Key factors are the overall demographics, plus the fact that Romania is a country of more than 20m people and that these people have rising spending power – especially in Bucharest and in a number of the core cities where businesses are growing. In addition, there is a bit more of a, let’s say, ‘Latin mentality’ so people will spend a higher percentage of their overall income rather than save it.”
Among the many international developers seeking to get in on the action, Meinl European Land has recently announced a total investment plan for Romania of as much as €700m (£472m). This will put Romania in a prominent position within Meinl’s portfolio, making it – together with Russia, Poland and Turkey – one of the group’s main investment markets in coming years.
Despite Bucharest having one of the lowest levels of retail provision in the entire EU, the belief at Cushman & Wakefield is that the city has the potential to be at a level similar to those of other Central European capitals before the end of the decade. At the moment, there are 32 schemes operating in the country but 20 more are due to come on line over 2007-08.
Because Romania, along with neighbouring Bulgaria, joined the EU in January, it has been brought into line with EU tax and finance law, significantly boosting its standing as a place to do business.
Gheorghe says: “The biggest change since EU accession has been among retailers. More and more retailers decided to enter Romania, generating demand for more floorspace for retail.”
The investment market, too, has seen significant growth in the past year. Yields have dipped below7% for prime retail developments, proof of the demand and the lackof available product.
“There aren’t a lot of developed shopping centres, retail parks or retail warehouses in Romania at the moment,” says Crick. “There’s quite a lot in the pipeline, so investors have been agreeing purchase contracts and development stakes in these projects to have access to retail investment opportunities.”
He adds: “Now that the EU option is checked within their investment criteria, we are seeing a lot more investors coming down here to look to place some capital.”
Investment
l Since Romania’s accession to the EU in January, investors’ risk perception of the economy has lowered considerably and is now almost at the same level as for any other new member of the union.
l Significant growth was seen in the second part of 2006, as accession approached, including a first transaction for a yield below 7% and, in a separate transaction, the first deal over ¤200m.
l Romania is currently the favourite destination for most investment funds active in the East European real estate market.
l Funds from the UK, Germany, Austria and Australia are active in the country.
l There were 19 transactions carried out in 2006, with a total investment value of ¤850m.
Source: Colliers International
Development
l Total stock at the end of 2007 is expected to be about 350,000m2.
l Every major city and some smaller centres are being targeted by developers and retailers.
l In 2008-09, major developers will make moves beyond Bucharest – GTC, Euromall, Africa Israel, Riofisa and TriGranit.
l There is potential for oversupply in some smaller cities. Four or five centres have been announced in the cities of Arad, Crainova and Cluj – all have populations no higher than 350,000.
l Vacancy rates among shopping centres in Bucharest reached 3.16% in 2006 in the rest of the country it was 9.24%.
Source: Colliers International
Who goes where?
major retaildevelopments
l Carrefour has continued its expansion in the market, adding new units to its portfolio, with planned projects in Iasi, Oradea and Arad.
l Cora opened its third store in Cluj Napoca, adding to two in Bucharest.
l Auchan has announced another project south of Bucharest.
l Other new entries include Spar and Real.
l Springfield, Women’secret, Tiffosi and Ecco are among the fashion retailers new to shopping centres over the past year.
l Debenhams, Tommy Hilfiger and Gant are to open this year.
l Luxury brands have begun a battle for prime locations, including Lessila, Versace Jeans, Liu-Jo, Distinto and Exquisite.
l In the restaurant market, international brands such as Costa Coffee, Sbarro and Cili Pizza have already opened their first locations. Starbucks is to open this year.
Source: Colliers International
Rents – who pays what?
l In 2006, the average rent for Bucharest’s existing shopping centres was ¤25-¤28 per m2 per month
l The average rent in shopping centres outside Bucharest is around ¤18-¤25 per m2, though well-managed developments with good anchors can achieve closer to ¤22-¤25 per m2.
l Poorer concepts can only generate average rents of around ¤16 per m2.
l As new projects go to market, owners of existing centres have been trying to improve their concepts and tenant mixes, and to strengthen their position on the market by attracting new international brands. These new arrivals have started to pay lower rents than local retailers, decreasing average rents.
Source: Colliers International
