colliers real estate review romania 2008


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Cotets6 Ecoomic Reiew

10 Oce

16 Retail

24 Idustrial

32 Lad

36 Residetial

44 Iestmet Sales

48 Hotel

50 Legal

54 Ta Aspects


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Dear clients and friends,

The fear of recession in the US economy combined with the problems generated by the subprime crisis resultedin the fall of the global capital and financial markets in the last quarter of 2007.

For the last four to five months, most people involved in the local real estate industry that I have met asked mealmost the same questions: Will we see a crash of the Romanian market? How will subprime and the globalfinancial crisis affect us?

Despite the global crisis, in 2007 Romania’s economy (GDP) grew by a strong 6.0% while the net salary increasewas around 40%. However, during the same period inflation targets were not met, our current account deficitwent up to 14.5%, and the local currency depreciated by 7.75% against the Euro.

The real estate market was one of the key engines driving our economy forward, with the construction sector

growing by an impressive 30% and the total volume of investment in the market exceeding c2.5 billion inBucharest.

The strong local demand and the current lack of supply attracted a large number of international developersand investment funds looking for a piece of the action in the hottest market in the region. This “oversized”interest, for what is still a small and immature market, pushed prices up in most sectors and pressured vacancyrates down close to zero in all sectors.

The office stock grew by 50% compared to 2006, industrial and retail stocks more than doubled, and apartmentprices grew by an average of 35% in Bucharest. Investment yields for prime office properties reached a historicallow with the sale of America House for 5.55% to a French investment fund.

Riding the wave, Colliers International doubled its turnover, added 30 new people to its team and furtherstrengthened its established leadership position in the real estate consulting market.

Using our ability and experience to analyze all the available market data, we remain optimistic about thefuture in Romania. We see tremendous growth potential in all sectors, fueled by the growing purchasing powerof the population, which will ensure demand remains at a high level.

Thank you.

Bogdan GeorgescuManaging PartnerColliers International Romania

Colliers IteratioalSos. Bucuresti-Ploiesti nr 1ABucharest Business Park C1, 4th floor, BucharestPhone: +40 21 319 7777

Fax: +40 21 319 7778

www.colliers.ro


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6 Colliers Iteratioal Real Estate Review 2008

Ecoomic Reiew

How will the local real estate market be affected by

the crisis in the international financial markets?This question polarized the business and mediacommunity at the end of 2007, with various pros andcons from experts in all fields of the economy.

In H1 2007 Romania displayed the traits of a healthyeconomy and confirmed the ascending trend startedseveral years ago. The GDP growth was above 6.0%yoy, the annual average unemployment was 4.3%,down 1% from 2006, and the RON continued toappreciate against the Euro, supporting low inflationtargets.

The first signs of a potential local crisis came withthe sudden depreciation of the RON that startedin mid-summer when it became clear that the

initial inflation targets were impossible to attain.Government spending in infrastructure wassignificantly higher towards the end of the yeardriving the budget deficit higher than previouslyforecasted, adding to inflationary pressures. The

macroeconomic outlook became gloomy whileeveryone was bracing for the global shockwave ofthe financial turmoil.

Year-end consumer price inflation in 2007 exceededthe ceiling of the central bank’s target by 1.6%, toreach 6.6%. The current account deficit is set at 14.5%of GDP, and with a currency not pegged to the Euro,Bucharest remains somewhat exposed to refinancingrisks caused by the global financial turmoil, raisinganxiety feelings among a number of analysts.

However, defying the naysayers, the Romanian

economy and commercial real estate market finished2007 in solid shape. Official numbers showed solidgrowth towards the end of the year (6.6% in Q4 2007

Ecoomic idicators

Indicators 2005 2006 2007 2008f 2009f

GDP (bn c) 79.6 97.0 118.1 134.2 151.9

Real GDP growth (%, yoy) 4.1 7.7 6.1 6.5 6.1

Unemployment rate (%, avg) 6.2 5.6 4.8 4.7 4.6

CPI (% year end) 8.6 4.9 6 4.5 3.6

C/A balance (% of GDP) -8.7 -10.3 -13.4 -13.6 -13.4

Exchange rate (c/ron) 3.62 3.53 3.31 3.65 3.25

Exchange rate (usd/ron) 2.91 2.81 2.44 2.34 2.3


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– much stronger than previously predicted) and theoverall 6% economic growth for 2007 restored faithin the RON, the stock market and the economy atlarge.

For 2008 domestic demand will continue to drivegrowth, with GDP estimated at 5.8% yoy, althoughthere are signs that the industrial sector is headingfor a slowdown. With inflation expected to rise to 8%by the end of Q1 2008, there is strong commitment toa tight monetary policy aided by fiscal adjustmentsin order to keep domestic demand and otherinflationary pressures under control. The projected2.3% budget deficit for the year, (compared to the3% in 2007) and the central bank’s third consecutiveincrease of the main interest rate, to 9%, confirm thiscommitment.

The global credit crunch will ripple through the localreal estate market, and the first signs are alreadyvisible. Over the past few years credit has increased

rapidly in Romania, so financing conditions willbecome stricter. Despite this, the impact on theeconomy will be moderate, since private borrowerswere under-leveraged to start with. As financinginstitutions become more selective, lower quality

projects will find it more difficult to get funding.This will cool down the accelerated supply growthforecasted for the coming years, while increasing, onthe other hand, the average quality of the financedprojects.

Whilst uncertainty regarding the size and the globalimpact of the US recession will dispel by the end ofH1 2008, the Romanian economy will stay on track.The major investments in infrastructure will alsohelp the real estate market, increasing the value ofproperties, opening access to new areas while alsoproviding a boost to the economy in the long run.


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50% increase in stock forecasted for 2008 but the

oice space in Bucharest is still insufficient.New office areas are opening up in the capital and

the other big cities.


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Oice Maret

BRIEfAlthough the supply of quality office spacecontinued to grow during 2007, demand was stillmuch stronger and the year ended with a historicallylow vacancy rate of close to 0% in prime locations.Tenants continued to absorb office space at the samepace new space was created but, surprisingly, rentsdid not grow as much as they logically should have.

Besides the acute lack of office space, trafficproblems became a growing concern for developersand tenants, pressuring them to seek alternativesolutions. This situation stimulated interest for

sites in non-traditional office locations, such as thewestern part of Bucharest, and several large schemesare already under development in this area.

DEMAnDIn 2007 the total absorption of office space was203,800 sqm, up almost 25% from 2006. With limitedalternatives, many tenants had to choose betweengiving up some of their requirements, and waitingfor up to 24 months for the delivery of a suitablebuilding. Large companies unwilling to compromiseon location and the quality of their work place,

signed pre-leases for new projects with deliveries setfor 2009. Companies with more immediate needsfor space did not have similar flexibility, and hadto settle for leases in either potentially less thanideal locations or spaces lacking their specific needs.Overall, the first of the two situations was more

common, with pre-leases accounting for 60% of thetransactions signed in 2007.

A notable development in the market was thesignificant increase in the number of small

requirements, of under 500 sqm. Several developers,looking to increase their profit margins, dividedup some of their floors to accommodate multipletenants for higher rents, thus capitalizing on thisnew demand.

The IT & Telecom sector is leading in an unofficialranking of take-up per sector with 29% of the totaltake-up, followed by Financial Services with 20%and the Automotive sector with 11%. The largesttransaction in the prime area was closed by acompany from the IT&T sector while an automotivecompany signed the largest lease in a secondary

location.

Because of the problems caused by traffic and lackof parking throughout the city, the accessibilityof office location is becoming a major decidingfactor for most tenants. Due to its proximity to thetraditional large residential neighborhoods, demandfor the central-western part of the city has increasedand 37,000 sqm of office space has already beendelivered in the Politehnica and Militari areas. In thispart of the city development land was still availableduring 2006 and 2007 at prices lower than in the

north. This allowed developers to plan attractiveoffice projects and achieve lower costs than in thenorth and so they are able to offer rents at 10% -15%lower. With its lower rents, efficient floor plans,and better access for employees the west increasedits appeal as an alternative to the congested north,


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growing in one year from almost nothing to about20% of the total space leased in 2007. However, thenorth still remains the most active office area with61.5% of the 2007 absorption.

SUPPLYBy the end of 2007 the total stock of modern officespace in Bucharest was 608,200 sqm, up 50% fromDecember 2006. Fifteen new projects brought194,000 sqm of office space to the Bucharest market,of which only 30% were in prime locations.

The business park concept, pioneered in 2003 byIRIDE, and later by Bucharest Business Park, isbecoming more popular. Encouraged by the successof these two schemes, several other developersbegan to favour the efficient, good quality, low-rise buildings, with large floor plans and pleasant

landscaping, and started similar projects: VictoriaPark, S-Park, West Gate Park and Baneasa Business& Technology, were all fully leased upon delivery in2007.

Because of the delays in obtaining buildingpermits and the lack of sufficient experiencedconstruction companies active in Romania, it hasbecome customary for most office buildings to bedelivered three to nine months late. As there are noforeseeable remedies for these problems, delays arelikely to persist throughout 2008 and 2009.

The vacancy rate in 2007 reached a historical lowof 0% by the end of the year, which represents asignificant milestone not only for Bucharest but ona regional basis. Under these circumstances almostany new, high quality project was pre-leased evenbefore construction began.

REnTSLease agreements were signed at an average rent ofc17.94/sqm/month for buildings in prime locationsand c15.02/sqm/month in secondary locations,

both being only minor increases from the 2006 levels. Rents for pre-leases in prime locations werein the same range as those for regular leases whilein secondary locations they were 15% lower, for anaverage of c13.80/sqm/month.

The gap between rents for regular leases and for pre-leases decreased significantly in 2007 but incentivessuch as free rent periods or fit-out contributions stilldecreased the real occupancy cost for pre-leases by5-7%.

Asking rents for the very few small units that are

becoming available in existing buildings in primelocations increased up to c30/sqm/month, thoughthe lack of these units meant that only a fewtransactions were signed at these prices.

Service charges are commonly calculated andpaid based on an open book system. Professionaldevelopers do adjust the service costs periodically toincorporate the increases in the costs of utilities andsalaries of the maintenance staff. Although in 2007 the real cost of service charges for modern officebuildings in prime locations was between c4- 5/sqm/

month, many landlords are still quoting c3- 3.5/sqm/month when negotiating new lease agreements.This practice is used to show a lower total occupancycost, which allows the landlords to try and increasethe rents.

Top 10 trasactios i 2007 i prime locatio

Tenant Transaction Area Agent

IT&T City Gate 8,016 Colliers

Financial services Victoria Center 4,818 Colliers

Ernst & Young Premium Plaza 3,574 Colliers

Honeywell Floreasca 169 3,429 Colliers/ Cushman

Cetelem Aaylex Business Center 3,000 CBRE

Lowe Ceasornicului 17 2,600 DTZ

TiriacAsigurari General Brosteanu 2,600 Media City

Microsoft City Gate 2,300 Colliers/JLL

Popovici & Asociatii Victoria Center 2,279 Colliers

Linklaters Floreasca 169 2,264 Colliers


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Ofce Market

Buildigs to be deliered i H1 2008

Buidling Location Total Surface

Bucharest Tower Center center 22,000

BBTP north 13,000

Urdareanu 34 center 3,000

Premium Plaza center 8,650

Delea Noua center 7,300

Rosetti Tower center 9,800

Gara Herastrau north 7,000

Lamda north 4,000

Iemi north 46,000

West Gate Park west 28,000

Sema Parc west 42,000

Aaylex north 3,000

Nord City Tower north 8,700

Rosetti 17 center 3,000

Central Business Park center 6,000

Europea oice stoc

City Stock (sqm/ 100 people)

Paris 428

Madrid 322

London 228

Prague 178

Warsaw 156

Budapest 107

Sophia 53

Bucharest 28

Project: PlatiumDeveloper: Daghesh GroupArea (Delivery): 9300sqm (Q4 2008)

Project: Premium PlazaDeveloper: Premium RedArea (Delivery): 8500sqm (Q2 2008)


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The price for parking spaces in buildings located inprimary areas remained at the same level as 2006,between c100- 150 /cps for underground spaces,and between c60- 80/cps for above ground spaces.Despite a willingness from many tenants to pay a

premium for parking, most office buildings do nothave enough available spaces to accommodate thisdemand.

fORECASTIn the first half of 2009 the total stock of office spacein Bucharest should reach 1,200,000 sqm, doublewhat it was at the end of 2007. In the first six monthsof 2008 alone, 200,000 sqm will be delivered to thealready established business areas of the city. Outof this new supply, 72% has already been pre-leasedand, given the zero vacancy rate, the rest will mostlikely be leased before its delivery.

With the 370,000 sqm of new supply expected in2008, the total office stock in Bucharest may reach1,000,000 sqm. However, this is still not sufficientto satisfy current demand levels. According toan analysis carried out by Colliers InternationalBucharest, the office stock per capita in Bucharestis by far the lowest among both Europe’s emergingmarkets as well as the developed markets, showing asignificant growth potential for the local market.

We believe that in the next 5 years demand for

modern office space in Bucharest will drive the stockto over 2,500,000 sqm.

Baneasa and Pipera northern outskirts will seegrowth as usual, although demand for these areasis not as strong as it could be, mainly becauseof problems related to accessibility and traffic.Medium term infrastructure solutions will improvethe situation, but will not fix it completely. Officedevelopment in the western part of the city will

continue to grow in the coming years in response tothe need for spaces close to the residential areas.

The rising star in the office market is the areaaround Barbu Vacarescu – Floreasca. This location

features excellent access to all parts of the city, islocated relatively close to the established CBD, andat the same time it offers good routes out of thecity. Additionally, the large sites available will allowfor a variety of projects to expand harmoniously,especially as experienced international developersare stepping in.

For 2008 our estimation is that the overall vacancyrate will continue to be close to zero. However, dueto the difficult access in secondary areas and thehigh rents in the prime locations, we expect someof the projects will not be rented as easily as in the

past two years. For example, in central locationssuch as in the proximity of University and VictorieiSquare the asking price is now up to c30/sqm/month, significantly above the standard levels of themarket and also above the current budgets allocatedfor office rent by most multinational companies.However, these prices are not as prohibitive fortenants seeking smaller office spaces.

Although the office market in Bucharest is stillvery strong and has several years to mature,demand for space is already spreading to other big

cities throughout the country. Large companiesopening local branches and service or researchand development centers benefit from lower rentsand a valuable labour force at lower salary coststhan in Bucharest. A few transactions were alreadycompleted in Cluj, Timisoara, Iasi, Brasov andConstanta. With the experienced developers headingfor these cities, the coming years should also see agrowing demand and supply of modern office spaceoutside Bucharest.


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Top etries 2007

Brand Average unit size (sqm) Openings in 2007

Debenhams 2,000 - 3,500 Bucuresti Mall, Polus Center Cluj

Cinema City 2,000 - 3,000 Iulius Mall Timisoara, Iulius Mall Iasi

Mervis 1,000 - 1,500 Polus Center Cluj, Arena City Center, European Retail Park Sibiu

New Yorker 1,000 - 1,500 Polus Center Cluj, European Retail Park Sibiu, Mures Mall

Piazza Italia 800 - 1,000 Polus Center Cluj

Oviesse 1,000 - 1,500 Polus Center Cluj

Bershka 500 Polus Center Cluj

Takko 500 European Retail Park Sibiu, Polus Center Cluj

Deichmann 500 Euromall Pitesti, Polus Center Cluj, Kaufland Arad

Stradivarius 350 - 500 Polus Center Cuj

Cool Cat 300 - 500 Polus Center Cluj

Oysho 200 - 250 Polus Center Cluj

Retail Maret

BRIEfDue to its high potential, the Romanian retail marketcontinues to be the target of international retailersand developers. However, in 2007 there was unrestamong the developers and investors that not alltypes of retail schemes would function well. Despitethis, the number of announced shopping centersand the high interest from retailers does support anoptimistic view for the future of the retail scene.

According to the announced plans, the total stockof shopping centers will almost double in 2008,surpassing 1,000,000 sqm of gross leasable area.

Around 20 new malls will be delivered all acrossRomania in Bucharest, Constanta, Brasov, Galati,Braila, Oradea, Buzau, Piatra Neamt, Suceava andBacau.

DEMAnDWhen speaking about the demand we need toanalyze two different aspects: the demand driven bythe potential customers and the demand formed bythe retailers.

Analysis of the potential customer’s demand

supports the sustainability of future shoppingcenters. The main characteristic of the potentialclient base, the purchasing power, has seen anincrease in 2007, with the average national monthlyincome jumping more than 40%, from c242/capita in2006 to c340/capita at the end of 2007. This increase,together with a small change in the shopping

basket (which is dominated by expenditure on food)supports the outlook for high absorption of the retailprojects that are to be delivered.

2007 was a very active year in terms of new brands

entering the market. Out of the 252,300 sqmdelivered in 2007, over 30,000 sqm were occupiedby new brands. Traditionally the strategy of mostnewcomers is to first set up in Bucharest andafterwards expand to the country-side. However,in 2007, they adapted to the local market and choseexisting opportunities, which were not necessarilyin the capital city. For example, retailers Orsay andDeichmann opened their first stores in EuromallPitesti, retailer New Yorker opened in the EuropeanRetail Park Targu Mures, while the shopping centrePolus Cluj hosted the majority of the new retailers,such as Piazza Italia, Hervis, Takko and Bershka.

The fashion segment was by far the most activein terms of newcomers, who offered good anchorsolutions for upcoming projects. While the homeappliances segment remained quiet in 2007 withno major changes, the other two important anchortenants, the food and the entertainment segments,suffered as a result of a lack of options.

In the cinema sector, with only one operator trulyactive, the market witnessed the opening of twoCinema City locations in Timisoara and Iasi. In the

food segment, the takeover of the local chain Artimaby Carrefour was the highlight at the end of the year,offering an answer to the shortage of alternatives inthe supermarket format between 2,000 and 3,000 sqm. In this way Carrefour is making its officialentrance into the Romanian market with a smallerformat concept.


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High streetThe demand in the high street segment continues tobe driven by banks, pharmacies, telecommunicationsuppliers and casinos. However, a sure sign ofcompetition in the future comes from luxury brand

retailers, restaurants and coffee shops.

The new entrants to the market are Bally (onBalcescu Boulevard), Baldinini (on Rosseti St),Versace, Cat Walk and Segue (on Calea Victoriei) andtwo multi-brands stores, Victoriei 46 and The Place,in the Dorobanti area.

The practice of providing “key money” (moneypaid to an existing tenant to assign a lease to a newtenant) is common in the market, being frequentlyused by new retailers entering the Romanianmarket.

SUPPLY

Shoppig CetresHistorically the evolution of a retail market is directlyinfluenced by the demographic characteristics ofeach city. As Bucharest is the Romanian city withthe largest population and the highest disposableincome per person, naturally the response of theretailers is to first target the capital. The catchmentarea includes 2,500,000 inhabitants in the capitalcity, while in the country-side it hardly reaches

500,000 people in the main cities.

However, as the developers would like to gain moreground before others do, all the cities with more than100,000 inhabitants have witnessed a high interestin 2007 from developers.

As well, with 14 shopping centers announced to bedelivered over the following years in Bucharest, onemight think that the capital city is a dynamic market.However, if we consider the new stock of shoppingcenter space delivered in 2007, approximately 10,000

sqm, this represents only a small increase of 6.2%from 2006. The extension of Bucuresti Mall and thenew food court in Unirea Shopping Center madealmost no difference in accommodating the demandfor the capital city.

Interestingly, the city of Cluj-Napoca far surpassedthe figures from Bucharest, in space delivered in2007. The opening of the centres Polus and Iuliusin Cluj-Napoca translated into 98,000 sqm of newspace delivered to this city. For the first time in theRomanian retail market, a city other than Bucharestattained the highest retail stock of shopping centers

per person. There was 0.2 sqm of shopping centerspace/person in Cluj-Napoca compared to 0.06 sqmof shopping center space/per person in Bucharest.

Overall, the shopping centers delivered last yearoutside Bucharest expanded the stock with morethan 200,000 sqm of new retail space.

Therefore, although the retailers’ expectations for thecapital city were much higher, the top regional citiesproved to be more dynamic in the overall Romanianretail market.

A comparison between Bucharest and the rest of thecountry in terms of the announced stock of shoppingcenters per person shows that the capital city lackseven compared to secondary cities such as Arad andPloiesti.

new stoc - Bucharest 2008

Project GLA (sqm)

Baneasa Shopping City 85,000

Liberty Center 25,000

Vitantis 37,000

Grand Arena - Berceni 30,000

Total 177,000


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Retail Market

Project: Liberty CeterDeveloper: Mivan DevelopmentArea (Delivery): 25000sqm (Q3 2008)

Project: Euromall GalatiDeveloper: Euromall & Immoeast

Area (Delivery): 24000sqm (Q4 2008)


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However, predictions based on retail space perperson combined with purchasing power indicatethat the danger of over-supply is much higher in thecountryside than in Bucharest.

Despite this prediction, the reality might provedifferent. The short history of the Romanian retailmarket shows that developers are playing a mediagame by announcing malls even before the landacquisition is completed.

Meant to discourage the competitors, suchtechniques decrease the number of projects that willcome to completion.

The international financial crisis has also had a directimpact on the developers’ access to loans. The banksbecame more careful when granting financing,

and they imposed much stricter conditions. Theynow do more thorough analysis of the proposedretail scheme, and the market conditions, pay moreattention to the concept and quality of the malls, anddemand a higher percentage of pre-lease deals priorto construction, all of which many disqualify some ofthe announced projects.

At the same time it is true that there are situationswhere logic and common sense are left behind bydevelopers in favour of ambition, financial resourcesand personal confidence. Their successful track

record makes them believe that they will succeed inany market, no matter how difficult it is.

In conclusion, even if the announced stock indicatesan oversupply in the future, such a situation willoccur only in some cities. In such cases, it is the

number of visitors who represent the real test in thesuccess of the shopping centers.

High StreetThe high street supply is still limited in relation to

the retailers’ demand. There are only a few unitssituated on the ground floor of the new well locatedoffice buildings. Also, in the centre and the northpart of the city, most of the new residential buildingsdelivered have included retail units on the groundfloor. The vacancy rate is still very low, close to nil onprime streets and around 5% in peripheral areas.

REnTS

PricesIn Bucharest, the average rents in shopping centresin 2007 registered levels of c24- 27/sqm/month,

decrease of 4% compared to 2006. In the rest of thecountry, there was a slightly lower and wider range,of c15- 25/sqm/month, compared to the c18- 25/sqm/month in 2006. On a regional basis Romania stillmaintains high rents, but the overall trend indicatesthe current levels will continue for the next two tofive years.

In the Bucharest market the average rents foranchor tenants varies between c7- 17 /sqm/month,depending on the retail type, and the areas occupiedby non-anchor tenants have an average rent of c21-

45/sqm/month.

In addition to rent, tenants in the shopping centershave to pay service charges, marketing fees andcontribute to the Opening Marketing Budget. Theservice charges are c3- 9/sqm/month, while the

new stoc - coutry wide - 2008

Project City GLA

European Retail Park Bacau 40,000

Arena City Center Bacau 7,500

European Retail Park Braila 14,600

Unirea Center Brasov 12,500

Galleria Buzau 13,300

City Center Constanta 19,500

City Park - Constanta Mall Constanta 25,000

Euromall Galati 25,000

Tiago Oradea 25,000

Galleria Piatra Neamt 12,200

Galleria Suceava 10,700

Suceava Shopping City Suceava 47,100

Iulius Mall Suceava 45,000

Mures Mall Targu Mures 12,000

Total 309,400


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Retail Market

Balli - On Magheru Boulevard


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marketing fee is between c1- 2/sqm/month. Thestandard Opening Marketing Budget is usually theequivalent of one month’s rent payment.

The newest financial incentive is the fit out

allowance, and tends to be common for anchortenants. It is becoming an interesting subject forother large retailers as well.

High streetThe prices followed an ascending trend during 2007 with the rents on the high street segment increasingby 15- 25%, and even more in the peripheral areas.Considering the existing gap between demand andsupply, the landlords maintain a privileged positionand have the ability to hold out for high prices.

fORECASTFor the high street, the prices will continue to moveslightly higher, as a result of the exceeding demandin the market.

With so many projects expected to be delivered inthe next few years it is expected that the marketwill regulate itself. The lack of immediate successof the already delivered schemes combined with

the worldwide financial crisis made investors andfinancial institutions much more cautious by the endof the year, a trend that will be continued in 2008.

The consumer purchasing power will also continue

to increase in 2008 potentially supporting anincreasing amount of sqm of retail space per capitadue to the prospects of a larger number of visitorsto the shopping centres as well as higher sales percustomer.

It is necessary to draw attention to some extremecases in the market, especially regarding such citieswith below 200,000 inhabitants but over 200,000 sqm of retail announced for the next few years. Thefinancing partners should play a regulating role,by choosing prospective projects only after a verycareful analysis of the location, the experience of the

developer, the tenant mix, and local competition.

In such a crowded market, the rents, in light ofa balancing of the demand and the supply, willactually decline. Still, should some of the projectspostpone their delivery dates, in a short term wemight not witness any change.

High-street rets

Rents - sqm/month Trend

Prime retail area Magheru-Balcescu 120-160 up

Bratianu 80-100 stable

Calea Victoriei 90-120 up

Secondary retail area Calea Dorobanti 80-100 up

Calea Mosilor, Stefan cel Mare, Kogalniceanu, Ion Mihalache 50-70 stable

Peripheral area Iuliu Maniu, Dr. Taberei, Pantelimon,Crangasi 40-55 up

Titan, Dristor, Grigorescu, 40-50 up

Giurgiului, Oltenitei, Giulesti, Bucurestii Noi 25-40 up

Rets or 100sm groud loor store space ieistig shoppig ceters

Region Rent (c/sqm/month)

Bucharest 65-80

Top cities 25-52

Secondary cities 20-40


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New hot-spots will add up to significant

idustrial market expansion, but rents arestable. New highways to open up opportunities.


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Idustrial Maret

BRIEfA brief review of the final statistics for 2007 revealsthe significant growth of the industrial sectorcompared to the previous year.

The beginning of 2007 was very promising, witha strong first half in terms of leased and deliveredsquare meters. The second half of the year continuedthis trend, though with a lower intensity due tocircumstances in the construction sector. Delayswere a common occurrence due to the imbalancebetween the large number of new projects and theinsufficient number of professional contractors. Even

so, 2007 brought to the market over 240,000 sqm ofnew industrial space, almost 4 times more than theprevious year.

The supply came both from new phases of existingdevelopments, such as Cefin Logistics Park orMercury Logistics Park, and from new entries, such asBucharest West, ProLogis Park, and A1 Business Park.

In terms of demand, 2007 continued to be dominatedby logistics companies, followed closely by retailers.Leasing 45,000 sqm of industrial space, Carrefour

not only completed the largest transaction ever inthe market, but they also successfully increased thetotal percentage of the market held by retailers interms of warehouse space take-up. With more than233,000 sqm of industrial and logistics space leasedthroughout the whole year, 2007 almost doubled thenumber of transacted sqm in 2006.

DEMAnDThe impressive growth in the retail sector fuelled thedemand for industrial space and many companiesstarted to relocate or expand their warehouses into

the new logistics projects.

2007 almost doubled the take-up for warehousespace compared to the preceding year, with 234,000 sqm leased throughout the whole year. Whilst 2006 was dominated by logistics companies, in 2007 retailcompanies began to gain ground and noticeablyreduced the gap.

The first half of 2007 was very active in terms ofleased square meters with 163,800 sqm of industrialspace leased before summer.

With the market being in a stage of growth, theaverage size of individual transactions also increased,up to 6,000 sqm, which was more than doublecompared to 2006.

Due to the simple fact that almost all the newindustrial projects delivered in the market arelocated in the west, 97% of all the transactions wereconcluded there. There were several small deals alsosigned in smaller refurbished projects located in theeastern part of Bucharest.

Interest in the eastern part of Bucharest is going tobe heightened in 2008 when Pantelimon LogisticPark, the first new industrial park located in this partof the city, delivers its first phase.

The common features of a modern industrialbuilding are: 10m clearance height, 5,000 kg/sqm


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floor loading capacity, 200 lux average lightinglevel for the warehouse space and 400 lux foroffice space, electrical loading docks, drive-indoors, sprinkler systems, heating systems, moderntelecommunication systems, high profiled security

systems, landscaping, etc. In addition to the abovequalities, the expansion possibilities, good access,and availability of ample parking for trucks and cars,became determining factors in selecting one projectover another.

SUPPLY2007 was a spectacular year, bringing four timesmore industrial and logistics space compared to 2006 when only 61,300 sqm were delivered in the marketthroughout the entire year. Thus, at the end of lastyear the total stock of industrial space in Bucharestdoubled and reached 500,000 sqm.

The total supply could have been even higher butseveral large projects had to delay their deliveryfor 2008 because of the ongoing crisis in theconstruction sector caused by the lack of qualifiedconstruction companies.

The 241,000 sqm of warehouse space brought to themarket, both from existing developments such asCefin Logistics Park or Mercury Logistics Park andfrom new entries such as Bucharest West, ProLogisPark A1 and A1 Business Park, are all located in the

western part of Bucharest except for the 10,000 sqmdelivered in the east by Apollo Center.

The development of the infrastructure network inthe south and east of Bucharest will bring moreindustrial projects in these areas. Thus, in comingyears, it is likely that we will see a more diversified

map in terms of the location of industrial projects.

There is already one project under development inthe eastern part of Bucharest - Pantelimon LogisticPark. They have announced the delivery of their first

phase of 18,500 sqm of logistics space for Q3 of 2008.

With strong demand immediately securing almostany new industrial space, the vacancy rate in themarket was close to 7.78% at the end of the year,but may rapidly go towards 0% as most of thespace available as of December 31st 2007 was underadvanced negotiations.

As Bucharest has the highest salary level in thecountry, most of the companies dealing withproduction and manufacturing operations arelooking to relocate their facilities to other cities. From

the total take-up of industrial space in 2007, only3.46% goes to production facilities.

Many developers anticipated this trend and startedto secure land suitable for industrial projects in othermajor cities or in their vicinity. Eyemaxx has alreadydelivered the first phase of its project LOGCenter(20,000 sqm of industrial and logistic space) inTimisoara and has other projects under developmentin Ploiesti, Sibiu and Brasov. Cefin Group willcomplete a 45,000 sqm warehouse in Arad, andthe Czech Republic market leader CTPInvest has

bought land plots in Bors, Pitesti and Turda, andbegins by launching its first project at the end of2007, CTPoint Bors. Also, the Belgium developer WDPhas already secured several land plots for its futuredevelopments in the surrounding areas of Bucharest,Ploiesti and Constanta.

Top 10 trasactios 2007

Tenant Industry Project Leased Area (sqm)

Carrefour Retail Cefin Logistics Park 45,000

CIB Trans Logistics Bucharest West 15,000

Altex Retail Cefin Logistics Park 12,100

Kuehne& Nagel Logistics ProLogis Bucharest A1 10,651

OTZ Logistics Logistics Cefin Logistics Park 10,500

Calberson Romania Logistics, Transport & Distribution ProLogis Bucharest A1 10,213

Delamode Logistics Mercury Logistic Park 10,000

Leonardo Retail Bucharest West 10,000

Cargo Partner Expeditii Logistics ProLogis Bucharest A1 8,400

Omega Transport Logistics ProLogis Bucharest A1 6,671


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Industrial Market

Project: A1 Busiess ParDeveloper: Cefin Real EstateArea (Delivery): 2,5000sqm (Q2 2008)

Project: EuestDeveloper: Equest Logistic

Phase 1 - Area (Delivery): 20,300sqm (Q1 2008)Phase 2 - Area (Delivery): 18,000sqm (Q3 2008)


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REnTSDuring 2007 there was an obvious increase in supply,though demand for space was even stronger. As aresult, vacancy rates dropped to their lowest level

in 10 years. Despite this drop, rents stayed at almostthe same level as in 2006, which is not economicallyintuitive. However, we believe the lack of rentalgrowth, in spite of strong demand, has occurred dueto the rapid growth rate of the market. Developersare as incentivized to secure new tenants, as tenantsare to secure new premises.

Although rents were expected to decrease in 2007,the noticeable growth in construction costs putpressure on developers who did keep rents stable forsmall and medium size transactions. However, majortenants were able to obtain rents slightly lower than

in the past.

During 2007, transactions for less than 3,000 sqm ofindustrial space were signed at rents between c4.75-5.00/sqm/month, while for transactions of morethan 10,000 sqm they were somewhere betweenc3.70- 4.10/sqm/month. For units of 3,000 sqm to10,000 sqm the rent ranged from c4.25- 4.75/sqm/month.

As for service charges, most of the developers arestill quoting c0.50/sqm/month, with an open book

system, but they may soon increase this to c0.65/sqm/month to reflect the real cost in the market.

fORECASTDemand is still very strong in the Bucharestindustrial market and the current stock of logisticspace is not sufficient. Bucharest continues to be very

attractive for many developers who are permanentlymonitoring the market in order to purchase or todevelop other industrial parks.

For 2008 we are expecting more than 320,000 sqm

of industrial space to be delivered, out of whichabout 100,000 sqm was already pre-leased by theend of 2007 and the rest is in advanced stages ofnegotiation. Thus, it is very likely that in 2008 themarket will continue to suffer with the continuedlack of industrial space.

Colliers is recommending to all companies that areplanning to relocate or expand their businesses tostart searching for industrial space 6 to 9 monthsbefore the proposed relocation date. In this waythey ensure the right space is secured and will alsopotentially enjoy several advantages offered by

landlords for pre-leases

In terms of preferred locations, A1 highway remainsthe most developed area and most likely km 23 (plus/minus 2 km to Bucharest or to Pitesti) will becomethe next hot spot. In the east, close to the ring road,European Future Group, a UK based developmentcompany, in joint venture with Immoeast, the largestAustrian investment fund active in Romania, hasalready launched the first modern industrial park –Pantelimon Logistic Park.

The east has also been picked by two otherdevelopers who have secured land plots on the A2 Bucharest-Constanta highway at km 30 in Fundulea.Considering the significant distance from Bucharest,it remains to be seen when they will decide to startthe development of those plots.

Deliered i 2007

Project Location Area (sqm) Available for rent (sqm)

Cefin Logistics Park km. 14 A1 75,000 16,000

ProLogis Park Bucharest A1 km. 23 A1 56,000 8,000

A1 Business Park km. 14 A1 45,000 5,000

Bucharest West km. 14 A1 42,000 0

Mercury Logistic Park km. 23 A1 10,000 10,000

Apollo Center East 10,000 0

Chitila Logistics Park West Ring Road 3,500 0

Total 24 1,500 39,000


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Industrial Market

Bucharest idustrial map

# Project Developer/Investor

1 Cefin Logistics Park Cefin Real Estate / Europolis

2 Bucharest West Portland Trust / Apollo Group

3 A1 Business Park Cefin Real Estate / Teesland IOG

4 Equest Logistic Center Equest Logistic / Equest Investments Balkans

5 ProLogis Park Bucharest A1 ProLogis

6 Mercury Logistic Park Phoenix Real Estate / Helios Properties

7 Bucharest Industrial Park Universal Property

8 Phoenix Business Park Phoenix Real Estate / CEIF (Morely Fund Management)

9 Mega Distribution Park Mega Company

10 Phoenix Industrial Park Morley Fund Management

11 ACT Mega Company

12 KLC Mega Company

13 Chitila Logistics Park Metropola Imobiliar & UMB / M Logistic&Distribution14 Bucharest Distribution Park ImmoEast

15 Rostock Rostock 2000

16 Pantelimon Logistic Park European Future Group / ImmoEast

17 Apollo Center Elcyrom Realty & Development


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The north may also become attractive for industrialdevelopers as soon as the new A3 highway toPloiesti nears completion. Until then, the north partof Bucharest now accessible remains unattractiveas the land is much too expensive for industrial

developments.

With demand still greater than supply, whichis driving the vacancy rate towards zero, andconstruction costs expected to continue to grow in2008, average rents will probably remain stable, witha slight increase for small to medium requirementsand slight decreases for very large tenants.

new delieries 2008

Project Developer / Investor Delivery date Area (sqm)Available (end of

2007, sqm)

Cefin Logistics Park Cefin Real Estate / Europolis Q2, Q4 2008 75,000 30,000

Bucharest West Portland Trust / Apollo Group Q4 2008 59,000 14,000

ProLogis Park Bucharest A1 ProLogis Q1 2008 49,000 49,000

Equest Logistic Center I Equest Logistic / Equest Investments Balkans Q1 2008 20,300 8,000

A1 Business Park Cefin Real Estate / Teesland IOG Q2 2008 20,000 20,000

Mercury Logistic Park Helios Properties / Heitman Q1 2008 20,000 20,000

Pantelimon Logistic Center European Future Group / ImmoEast Q3 2008 18,500 18,500

Equest Logistic Center II Equest Logistic / Equest Investments Balkans Q3 2008 18,000 18,000

Chitila Logistics Park II Metropola Imobiliar&UBM / M Logistic&Distribution Q2 2008 10,000 10,000

Chitila Logistics Park III Metropola Imobiliar&UBM / M Logistic&Distribution Q4 2008 10,000 10,000

Total 299,800 197,500


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Despite massive demand, difficult financing

curves lad price growth in Bucharest. Market inother important cities due to expand.


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Lad Maret

BRIEfIn 2007, demand for land remained significantlyhigher than the supply and consequently pricescontinued to increase in all parts of Bucharest.During the second half of the year, the pace oftransactions slowed down due to the instabilityin the international financial markets. The globalcrunch affected Romania, although only marginally,in spite of the strong local demand and the solidpositive trends realized throughout the past coupleof years.

DEMAnDThe total land area sold in 2007 in Bucharest (takinginto account only transactions over 5,000 sqm, insidethe city limits) was approximately 1,500,000 sqm,with a total value exceeding c850 million. Morethan 70% of the transactions closed were beforethe summer, the point when the negative trendin the international markets started to affect thetransaction volume in the local market.

Large international developers continued to be themost active buyers in the land market, while demandfrom speculative investors decreased significantly,

signaling that the market is beginning to mature.

The largest land sale ever recorded on the Romanianmarket – in terms of value – occurred in the secondhalf of 2007. Raiffeisen Evolution purchased an 11 ha site from Petrom, the Romanian oil company.

The second largest transaction was the acquisitionof Laromet factory site by Africa Israel. The groupbought the 155,000 sqm land plot located inBucurestii Noi for c77.5 million. Another recordtransaction was the sale of the Grivita site to an

Israeli investment fund that paid close toc

73 millionfor the 6 ha plot on Expozitiei Boulevard. On mostof the sites purchased during 2007, developers areconsidering building residential projects, with themajority looking to provide housing for the middle-class.

In the retail segment, Caelum Development, anIrish developer, concluded a record land acquisitionof over c50 million in the Titan Park area, whileReal4You, an Austrian developer, bought the 7ha siteof Electroaparataj, both in the east of the city.

With for more than 65% of the total transactionvolume, the north remained the most active areain the Bucharest land market. The center generated

just 1% of the large transactions volume, the Westwas responsible for 13%, and 19% of the total areasold was registered in the eastern areas. The southcontinued to be inactive in terms of important landtransactions.

SUPPLYContinuing the trend started in the previous years,land supply in 2007 came mainly from well-located

sites of former factories that are relocating theiractivities outside the city, according to EU normsand market tendencies. Industrial activity, whichis the main pollution source in Bucharest, needsto move far from the crowded residential areaswhere it is currently situated. The land supply came


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from industrial platforms in the north (Petrom,Laromet, Grivita) and west (Electrotehnica, Tricodava,Frigocom, etc.). Due to the scarcity of land availablefor sale in central areas, developers focused onproperties located close to the city limits, which

maintain good access to the Center, and are wellserved by public transportation. Specifically, landplots that appealed to the developers were the sitesin the proximity of the existing Ring Road, withaccess to an important road leading to the citycenter.

PRICESThe economic growth and the large number oftransactions registered during 2007 have createda continuing increase in land prices in and aroundBucharest. A direct effect of this increase was theappearance on the market of sites with very high

total sale prices, even in the range of c100 million.The acquisition of such a plot of land implies anadditional investment of about c300 million forthe development of the project and, so far, this hasseriously limited the number of investors interestedin such large projects.

This is however an underlying hesitancy regardingthe Bucharest market’s capacity to absorb large-scale projects. Another element that feeds intothese doubts is the increasing competition amongthe projects announced on the market, be they

residential, office or retail.

The average selling price for a land transactionwas c615/sqm, approximately 45% higher than theaverage recorded in 2006. The reduction in the pricegap between the various areas of the capital was the

main driver of this increase, with formerly ignoredareas of Bucharest becoming more interesting forinvestors and developers alike. For example, theprice for a square meter of land in Ghencea is nowapproximately equal to the price for a square meter

of land in Colentina. On the other hand, unlike 18 months ago, a site in Progresului neighborhood ismore expensive nowadays than a similar site locatedin Pipera.

fORECASTFor 2008, we estimate that the demand for land willcontinue to be higher than supply. This is becausedemand for the final product is much higherthan the supply offered by the existing projectsunder construction, especially in the residentialand office markets. On the other hand, the crisisin the international financial markets generates

hesitation among the developers present in thelocal market. Under these circumstances we expectprice stabilization during the first half of 2008, andthen an increase of approximately 10-20% duringthe second half, after the shock wave caused by thefinancial crisis in the US and Western Europe passes.

REGIOnAL CITIESFollowing the high competition in the capital as wellas the increasing living standard and purchasingpower in many of the regional cities, developersand investors gave more attention to the real

estate market outside Bucharest. As during thelast 2 years they struggled to secure sites for retaildevelopments, we predict that for 2008 and the nearfuture the focus will turn mainly to the residentialand industrial markets.

Lad prices i Bucharest i December 2007

Area Office Residential Retail Industrial

North 1,500 - 2,500 1,500 - 3,000 - 80 - 250

Center 1,800 - 2,500 1,500 - 3,000 - -

West 700 - 1,000 700 - 1,000 500 - 800 50 - 100

East - 600 - 900 600 - 900 50 - 80

South - 400 - 600 300 - 500 50 - 80


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Residetial Maret

BRIEfAlthough the market has diversified its offer, and itincludes apartments in small and low-rise buildingsas well as houses and villas in various areas ofthe city, our report focuses on projects locatedin Bucharest and its immediate outskirts, with aminimum of 200 apartments. The reason for thisseparation lies in the potential of the larger projectsto affect the market through size and concept.

2007 was a record year for the residential market,with another 18 projects launched, taking thenumber of large projects launched in the last 3 years

to 39 in total.

Demand grew as well with 7,300 off-plan units beingsold last year, doubling the previous year’s figures.Investors’ interest for this type of acquisition wasvery high, accounting for up to 50% of the take-up.

Prices increased an average of 20% for projectslaunched in the first half of the year. In the secondhalf of the year most of the projects launchedtargeted lower income people, and started at aroundc1,100/sqm. As a result of this change in focus, the

average market price by the end of the year wasc1,500/sqm, the same price as was registered at theend of the H1.

SUPPLY

StocCompared to the first half of 2007, when no new

product was delivered, the second half of the yearsaw almost 1,400 units completed, including QuadraPlace and Central Park. However, this new supplyincreased the 800,000 dwelling stock of Bucharest bya mere 0.2%.

ProjectsThe year 2007 brought 18 new projects to themarket, a number similar to 2006 though with alarger potential offer. Most of these new projectsare located in the northern area, while in the centreand in the south-east there were no new projectslaunched.

The 39 large scale projects currently on the marketcould bring around 35,000 units in the next 7 to 10 years. Out of these, 16,900 units were put on themarket for sale from 2005 until today, with only5,800 new units offered for sale in 2007. Half of the2007 offer belongs to projects launched in Q4.

We estimate around 30% of the delivered unitswill re-enter the market, either for sale or for rent,with projects like Baneasa and Central Park havingalready entered the second sale phase. So far, off

plan buyers have not sold their units as they tryto maximize their profit margin by selling uponcompletion of the project. Also, developers avoidcompetition by not allowing their buyers to sellbefore the project is finished.


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CoceptsConsidering the rising prices and the limited landavailable inside the city, some developers haveheaded towards the outskirts of the city, creating anew concept in the Romanian market, referred to

as satellite cities. Cosmopolis is the first of this kindand will create a new community serviced by all thenecessary amenities such as kindergartens, hospitals,schools, supermarkets, etc in order to compensate forits distance from the city.

Another trend in the market was to develop projectsin traditional residential districts, the traditional‘working-class neighborhoods’, or in industrial areaswhich are beginning to be converted into residentialareas. In the case of the traditional residentialneighborhoods, the projects are usually positionedtowards the outskirts or in low-exposure locations.

Such projects offer smaller apartments, with noleisure facilities, providing only the necessaryamenities. In order to ensure the success of suchprojects, the planned mix of apartments should bedecided upon by taking into account the existingmix of the old neighbourhood blocks.

DeelopersLocal developers continued to be active in the marketin 2007, launching projects summing around 4,700 units, which makes up 27% of the new supply.

Of the foreign developers, the Spanish ones arean important force. They entered the market 2–3 years ago and have been focusing on securinggood locations, obtaining good prices for theplots of land, and thus being able to develop

their projects at accessible prices. Their presencein Bucharest is beneficial as they bring theirexperience as successful developers to the market,making attractive projects with desirable sizes andfinishings, as well as proper product mixes.

CostructioThe construction market has had a very difficultyear in 2007 due to the shortage of a labor force,which is estimated at 300,000 construction workersat the national level. This shortage is caused bythree converging factors: a dramatic increase inthe demand for professional construction services,a drop in the available qualified labor force (dueto the migration abroad of Romanian workers),and insufficient training opportunities for therecruitment of new workers.

This shortage has already led to delivery delays of2-3 months, and the challenge in 2008 for all thebig construction companies will be their ability torecruit a new and qualified labor force.

DEMAnD

AbsorptioGrowing purchasing power and the ease of nancinghave had a major inuence on the demand in 2007.The intense marketing campaigns of the projectsand the high number of real estate fairs contributed

to a more transparent market and offered easilyaccessible information to assist buyers in deciding ona purchase. Additionally, as the construction worksmove closer to completion, off plan buyers gain morecondence in the market,

Residetial maret eolutio

2005 2006 2007 Total

No. of projects launched 4 17 18 39

Total no. of units 4,871 12,972 17,391 35,234

Units in phase I 1,038 4,260 5,807 11,105

Stock 0 0 1,400 1,400

Tae-up

2006 2007

Units sold in new projects 3,000 7,300

Units sold in old communist blocks* 17,780 16,700

Total take-up 20,780 24,000

Stock 0 0


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Last year there were 7,300 units sold in large-scaleprojects, more than double the number sold in 2006.There were also 16,700 units sold in old buildings,making last year’s take-up 24,000 units.

Compared to 2006’s take-up of almost 21,000 units,2007 conrmed the expected continued growth ofdemand.

Most of the old apartments were sold in district 3,followed by districts 6 and 2. While in the case of thenew projects launched most units were sold in theoutskirts of the city in districts 6 and 1.

BuyersAcquiring more condence in the market, investorsconsidered the local market more attractive andbought around 40-50% of the sold units, according to

Colliers estimates.

However, the institutional investors have not yetentered the market as it is still moving rather fastfor their decisional process. As for local investors,they are now buying larger packages of apartments,ranging from 10 to 15 units, as similar investments inthe previous year had seen good prots

As for the end-users, increased attention on theirpart has been noticed, and they are becoming moreeducated and thorough in their searches. As well, the

process of making the decision to buy an apartmentis now taking slightly longer as there is a morevaried offer of choice in comparison to previousyears. The selection and signing process for buyersin the upper-class projects tends to last one-twomonths, while in the middle class developments theprocess is taking only 2-4 weeks.

The upper class buyers usually negotiate the contractthrough their own lawyers, also engaging their ownnotaries and architects. The middle class generallycomplete on their own, and pay special attentionto the nishing options, warranties for their down

payment, the construction delays, and respectivepenalties stipulated in the contract.

In 2007 Colliers Residential conducted a survey ofindividuals who acquired properties in its exclusiveprojects and the results showed a unique andrelevant prole of the typical off-plan buyer. Thestudy showed that 43% of the respondents fall in the27-37 years old category, and 36% were 37-47 years.In regards to income, 42% of the clients make c1,000-3,000/ month, 26% make c3,000-5,000/month, and28% make more than c5,000/month. For 61% of thebuyers the location is the most important criteria,

even more so than quality and price, which werethe other top criteria. 73% bought the unit for theirown use, while 21% will sell or rent the property oncedelivered, and a further 6% made the acquisition fortheir children or parents.

PRICES

EolutioPrices for units in projects launched in the rst halfof the year rose an average of 20%. This was due tothe increase in total sales as well as to the increasing

cost of construction materials and a more expensivelabour force. For example, in 2006 the averageconstruction price was c600/sqm and in 2007 it roseto c750/sqm.

The market remained at an average of c1,500/sqmbecause most of the projects launched in the second


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Residential Market

Projects to be lauched i H1 2008

Project Developer Total no. of units Area

La Stejari Tiriac Imobiliare 550 North

Waterfront Technical Olympic 208 North

Global City Global Finance 380 North - Outskirts

Garden of Eden GTC 1,000 North - Outskirts

Sunset Residences Ablon 2,120 West

Primavara 2 Can Serv 1,000 West

Frigocom Gran Via 1,500 West

Rasarit de Soare Conarg 988 East

Lacul Morii Rezidential Giulesti Real Estate 420 West

Total 9 8,166


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half of the year were medium-low end projects andstarted with lower selling prices due to their locationand concept.

The lowest average price for a 2-bedroom apartment

in a new project with over 200 units stands at aboutc133,000+VAT in the western part of the city. In orderto be able to make a comparison, Colliers analyzedonly the apartments with all modern conveniences.However, if the apartment buildings built before1990 were to be included in the calculations,the most affordable area is the south, where theaverage unit price for a 2-bedroom apartment isc130,200+VAT.

The maintenance costs vary between c0.30 to 1.50/sqm, the latter being for high-end projects.

Paymet methodsDevelopers are open to several payment methods,and are exible enough in order to allow anaccessible acquisition. The most common option isan advance payment which varies between 20% and30%, followed by a 70% – 80% payment at delivery.In 2007, some developers lowered the advancepayment to only 10%, followed by installmentsduring construction of 20-25% with the rest at timeof delivery. To further facilitate the process, some developers

partnered with their nancing bank and are offeringbuyers a multi-year nancing plan. This way theyavoid the possibility that the buyer will no longer beable to afford the credit for the last payment.

fORECASTWith the many uncertainties stemming from thenancial crisis that started in the United States, weestimate that in the next 6 months the residential

market will see a slower pace of growth than in 2007,as newcomers wait to see how the crisis will affecttheir nancing scenarios.

In the medium and long term, the Romanian

residential market will continue to experiencegrowth as the market depends on the supply /demand ratio, which is still extremely low.

We estimate that by the end of 2008 the stock of newproduct will be 5,000 units, and by 2010 is estimatedto grow to 15,000. The yearly absorption of newapartments will increase from 10,000 in 2008 up to20,000 units in the next 3-4 years.

The decision to buy new product instead of olderapartments is also affected by the life expectancy ofthe apartment blocks built pre-1989, which will be at

the end of their life span within the next 15 years.

Of the many investors who purchased apartments inthe last 18 months almost half will place their newlynished apartments back on the market, for rent.

After unsuccessfully looking for sites near the citybelt, developers have began to secure and will soonstart to develop projects in more distant areas withhigh potential, such as Saftica, Cernica, Tartasesti,Bragadiru, and Buftea.

The high-end market will start to develop at a fastpace, with upper class projects being built especiallyin the north of the city, bringing luxury lifestyles athigh prices.

We believe the prices will maintain an upward trend,and we should see a 5% average increase for therst half of the year. By the end of the year we willprobably see a total of a 15% price increase.


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Transaction slowdown, yet strong local demand for

iestmet products will counter-weighinternational financial skepticism.


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Iestmet SalesMaret

BRIEf During the first nine months of 2007 the Romanianreal estate market showed clear signs of maturity:there was strong demand for investment productsand yields were catching up with Western Europeanlevels. Long term investors were more and moreattracted by the Romanian market, and were readyto venture their capital in different real estatesectors.

In the last quarter the crisis in the international

financial markets put investment decisions on holdas most investors preferred to wait and see the depthof the crisis and its effects on the local market.

The investment market reached c1.5 billion in 2007,an increase of 66% compared to the previous year,though below the c2 billion mark estimated at thebeginning of the year.

Despite the yield compression an increase occurred.It came mainly from the growth in supply for 2007 and 2008 in the office sector in Bucharest and the

retail markets in the secondary cities throughout thecountry.

DEMAnD Immoeast still maintained the dominant position inthe market with nine large transactions concludedduring the year. The acquisition of Polus Constanta

had a reported price of c185 million, the largest dealin the first half of the year, and Immoeast enlargedtheir portfolio of commercial properties in Romaniato an approximate size of c 1,780 million.

However, the “transaction of the year” goes to theacquisition of America House, the office buildingdeveloped by GTC in Piata Victoriei, by the Frenchgroup Natixis, for a price of c120 million, whichrepresented a record yield of 5.55%, the lowest on theRomanian market so far.

Another sign that the market is more mature wasthe first remarkable exit of a fund: the EuropeanConvergence Property Company (listed on theLondon Stock Exchange a subsidiary of CharlemagneCapital) sold a portfolio of three office buildings,PGV, Construdava I and Millenium Tower, to the

German fund DEGI, the real estate investment armof the Allianz Group. The total transaction value wasapprox. c110 million.

Another trend that began in 2007 was the entranceof sector specialized investment funds, like SonaeSierra, who stepped very firmly into the retail sectorwith three acquisitions: River Plaza, the shoppingcenter in Ramnicu Valcea; Craiova Mall; and ArenaCenter in Bacau. Teesland IOG followed this trendwhen it acquired A1 Industrial Park from Cefin ata price of c82 million, which was also the largest

transaction in the industrial market.

Very active in the market were medium sizedinvestors who created strong portfolios ofcommercial properties from across all the real estatesectors, and who will most likely be looking for anexit in the short/medium term.

Top 5 trasactios

Use Building Area Investor Price

Retail Polus Constanta 48,000 Immoeast c 185,000,000

Office America House 25,800 NATIXIS c 120,000,000

Office Charlemagne Portfolio 34,700 DEGI c 110,000,000

Office S-park 35,000 Immoeast c 101,500,000

Retail Gold Plaza (Baia Mare) 32,000 Immoeast c 97,000,000

Yield - oice sector -2007

Country Romania Bulgaria Russia Poland Czech Republic Austria France UK Germany

Yields 6.75 8.1 9 5.75 5.2 5.55 4.7 4.8 4.62


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Bucharest’s hotels indicate the city remainsprimarily a business destination, but expectations

are to see more leisure-guests.


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Hotel Maret

BRIEfWith over c74 million worth of investments and fourimportant hotel transactions, 2007 is the first yearthat the investment market became relevant in thehotel sector. Most transactions in this sector are forfully operational properties, which have a soundtrack record in business. In addition, many othergreen field projects started this year and will becompleted in the next 2-3 years.

DEMAnDBusiness travelers are the biggest contributor to totalhotel demand. One of the main characteristics of this

type of demand is that it is very high during weekdays (Monday till Thursday), declines significantlyon Fridays and Saturdays and increases to a certainextent on Sundays. This demand is relativelyconstant throughout the year, with a notable drop-off in the period December- February and in August.Future demand within this segment is stronglyconnected to the economic health of the country.

The number of overnight stays has also increasedalong with the number of arrivals, but at a slowerpace. This leads us to the conclusion that the average

stay of a guest decreased, from 2.01 nights in 2004, to1.86 nights in 2006, re-confirming the city’s status asa business destination.

International visitors marginally hold the largestproportion of total visits to Bucharest, with more

than 60% of the total over the last three years. The73% of the international overnight stays generatedby European countries confirm the status of this areaas the city’s main travel source. Within Europe, themost frequent visiting countries were Italy, Germany

and the United Kingdom.

Recently, Bucharest has become an interestingdestination for companies organizing meetings,incentives, conferences and exhibitions. The demandfor such events has increased by approximately30% in Bucharest in 2007 and is expected to expandfurther. In the medium term Bucharest could surpasswell-established destinations such as Prague,Budapest or Warsaw in this respect. In the last coupleof years revenues generated by this market segmentfor hotels reached around 25% of the total revenue.

SUPPLYBucharest’s hotel stock is limited to only 102 hotels,with approximately 8,000 rooms, which is less thanin other major Eastern European capitals such asWarsaw, Budapest or Prague. The vast majority of thehotels in Bucharest have less than 100 rooms: 57%have less than 50 rooms and 22% have between 50 and 100 rooms.

In 2007 the supply increased slightly compared tothe previous year, by around 4%, but it will see ahigher increase in 2008 due to major openings such

as Rin Grand Hotel (1,400 rooms), Ramada Plaza (302 rooms), and Radisson SAS (424 rooms), all of whichare scheduled to open in the first quarter of 2008.Other hotels are also planned to open by mid 2008,leading to an increase in the two- and four-star roomsupply in Bucharest by an additional 300 rooms.


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PRICES Overall, the average rates for 2007 posted a 7%increase compared to 2006 for the four- and five-star hotels. As occupancy also increased, though at a

slower rate, the main revenue indicator, the revenueper available room, posted an even higher increase ofapproximately 8-9% compared to 2006.

fORECASTBucharest will maintain the status achieved duringthe past several years, remaining a prevalentlybusiness destination. However, the leisure marketis expected to grow gradually due to the noveltyof Bucharest as a leisure destination amongst thecapitals of Europe and the entrance of low-costairlines to the market.

The Bucharest market is expected to continue todraw the attention of more international hotels,which are expected to enter during 2008. The majorhotel investments in Bucharest will focus on the areaof four- and five-star properties, showing a tendencytowards developing hotels with capacities of morethan 150 rooms, located in easily accessible places,chiefly for business people. Many developments willgenerally be of the mixed-use type.

Bucharest hotel supply - 2007

Hotel category # of hotels # of rooms # of hotels # of hotels # of hotels

< 50 rooms 50-100 rooms > 100 rooms

5-Star Hotels 7 1 ,484 1 1 5

4-Star Hotels 28 2, 712 9 8 11

3-Star Hotels 47 2, 283 34 9 4

2-Star Hotels 15 677 11 3 1

1-Star Hotels 5 294 3 1 1

Total 2007 102 7, 450 58 22 22

5-7 Calea DorobantilorDistrict 1, 010551, Bucharest, RomaniaPhone: (+4021) 201 5072; Fax: (+4021) 201 5065www.trendhospitality.com


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Mai LegalEactmets i The

field o Real Estate i2007

The year 2007 was defined by one of the mostimportant moments in Romania’s modern historyconsisting in the accession to the European Unioncommunity.

In respect of the real estate related legislation, year2007 was part of the legislative changes trend startedin 2005 regarding the then envisaged accession to

the EU. The most important change starting withJanuary 1st, 2007 was represented by the possibilityfor European Union citizens to acquire land inRomania.

In addition to the above, 2007 was a year withan important impact on the real estate marketthrough several legislative changes that need to bementioned within this context, aiming at facilitatingthe real estate investments in Romania.

LAnD ACqUISITIOn BY fOREIGn nATURAL

OR LEGAL PERSOnSStarting with January 1st, 2007, pursuant to theprovisions of Law No. 312 of 2005 regarding theacquisition of ownership title over plots of landlocated in Romania by foreign natural or legalpersons, non-residents shall be entitled to acquireownership over plots of land located in Romania 5 years following Romania’s accession to the EuropeanUnion (i.e., 2012) and respectively 7 years from theRomania’s accession if the land is agricultural andforestry land (i.e., 2014). In respect of the natural orlegal persons which have obtained the residencyright according to the applicable Romanianlegislation, there is no unanimous view on theright to acquire land in Romania as of January 1st,2007. So far the practice at the level of notary publicoffices was to refuse authentication of sale-purchasecontracts if the buyer is not a Romanian citizen.

During the transitional periods above mentioned,there is a category of European Union Member Statesresidents who are entitled to acquire ownershipover land and forests with only the followinglimitations: (i) they should practice agriculture onan independent basis and use the respective land

for such purpose; (ii) they should establish theirdomicile in Romania; (iii) they are obligated notto change the use of the land they acquired (i.e.,

to maintain it as agricultural land) for the entiretransitional period.

As a consequence, after expiry of the above referredtransitional period, the structuring of the real estate

transactions shall be simplified, as companiesestablished in a European Union Member State willbe legally able to acquire and own land in Romaniawithout any further formalities or prohibitions.

Foreign natural or legal persons not part of theEuropean Union community may acquire ownershiptitle over land in Romania only on the basis ofreciprocity treaties. However, EU and non-EU naturalor legal persons may acquire ownership title overland in Romania through inheritance.

RESTITUTIOn CLAIMS REGARDInGPROPERTIES TAkEn OvER BY THEROMAnIAn STATE DURInG THECOMMUnIST REGIMEAfter 1991 several special laws were enacted forrestitution of properties taken over by the RomanianState during the communist regime (the “RestitutionLaws”). Further, under the general legal regime setout by the Romanian Civil Code, direct restitutionclaims are not subject to statute of limitation andtherefore can be filed with the relevant courts of lawat any time. Consequently, restitution claims underRomanian Civil Code have been viewed as a practical

option for former owners who have failed to observethe deadlines provided by the Restitution Laws (i.e.,February 14th, 2002 for Law no. 10/2001 regardingrestitution of certain immovable assets taken overabusively by the Romanian State during the periodbetween March 6th, 1945 to December 22nd, 1989 and November 2005 for Land Law no. 18/1991).

On October 4th, 2007, Romania’s General Prosecutorfiled a claim with the High Court of Justice andCassation (in Romanian: “Inalta Curte de Casatie siJustitie”) requesting the latter to issue a decision forinterpretation of the law, which would be bindingfor all Romanian courts, stating if the Civil Coderestitution claim is barred or not in those caseswhere Law no. 10/2001 is applicable. The view of theGeneral Prosecutor is that in such cases Civil Coderestitution claims should not be admissible. The HighCourt decided to postpone the issuance of a decisionin this respect until April 7th, 2008.

The uncertainty regarding the legal regime ofproperties taken over by the Romanian Stateduring the 1945 - 1989 has been the major set-backin development of real estate projects in Romania

during the past 15 years. From the perspective ofthe High Court’s expected decision regarding theinterpretation of Law no. 10/2001 and the Civil


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Code, 2008 announces itself as a very importantyear in the filed of clarifying the status of therestitution claims filed pursuant to Romanianlegal provisions. It remains to be seen if the courtswill extend the future decision of the High Court

also to the interpretation of Law no. 18/1991, or ifthe uncertainty with respect to legal regime ofagricultural and forestry land will be perpetuated.

CHAnGES In THE fIELD Of TAxATIOn OfTHE REAL ESTATE TRAnSACTIOnSIn relation to the payments made under a sale-purchase agreement for real estate properties, aswell as in contracts for construction works, themechanism of reversed taxation was applicable aslong as both parties were registered as VAT payers(the purchaser as well as the seller shall enter intheir accountancy books the VAT as collected and

deductible at the same time, without any paymentsbeing effectively made). However, according tothe amendments to the fiscal code published inOctober 2007 the reverse taxation mechanism inrespect of the transfer of real estate properties andconstruction works is no longer applicable afterJanuary 1st, 2008. It is possible that the RomanianParliament will not approve the GovernmentOrdinance under which the reverse taxation wasabolished - at the same time, further changes arepossible but such will not be enforced retroactively.

In 2007 the tax levied on income resulting from thetransfer of ownership over immovable propertiesby private individuals was also modified; prior toJanuary 1st, 2007 such tax was established at 16% ofthe gains obtained from the real estate transaction,calculated in principle as a difference between theacquisition price of a real estate property and theprice received upon sale of such property. As ofJanuary 1st, 2007, the tax was established at a valueranging between 1% - 3% of the transaction pricedepending on the transaction value and period ofownership.

A further change was the elimination as of January1st, 2007 of the notary stamp taxes levied uponauthentication of the legal deeds regarding realestate transactions (sale-purchase contracts andother similar deeds). The amount of such taxeswas normally calculated pro rata to the value of adetermined real estate transaction and it had animportant impact on the costs related to real estatetransactions, specifically in case of asset deals.However, these stamp taxes have been - at leastpartially - replaced by taxes due for the land bookoperations, such as registration with the land book

of the transfer of ownership or of the creation of amortgage in favour of a financing bank.

nEW METHODOLOGICAL nORMSREGARDInG APPLICATIOn Of LAW nO.10/2001Government Decision no. 250 of March 7th, 2007

has approved the new methodological norms (the“Norms”) for the application of Law no. 10/2001.The main purpose of the Norms is to simplifythe administrative procedures concerning theretrocession of the real estate property confiscatedby the Romanian State during the communistregime.

As main (and non-exhaustive) amendments/highlights of the Norms, the following can bementioned:

real estate taken over by the Romanian Statei.

from persons who have “emigrated” prior to1989 will be considered as “abusively taken”regardless whether the real estate have beenconfiscated for “fraudulent emigration” or “sold”to the State for the case of “approved emigrationupon demand”;

in case that buildings transferred underii.the provisions of Law no. 58/1974 have beendemolished, subject to reimbursement of thecompensation received upon nationalizationprocedure, the owner of the relevant building

has the right to receive the restitution in kind ofthe relevant land area;

clarification of the situation of multiple heirsiii.- (although applicable under the generalprovisions of law), the Norms expressly statethat in case that the restitution procedureshave been initiated only by certain heirs of aperson entitled to restitution (i.e., and not allthe heirs) the restitution decisions will benefitonly to these heirs; however, if other heirs areinitiating in parallel restitution procedures priorto registration of the restitution decision, theinitial restitution decision (i.e., issued only forthe benefit of certain heirs) will be amended asto benefit the other heirs;

clarification of the situation where two oriv.more persons are entitled to restitution (e.g.,the situation where a real estate nationalizedby the Romanian State was offered to a personand thereafter nationalized again) - althoughboth persons will be entitled to compensation/remedy under the provisions of Law no. 10/2001,preference is granted to the person from whom

the land was initially taken over by the State;


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clarification of certain cases where restitutionv.in kind will not be applicable - Law no. 10/2001 provides for the case when restitution in kindwill not be applicable in case the real estatetaken over has been “expanded” (by addition

of areas of more than 100% of the initial area).The Norms provide additional criteria andexplanations on the manner to assess the“expansion”.

AMEnDMEnTS REGARDInG THE SERvICESPROvIDED BY THE nATIOnAL AGEnCYOf CADASTRE AnD LAnD REGISTRATIOn(AnD RELATED TAxES)At the beginning of 2007 the Ministry of Interior andAdministrative Reform established new tax levelsfor services provided by the National Agency forCadastre and Land Registration and its subordinated

units. The new regulation offers the opportunity ofpaying an emergency tax which reduces the legalperiod required for settlement of the application toone third of the regular period for benefiting of theprovided services.

Also in relation to the cadastral registrations, Law no.217 of July 2nd, 2007 provides for the determinationof criteria for computation of fees payable in relationto preparation of cadastral documentation foragricultural lands. A government decision shouldsubsequently determine the exact level of fees,

colliers real estate review romania 2008

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