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  • Romania, Back in the Spotlight2014

    New Basarab Bridge, Bucharest Photo: Dragos Stoica

  • 2 Romania, Back in the Spotlight

  • 3 Romania, back in the spotlight

    Table of Contents

    About Romania.....................................................................................................................4Infrastructure.........................................................................................................................7Investment Incentives Available in Romania.......................................................................10General Real Estate Market Overview................................................................................15Investment Market...............................................................................................................17Real Estate Financing.........................................................................................................19Office Market.......................................................................................................................21Retail Market.......................................................................................................................24Logistics..............................................................................................................................28Manufacturing.....................................................................................................................30

  • About Romania

    Romanian Atheneum, Bucharest

  • 5 Romania, Back in the Spotlight

    Romania is the 7th largest country in the European Union (EU) in terms of population and the 2nd largest in Central and Eastern Europe (CEE) after Poland, equalling the population of the Czech Republic and Hungary combined, making it one of the largest consumer markets in Europe and an attractive manufacturing and outsourcing hub. Romania is on its way to becoming the 2nd most important economy in CEE considering the current and projected growth rate at above the CEE average. Romania's GDP in absolute terms has surpassed that of Hungary and is now only exceeded in the region by that of the Czech Republic and Poland.

    escalation relating to the situation. Romania could even benefit as Romania is a stable parliamentary democracy, a member of NATO foreign investors are reconsidering their expansion plans further since 2004 and a member of the EU since 2007. The US military is towards the east and beyond the EU and NATO boundaries.present in the country with 2 bases, an air base next to the Black Sea port of Constanta, and another under construction next to MacroeconomicsCraiova, part of the US anti-missile shield in Europe. In 2013, Romania registered the second highest GDP growth

    (+3.5%) in the EU, supported mainly by an upswing in industrial Presidential elections will be held in November, but this is not production and exports. The main trade partners of Romania are expected to have any major impact on the main political goals of Germany, Italy and France. GDP growth in H1 2014 was 2.6% the country. Romania is now firmly dealing with its former problems larger than the one registered in the same period in 2013, while such as corruption. A number of high profile politicians and former growth for the entire year is projected by JP Morgan (July 2014 public figures have been officially accused and are now undergoing forecast) at 3.2%.trial proceedings or, have been sentenced and put in prison.

    The growth is based on solid fundamentals. Government debt is Bucharest, the capital of Romania, is the 6th largest city in the EU, 39% of GDP, one of the lowest in the EU, while the government with a population of over 1.88 million inhabitants. The Bucharest deficit in 2013 was 2.3% of GDP.metropolitan area includes the surrounding Ilfov county and comprises over 2.22 million inhabitants. Similar to Poland, Romania The annual average HICP inflation rate (June 2013 June 2014) has a number of large second tier cities such as Cluj-Napoca, decreased to an historic low level of 0.66%. As a result, the Timisoara, Iasi and Constanta, each with a population of between monetary policy rate of the National Bank of Romania reached 325,000 and 280,000 inhabitants. These are strong cultural, social 3.25% (starting in August 2014), the lowest level since 1990. The and economic regional hubs. move is aimed at further encouraging the credit market, which has

    demonstrated positive signs since the beginning of the year, and at The recent events in neighbouring Ukraine have had little impact on supporting the current economic growth. The exchange rate has the Romanian economy so far in 2014 and we expect this will not remained stable in the past years, with the RON actually being the change in the following months, unless there will be a major military most stable CEE currency since the onset of the financial crisis.

    About Romania

    Source: INS, Eurostat, BNR, JP Morgan, National Commission of Prognosis

    Palas Iasi

    Key economic indicators

    2009 2010 2011 2012 2013 2014F 2015FReal GDP (% change) -6.6 -1.1 2.3 0.6 3.5 3.2 3.5Nominal GDP Per Capita (EUR) 5,800 6,100 6,500 6,600 7,100 7,560 8,310Consumer Price Index (% change) 5.6 6.1 5.8 3.4 3.2 2.5 3.0Policy Interest Rate (%, end of period) 8.00 6.25 6.00 5.25 4.00 3.25 3.75Unemployment Rate (%) 7.7 7.3 7.8 7.2 7.4 7.1 6.9Current Account Balance (% of GDP) -4.2 -4.4 -4.5 -4.4 -1.1 -1.4 -1.7Exchange Rate (RON/EUR, annual average) 4.23 4.20 4.23 4.45 4.41 4.48 4.45

  • Worlds fastest internet download connection

    Europes hardest working nation

    6 Romania, Back in the Spotlight

    Average numbers of worked hours by employees per year

    1,000

    1,200

    1,400

    1,600

    1,800

    2,000

    2,200

    France

    Finlan

    d

    Germa

    nyAu

    stria Ital

    ySp

    ain

    Czech

    Repub

    lic

    Lithuan

    iaLat

    via

    Slovak

    iaPo

    land

    Hung

    aryGr

    eece

    Bulga

    riaCro

    atia

    Roma

    nia

    Hour

    sper

    annu

    m

    Household internet download speed

    0

    10

    20

    30

    40

    50

    60

    Roma

    nia

    South

    Korea

    Lithuan

    ia

    The N

    etherl

    ands

    Bulga

    r ia

    Hunga

    ry

    Czech

    Repub

    lic

    United

    States UK

    Germ

    anyPo

    land

    EU(av

    erage

    )

    Mbps

    Source: Ookla, August 2014

    Source: Eurostat

  • Infrastructure

    Basarab overpass copyright @ skycam.ro

  • Pan-European Corridors Crossing Romania

    Source: JLL

    8 Romania, Back in the Spotlight

    Romania benefits from its strategic geographical location in Central and Eastern Europe, being at the crossroads of historical trade routes that are once again increasing in importance, namely those linking Western Europe with the Black Sea, the Caspian Sea and the Middle East. The country is crossed by 3 Pan-European Corridors

    . Corridors IV and IX are for both road and rail, while Corridor VII is only partially serviced by road and rail.

    (IV, VII, and IX)

  • RoadsAt the end of 2013, the length of the road infrastructure was Danube River. The Constanta port has a handling capacity of over estimated at 84,887 km, out of which 17,110 km were represented 120 million tons per year. In 2013, the port of Constanta registered by national roads. Sections of these national roads are incorporated a traffic of over 55 million tons, approximately 10% more than in in the 7 main European Roads and a further 10 secondary 2012.European Roads spread throughout the country. The country commenced its highway construction efforts only relatively recently, but has made significant progress since 2007. In June 2014, Romania had around 645 km of highways. The main focus of the authorities during recent years has been the completion of the key corridor connecting the Black Sea port of Constanta with the Hungarian border and consequently with the rest of CEE and Western Europe (part of Pan-European Corridor 4). While the A2 - the Bucharest-Constanta highway - is currently fully completed, the A1 - between Bucharest and Nadlac at the Hungarian border, is still only partially finished and works are being carried out for several Internetadditional segments. Romania has the fastest internet speed connection in the world,

    with an average data download speed of 55.5 Mbps in 2014 (Ookla, Moreover, Bucharest is currently connected through highways with August 2014), followed by Lithuania and the Netherlands, with 46 the industrial hubs of Pitesti and Ploiesti. An extension to the above and 44 Mbps respectively. The high speed internet connectivity and mentioned corridor should also provide a direct highway link power infrastructure (see section below) is of major importance for between the two largest cities in the country, Bucharest and Cluj. IT&C related companies, which are massively expanding their

    presence in Romania.Rail The rail network has a length of approximately 10,800 km, out of Energy infrastructurewhich, 4,000 km has electrified lines. Currently, ca. 3,000 km are Romania has a good transport infrastructure and a balanced part of the TEN-T network, part of the Pan European Corridors IV electricity production capacity, with close to 50% of it coming from and IX. Several main lines along the same Pan-European Corridor thermal power plants (gas and coal), 19% from the Cernavoda 4 have already been or, are currently being upgraded. Once nuclear power plant (2 reactors) and the rest from renewable completed, rail transport of cargo is likely to gain in importance, sources - 22% hydro, 9% wind and photovoltaic.especially to and from the Constanta harbour. Romania is a net exporter of electricity. It is the 4th largest oil

    producer and the 4th largest gas producer in Europe and therefore, Airports the least dependent country in CEE on Russian gas imports (below Romania is well connected by air with all major European cities. 12% of total gas consumption). The presence of large gas reserves The country offers a network of 16 airports with a combined traffic in the Romanian Black Sea continental shelf have recently been of 10.77 million passengers in 2013. The largest and the busiest confirmed, while significant shale gas reserves are prospected in airport is Henri Coanda International Airport (Otopeni, 15 km from the east of the country.Bucharest city center). It is the main gateway in to the country with an annual capacity of over 7.6 million passengers. The vast majority of the large European airlines (regular or low cost) operate international flights to Bucharest, while TAROM, the state owned airline, also provides internal flights. The second busiest airport is in Cluj, with an annual traffic of over 1 million passengers in 2013.

    PortsRomania has direct access to the Black Sea with the Constanta port (both maritime and river port), being the largest port in CEE. The country offers 3 maritime ports, and over 10 ports along the

    9 Romania, Back in the Spotlight

    Infrastructure

    Household internet download speed

    0102030405060

    Roma

    nia

    South

    Korea

    Lithuan

    ia

    TheNe

    therlan

    dsBu

    lgaria

    Hunga

    ry

    Czech

    Repub

    lic

    United

    States UK

    Germa

    nyPo

    land

    EU(av

    erage)

    Mbps

    CEE & SEE major ports comparison

    0102030405060

    2010 2011 2012 2013

    Millio

    nmetr

    icto

    ns

    Constanta - RO Gdansk - PL Piraeus - GR Varna - BGSource: JLL

    Source: Ookla, August 2014

  • Investment IncentivesAvailable in Romania

  • Currently, in Romania a wide range of incentives are available for also depending of the region where the investment is performed investments, which include national grants and tax incentives. and the period when it is performed. In comparison with the state Please see below a brief summary of some of these incentives, aid intensity level for state aid schemes applicable until 30 June which could be of interest for investors operating in various 2014 (i.e. 40% for Bucharest-Ilfov and 50% for the other regions), economic sectors in Romania. the state aid intensity for this scheme dropped for Bucharest (i.e. to

    10%/15%) and West region and Ilfov County (i.e. to 35%).1. National grantsOne of the state aid schemes available in Romania is the state aid As regards the eligible costs based on which the state aid is scheme supporting investments promoting regional development by computed, these are the salary costs (i.e. gross salaries and means of creation of new jobs. related social contributions due by the employer) incurred by the

    beneficiary over 2 consecutive years. However, gross salaries for Under this state aid scheme investors can benefit of cash grants which the eligible expense can be claimed are capped at the gross provided that the investment meets certain eligibility requirements, national average salary.including, inter alia, the requirement for the investment to lead to creation of at least 20 new jobs, out of which minimum 3 jobs for disadvantaged workers (namely, individuals between 15 to 24 years or over 50 years, etc.).

    The maximum intensity (amount) of the state aid available varies between 10% - 50% of the eligible costs, depending on region were the investment is performed and the period when it is performed. However, the level of approved grants cannot exceed certain capped amounts (i.e. between 7.5 million 37.5 million) set

    Investment Incentives Available in Romania by EY

    11 Romania, Back in the Spotlight

    Metropolis Center, Bucharest

    Companies that benefitted from state aid schemes 2012-2014Year Beneficiary Industry Location Investment

    value (million )

    Approved state aid

    (million )

    Number of jobs

    created2012 Robert Bosch Automotive Jucu, Cluj county 77.48 25.99 325

    2012 Pirelli Tyres Automotive Slatina, Olt county 104.78 35.21 502

    2012 De'Longhi Home appliances Jucu, Cluj county 32.50 12.54 677

    2013 Continental Automotive Products

    Automotive Timisoara, Timis county 24.79 11.75 227

    2013 IBM IT services Bucharest and Brasov, Brasov county

    51.20 21.00 900

    2013 DellInternational Services

    IT services Bucharest 21.09 8.43 455

    2013 Deutsche Bank Global Technology

    IT services Bucharest 39.24 15.69 500

    2013 Daimler Automotive Sebes, Alba County 237.97 37.40 510

    2014 Siemens R&D activities Bucharest and Brasov, Brasov county

    10.02 5.41 220

    2014 GST Safety Textiles Automotive Albesti, Mures county 46.07 18.53 424

    Source: EY

  • 2. Corporate income tax incentive eligibility requirements are met). Even though one of the conditions Romanian authorities reintroduced recently a corporate income tax is for the employer to obtain during the previous fiscal year a yearly incentive for companies which perform investments in certain types turnover of at least $ 10,000 for each of the respective employees, of equipment. Starting with 1 July 2014, the profit reinvested in it seems that more and more IT companies registered in Romania technological equipment utilized in performing economic activity is have already successfully applied for this incentive for their exempt from taxation. However, only certain types of equipment are employees.eligible for this exemption. The exemption applies to the profit of the year during which the purchased equipment becomes operational. Brief comparison of tax rates with Poland and HungaryThe tax exemption triggers the obligation to keep the related Compared with other countries in the region, Romania has certain equipment in the company's books for at least half of the useful life tax advantages and tax disadvantages, although in some cases the period of the equipment, but not more than 5 years. mere tax rates do not give away the whole truth, the tax basis and

    ease of application of tax rules being also important. Still, below a 3. Tax incentives on employment brief comparison of tax rates with Poland and Hungary (certain Romania is attractive also from the point of view of the employment exemptions and reduced rates can apply).tax incentives. Since Romania is keen to reduce the unemployment rate, it offers certain tax incentives/cash grants for employers that As regards withholding tax, exemptions or reduction of the rate can create new jobs. apply (subject to certain conditions) for dividend distributions,

    interest and royalties payments, services, etc. under the EU Parent-Even though there is no threshold provided by the law as regards Subsidiary Directive, EU Interest & Royalties Directive and the wide the number of employees envisaged to be hired, a random number range of Double Tax Treaties.of 100 employees for example would reflect savings between approx. 133,000 200,000/ year for the employers who conclude employment contracts for an undetermined period with recent graduates. The cash grant is available for one year if certain eligibility conditions are met and shall be credited against employer's unemployment contributions.

    Additional incentives are available for 2 years period representing the employer's social charges for every additional year of service, if the eligibility criteria is met. Thus, Romania can grant in addition to the employer for example approx. 165,000 (assessed based on the gross national average salary for 100 employees/ year).

    Even though certain eligibility criteria should be met and administrative burden is needed for the employers to benefit from such tax incentives, Romania develops and updates its strategy in this respect since more companies have decided to invest in Romania in the last period and the aim is to simplify the practical procedure for the incentives requests. These incentives are not linked with the national grants, being available irrespective of the investments made in Romania (not necessary at all) or the region so long as the employer is based in Romania.

    Also, on a related note to employment incentives, Romania envisages to continue attracting development of IT services since the employees of economic agents operating in Romania according to the law, whose main activity includes the creation of computer programs, benefit of salary income tax exemption (if specific

    12 Romania, Back in the Spotlight

    Country PeriodRomania 7 yearsPoland 5 years

    Hungary Unlimited Can be applied against only 50% of the tax base for a particular year.

    Additional restrictionsTax loss carry forward

    NoneNo more than 50% of the original loss can be deducted in one year.

    Country Debt-to-equity limitation

    Romania 3:01

    Poland 3:01Hungary 3:01

    Thin capitalisationInterest rate cap

    6% for foreign currency / National Bank of Romaniarate for RON loans(currently 3.25%)NoneNone

    Source: EY

    Source: EY

    Source: EY

    CorporateIncome Tax

    VAT Withholding tax

    Romania 16% 5% / 24% 16%Poland 19% 8 % / 23% 19 % / 20%Hungary 19% 27% 0% / 16%

  • VAT treatment for transfers of going concernUnder the general VAT principles, the sale of a totality of assets belonging to a line of business performed by a taxable person registered for VAT purposes in Romania should be done, in principle, with VAT charged. Under this scenario, the buyer would find itself in the position to pre-finance 24% VAT, which would be very burdensome and cost wise inefficient, limiting the number of potential buyers who could afford such a transaction.However, Romania has implemented a specific relief in case of a transfer of all the assets or of a part thereof, irrespective if such Romania also introduced starting 1 January 2014 a construction tax transfer is performed further to a sale, spin-off, merger, or computed by applying a 1.5% rate to the book value of contribution in kind to the share capital. Thus, under certain constructions subtracting from that the value of buildings and conditions, the transaction (i.e. transfer of a going concern) would certain works for which building tax is due. not be considered as a supply of goods/services and would not be subject to VAT, as an exception from the general rule.Important corporate income tax developmentsThis relief helps the taxpayers to consolidate their business Romania is continuously catching up on tax aspects, becoming activities in case of e.g. envisaged mergers or acquisition of more attractive and removing various hurdles.businesses, leading to a stronger market position, reduced costs and improving operational efficiency.New participation exemption

    For example, Romania introduced starting 2014 a participation Romania a hub of legal modernity in the CEEexemption regime, through which certain types of income are Lately, Romanians have watched Poland's economic performance exempt from corporate income tax, such as:with a certain degree of envy. It is easy to imagine that Poland's certain dividends received from foreign legal entities;success is partly due to substantially better legislation and more certain income derived from the sale/assignment of shares;effective judicial and administrative systems. However, that is more certain income derived from the liquidation of a legal entity.a matter of perception than of reality. These provisions apply if the taxpayer holds for an uninterrupted

    period of 1 year, at least 10% of the share capital of the legal entity distributing the dividends or of the legal entity in which the shares sold/assigned are held or, respectively, of the legal entity which is subject to liquidation.

    Permanent establishment consolidationAlso, starting 1 July 2013 foreign legal entities are not obliged anymore to have several permanent establishments for corporate income tax purposes in Romania if their activities are carried out under the jurisdiction of several tax authorities. While previously each permanent establishment, with no distinct legal personality, was subject to corporate income (no consolidation being possible,

    Romania has one of the most modern legislation in this part of the the tax losses of a permanent establishment could not be offset world. The essential piece of business-related legislation, the Civil against the taxable profit of another permanent establishment), now Code, dates from 2011 and is based on some of the most all revenues and expenses are consolidated under one single advanced laws in the world. The Romanian companies law, dating permanent establishment. from 1990, was amended several times in order to tailor it to a burgeoning economy's business needs and to align it with This is important for many companies, including construction European directives. A new insolvency law will be issued in the companies who generated easily more than one permanent summer of 2014. New legislation protecting fair competition is establishment, having projects throughout Romania.currently subject to public debate. To sum up, Romania's legislation is quite modern and adapted for business.

    Parliament House, Bucharest

    13 Romania, Back in the Spotlight

    Country Buildingtax

    Landtax

    Real estate transfer fees

    Romania 0.25 - 1.80% 0.2 - 2,800 /ha

    generally 1.5%

    Poland 5.5 /m2 0.2 /m2 2% when VAT does not apply

    Hungary Discretionary Discretionary 4% (2% over a certain value)

    Source: EY

  • As regards the judiciary and the administration, considerable reforms are in progress. Court decisions are being published in order to ensure consistent practice and specialized business law courts are about to be created. Corruption accusations within the judiciary still apply however, the efforts to clean up the system are obvious. The administration is also progressing for instance, a new financial supervision authority was created in order to enhance the supervision of the capital, insurance and pension markets.In addition to the judicial reforms mentioned above, Romania has adopted on 15 February 2013 a new Civil Procedure Code that is aimed, inter alia, at increasing the efficiency of the courts of law in resolving a claim.

    The entering into force of the New Civil Procedure Code brings a long awaited change in the judiciary system by shortening the terms between the hearings thus assuring a swifter resolution of the case. Moreover, the Romanian business environment welcomed this change since in the past the companies involved in a commercial litigation had low expectations for prompt resolution of the dispute.

    Nevertheless, there is still a long road ahead. However, the combination of modern legislation and a reformed judiciary will ensure that Romania continues to be an excellent place to do business.

    14 Romania, Back in the Spotlight

    CEC Bank, Bucharest

  • General Real EstateMarket Overview

  • Sustainable technical features and quality are acknowledged as mandatory for new projects, as the specifications required by international tenants are becoming more rigorous. The increased interest in sustainability is proven by the variety of certified buildings across the country. The most common sustainability rating systems used are BREEAM and LEED.

    The Romanian market benefits from the presence of the 'Big Four' audit and consultancy companies: EY, KMPG, PwC and Deloitte. Besides JLL, in Romania there are several other international real estate consultants such as CBRE and BNP Paribas (the only other fully owned subsidiaries of their parent companies), Colliers

    The Romanian commercial real estate market provides International, The Advisers - Knight Frank and DTZ Echinox. In opportunities in all segments, both in terms of development and terms of law firms, there are several large local players such as investment. Historically, the market has been driven mainly by local NNDKP, Musat & Asociatii, Tuca Zbarcea & Asociatii, Popovici Nitu or regional developers, but in the recent past we have seen & Asociatii, PeliFilip and Biris Goran, as well as representations of increasing interest from international institutional players. Some of major international players such as Schoenherr & Asociatii, DLA the international office developers with a track record in Romania Piper, Clifford Chance Badea, CMS Cameron McKenna and are: Skanska, AFI Europe, Atenor, GTC, Portland Trust, Bluehouse Kinstellar.and Immofinanz. In the retail sector, AFI Europe, Sonae Sierra, S Immo, Immofinanz and Raiffeisen Evolution have been active. The industrial sector has been shaped by developers such as Prologis, Portland Trust, WDP and Alinso Group.

    The main office developments are located in Bucharest and the top secondary cities with strong university centers that can offer the relevant labour force with higher education. Retail developers have targeted most of the 42 county capitals in Romania, focusing mainly on those with a high population density and high disposable incomes. There are industrial projects throughout the country, however access to good infrastructure and proximity to either Bucharest or, CEE and the rest of Europe, has directed investors interest mainly towards the western part of the country (Timisoara, Arad, Cluj-Napoca, Sibiu) or, to the central-south (Bucharest Greater Area, Ploiesti, Pitesti).

    General Real Estate Market Overview

    Palas Iasi

    The Office, Cluj Napoca

    16 Romania, Back in the Spotlight

    Victoria Center, Bucharest

  • InvestmentMarket

    CBC Timisoara

  • In 2007/2008 Romania had a very liquid real estate investment While Romania's economy has resumed solid growth from the market with total volumes of over 2 billion and 1 billion beginning of 2013, the real estate investment market has only respectively, despite the limited availability of modern product at the recently started to show consistent signs of increased investor time. Romania was then the third largest investment market in appetite. H1 2014 transaction volumes are higher than any of the terms of deal flow in CEE (after Poland and the Czech Republic). full year levels registered since 2008. It is expected that transaction Between 2009 and 2013 volumes have decreased significantly, as volumes will grow markedly in the near future with several quality has the number of active players. However, given its size in terms assets currently on the market. Moreover, a higher degree of of population and forecasted GDP, it can be expected that Romania diversity on the buy side can be expected, which is important for the will be second only to Poland in CEE in terms of investment perceived exit liquidity among investors. volumes at some point over the coming years.

    Investment product in Romania is currently historically cheap. Yields have peaked and have reached levels not seen since 2005, whilst rents have bottomed out and have also reached levels never seen before 2005. As a result, capital values per square meter of modern commercial real estate are at the bottom of the long-term cycle.

    The currently low capital values combined with the economic recovery that is gaining momentum and is expected to translate into real rental growth, jointly result in a compelling business case for investors. Consequently, we expect that yields in Romania will compress and yield premium compared with Poland and the Czech Republic will narrow.

    Investment Market

    Sky Tower & Promenada Mall, Bucharest

    18 Romania, Back in the Spotlight

    CEE investment volumes

    0

    2

    4

    6

    8

    10

    12

    14

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

    Billio

    n

    Poland Czech Republic Hungary Romania Slovakia Other CEE

    Romania investment volumes

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014H1

    Billio

    n

    Office Retail Industrial Mixed Residential Hotels

    Source: JLL Source: JLL

    Source: JLL

    Prime yields as of Q3 2014

    Office Shoppingcenters

    Industrial

    8.00% 8.00% 9.75%

  • Real Estate Financing

  • The Romanian economy has had an encouraging evolution in 2013 and in the year up to date. GDP expanded by 3.5% y-o-y in 2013, benefiting from an outstanding harvest and strong external demand. Lower harvest yields as well as external turbulences are expected to drag on growth in 2014, but the underlying process of recovery for consumer sentiment remains intact.

    In this context, in the last two years, banks' sentiment towards Real Estate financing improved, in line with macroeconomic indicators. While 2009 up to mid-2012 was a period in which banks were very reluctant to new financing in real estate, dealing mainly with the management of the existing portfolio, the financing market improved since the second half of 2012, with several new large transactions being financed. As lease/ sale contracts are linked to Euro, and EURIBOR is still at

    a low level, financing in Euro for such Real Estate projects Among such transactions are the following: AFI group obtained continues to be preferred to local currency financing. In the general 13.4 million from UniCredit to finance the development of the first context of the market, however, RON financing has an increasing phase of AFI Park offices and 30 million from Raiffeisen for the stake, in line with refinancing sources of the local banks and NBR new shopping mall in Ploiesti; NEPI borrowed 30 million from measures to stimulate local currency financing.UniCredit Tiriac Bank to refinance the acquisition of The Lakeview office building and 20 million from Garanti Bank to refinance the With a Real Estate demand still slowly increasing, banks would shopping mall in Galati. rather finance already operational income-generating projects

    rather than new developments. Nevertheless, depending on the The outlook for 2014 is positive, with a strong focus on office, quality of the project and developer, as well as prelease (minimum medium focus for retail, and low focus for industrial and residential required level depending from bank to bank and sub-sector to sub-projects. As one of the most experienced Real Estate banks in sector, anyway not lower than 10%) new developments are also Romania, UniCredit Tiriac Bank is actively monitoring the market financed. and is ready to consider new financing, in accordance with the prospects for each sub-segment and, of course, with the quality of Interest rate margins are highly dependent on loan period, country the project itself. Though the bank has always had a prudent and risk and project profile. For example, for a 5 year loan one could well calibrated Real-Estate policy, the current stance could be expect a margin between 400 bps 550 bps, still higher than in defined as cherry picking, UniCredit Tiriac Bank analyzing the new CEE countries like Poland and Czech Republic, however, in line Real-Estate financing opportunities a case-by-case basis. with CDS (credit default swap) levels (e.g. Romania 5Y CDS is 147

    bps compared to Poland 59.5 bps and Czech Rep 52 bps).At market level, despite the recovery signs, financial institutions are generally expected to keep the prudent approach. Therefore, For residential developments, banks are more focused on mortgage financing conditions being offered on the market are expected to be lending granted to individuals rather than financing the development in the following range: itself, considering high completion and cost overrun risks (driven by

    crisis weakened construction companies) and market risk (off-plan sales very difficult to achieve, project concept has to offer apartments fitting 5% VAT and/or First House programme).

    Real Estate Financingby UniCredit Tiriac Bank

    The Lakeview, Bucharest

    20 Romania, Back in the Spotlight

    Financing conditionsLTC / LTV 50-65%DSCR 1.20-1.30Maturity 5-10 years (with balloon)Full amortization 10-20 years Interest risk hedging requirements

    Depending on each banks policy, loan amount and maturity

    Source: UniCredit Tiriac Bank

  • Office Market

    AFI Park 1-2, Bucharest

  • After 20 years of post-communist development and the profound transformation of the Romanian economy into a mainly services oriented one, the office hubs have become the new factories of the large cities. Modern schemes have replaced the former industrial plants and the blue collar workers are followed by a young, skilled and highly educated generation.

    The total modern office stock in Bucharest amounts to 2.15 million 2m of offices (Q2 2014). By local market standards, approximately

    50% is considered Class A. The major secondary cities, which lacked the interest of foreign investors until recent years, are becoming more and more attractive, with important speculative

    transportation in all other Romanian cities is limited to above projects having been developed or under construction as tenant ground transportation: trams, trolley-buses and buses. Moreover, demand surges, driven mainly by foreign BPOs and SSCs developers are searching for areas within close proximity of densely (Outsourcing and Shared Service Centers). At the end of Q2 2014, populated neighbourhoods, important university centers and Iasi recorded the largest office stock outside of Bucharest with student campuses. 125,000 m, followed closely by Cluj-Napoca with almost 120,000

    m and Timisoara with 100,000 m. The total stock in the country is We consider Bucharest to be divided in 13 office sub-markets estimated at more than 2.5 million m. according to their geographical coordinates. Traditionally, the main ones are the northern fringe of the city center - Piata Victoriei, the Floreasca Barbu Vacarescu corridor and the adjacent Dimitrie Pompeiu in the north. In recent years, as the market matured and major infrastructure works were completed, new submarkets have emerged, the most important one being Center West. In the regional cities, the majority of office buildings are scattered around the city centers.

    In general, recent completions show quality specifications that allow efficient usage by multinational occupiers, which represent a high share of the office demand. Typical specifications include large and open floor plates (of over 1,000 m /floor), 4-pipe HVAC systems, raised floors, glazed faades, minimum 2.7 m floor to suspended New developments in the country and especially in Bucharest are ceiling height, incorporated lighting systems (LED's for green focused on locations that provide good access by public certified buildings), CCTV, 24/7 security, BMS, and heavy traffic transportation. Bucharest is the only city that features a subway resistant carpeting in the office areas and prestigious main lobby network in Romania. With 4 main lines (plus one under areas.construction), close to 70 km of double track and a total of 51 stops,

    Bucharest has the most extensive subway network in CEE. Public Prime headline rent in Bucharest is 18.5/m/month, average headline rent for non-CBD locations is in the region of 14-15/m/month, while similar Class A accommodation in peripheral locations command headline rents of 10-12/m/month. Secondary city offices are currently marketed at a relatively high headline rent of 12-14 /m/month, due to the limited supply. Even though the real estate offer in Bucharest is indisputably more diverse than in the secondary cities, the cost gap is not that wide considering that occupiers usually compare prime projects in regional cities with quality assets located outside the CBD in Bucharest.

    Office Market

    The Office, Cluj-Napoca

    22 Romania, Back in the Spotlight

    AFI Park 1-2 & BucharestAFI Palace Cotroceni mall,

    Office stock per capita in CEE & SEE capitals

    0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

    Bratislava

    Warsaw

    Prague

    Budapest

    Zagreb

    Bucharest

    Belgrade

    m per 1,000 inhabitantsSource: JLL

  • Service charges and parking space rent are additional to the office rent. For the vast majority of modern buildings, leases are triple net, with all costs included in the service charges, which are reconciled annually. On average, service charges in Bucharest for Class A office buildings are in the range of 2.7 to 5/m/month, depending mainly on the efficiency of the asset and whether the land is owned as freehold (common) or, leasehold (rare). Service charge levels are slightly higher than on average in the CEE due to the relatively high property tax charged in Romania, which is recovered by the Landlords through the service charges.

    Emerging outsourcing locationthe buildings allow for high space density: up to 6-10 m/person in The increased presence of international companies with their Romania, compared to an average of 12-19 m/person in EMEA.BPOs/SSCs/ITOs has greatly influenced office real estate The Romanian government continues to offer incentives/ grants for development activity in Romania. In early 2005, only a few IT companies investing in Romania.companies were present in the country with such operations. Since

    then, the number of new openings contributed to an increase in the Although there is still an important gap in demand between annual take-up from a level of 119,000 m in 2009 to the highest Bucharest and the secondary cities, we expect a further increase in take-up ever recorded in Bucharest of 293,000 m, in 2013. demand for the latter which will be fuelled by the growing Completions in the capital city in 2013 reached approximately competition for qualified employees in Bucharest as well as by an 120,000 m and are estimated to increase to 140,000 m in 2014. improved availability of modern office space in such cities. The The vacancy rate in Bucharest at the end of Q2 2014 was 14.7%, main beneficiaries will be the tier one cities such as Cluj-Napoca, mainly concentrated in the peripheral areas of Bucharest such as Iasi, Timisoara and Brasov.Pipera North and Baneasa, due to their poor accessibility.

    The gap between Bucharest and the rest of the country is also explained by the size of operations. Very few existing operations outside of Bucharest exceed 1,500 or 2,000 m, although currently there are a number of requirements for space to accommodate between 700 and 3,000 work stations. These active searches are encouraging groups like Iulius Group and Modatim, the two main developers with activity outside of their city of origin, to assess potential development sites and enlarge the market beyond Bucharest.

    BPOs, SSCs and IT Software Development Centers increasingly target Romania due to the country's human capital, one of the most educated in CEE and SEE, with strong foreign language skills, as well as the availability of quality office product at competitive pricing (for more details on this topic, please refer to JLL's Romania, Too large to be ignored 2013 publication). Technical specifications of

    Green Gate Bucharest,

    23 Romania, Back in the Spotlight

    Hermes Business Campus Bucharest,

    Market practice Bucharest Secondary cities

    Prime Headline Rent(/m2/month)

    18.5 15.0

    Average Headline Rent Class A (/m2/month)

    14-15 12-14

    Lease LengthIndexation

    Add-on Factor Typically 6-8%

    3-5 yearsAnnually, with Euro CPI

    Service Charge 2.7-5/m2/monthAll costs recovered by the Landlord

    Rent Reviews Optional, not yet a practiceIn case of lease renewals

    Incentives Fit-out contributionRent free periodFree parking

    Source: JLL

  • Retail Market

    AFI Palace Cotroceni Bucharest,

  • The birthdate of the modern retail market in Romania is considered to be the opening of the first cash and carry store of Metro in Bucharest in 1996. The first modern shopping center however was delivered in 1999 when Turkish based Anchor Group finalized the 37,000 m Bucuresti Mall in the capital. Carrefour inaugurated the first hypermarket in Bucharest and Romania in 2001.

    At the start of the last decade, more than 10 years after the fall of communism, modern retail was still in its infancy. The need for it however was tremendous so new schemes performed very well

    Prime rents in Bucharest are between 60-70/m/month, one of the and delivered amazing financial results. Once the NATO and EU

    lowest levels in the CEE. At the start of 2014, we witnessed the first accessions became a certainty for Romania, developers became a

    increase of prime rental levels after more than 5 years of great deal more active, so between 2003 and 2009 the retail market

    continuous softening. However, for the moment, this trend is only became effervescent. Most of the existing shopping centers were

    registered in the most successful shopping centers and is not valid built during this period.

    across the market.

    The economic downturn in 2009 has put many of the planned schemes on hold and the pipeline has decreased significantly. Development will bottom out in 2014 when new supply will be the lowest since 2005. However, even though the market seems almost saturated, we expect development to restart in specific areas with lower retail density, fuelled by the pick-up in sales, the restoration of consumer confidence and the growth of the credit market. Some of the cities where we believe there is still room for development are Bucharest, Brasov and Timisoara.

    The total modern retail stock currently amounts to approximately 2.55 million m at country level, out of which, over 890,000 m is in Bucharest. Besides the capital, regional cities such as Cluj-Napoca, Timisoara, Iasi and Constanta also have dominant retail schemes where most of the important retailers present in Romania can be found. The most important retail owners in Romania are Iulius, NEPI, Immofinanz, AFI Europe and Argo.

    Retail Market

    Promenada Mall Bucharest,

    25 Romania, Back in the Spotlight

    AFI Palace Cotroceni Bucharest,

    Prime rents (/m2/month)

    Bucharest Regional cities

    Shopping centers 60-70 25-35

    Prime retail street 55-65 25-35

    Retail stock in CEE countries

    0 50 100 150 200 250 300

    Serbia

    Bulgaria

    Romania

    Hungary

    Croatia

    Slovakia

    Poland

    Czech Republic

    m per 1,000 capita

    Source: JLL

    Source: JLL

  • Chemicals and the announcement of Leroy Merlin that it will acquire High street retailthe 15 Baumax units. The above transactions emphasize the Romanian cities usually lack a high street retail market with only a interest of the global leading retailers to expand their Romanian few exceptions. Most high street units are occupied by activities.supermarkets, bank branches or pharmacies. The important fashion

    retailers prefer shopping centers mainly because of the local consumer habits, fragmented ownership of the street units and significant investments required for refurbishment. There is however renewed interest from both retailers and developers for historical city centers. After a long period of total neglect, Bucharest's old city has been transformed in the past couple of years into a vibrant horeca location. This has also attracted the attention of the big fashion brands with Adidas and H&M being the pioneers in opening flagship stores in this area. Sibiu is another exception, having attractive pedestrian retail streets due to intensive refurbishment works of the city center prior to 2007 when it was designated as a European Capital of Culture.

    RetailersBig Box retailers are diverse and the majority of them have a strong presence throughout the country, as can be seen in the table below.In recent years, a number of important consolidations and acquisitions were recorded among big box retailers present in Romania: the purchase of part of Metro's Real hypermarkets by Auchan (20 out of 24), the acquisition of the Bricostore network by UK-based company - Kingfisher, the take-over of the local operation of Praktiker comprising 27 units by Turkish owned Search

    Retail Market

    H&M,Old city Bucharest,

    26 Romania, Back in the Spotlight

    Burberry store, Bucharest

    Old city, Bucharest

    Unirea Shopping Center, Bucharest

    Type Big box retailer No of unitsCash & Carry Metro 32

    Selgros 19DIY Praktiker 27

    Bricostore (now BricoDepot) 15Leroy Merlin 1Baumax (under acquisition by Leroy Merlin)

    15

    Dedeman 37

    Hypermarkets Carrefour hypermarkets 25Auchan 31Cora 11Kaufland 95

    Supermarkets Profi 244Billa 82Mega Image (Delhaize Group) 331Carrefour Market 78

    Discounters Lidl 179Penny Market (REWE) 158

    Furniture Ikea 1Kika 1

    List of major big box occupiers in Romania as of August 2014

    Source: JLL

  • Mass market fashion retailers such as Zara, Mango, Promod and The largest fashion retailer in Romania is Inditex, both in terms of Marks & Spencer opened their first stores in Romania in 2004 when turnover (estimated at 175 million in 2013, with a profit of 25 the Plaza Romania shopping center was inaugurated. However, million) as well as in terms of presence, with 98 stores across the most of the international fashion brands came later, during the peak country. Inditex initially started as a franchise, but given the of Romania's economic growth and when the top shopping centers massive success of the Zara and Pull & Bear brands in Bucharest, in the country were delivered. H&M only recently entered the the parent company took over the operation.market in March 2011 and have since expanded aggressively, taking advantage of the availability of space and the favorable financial conditions it could obtain from landlords. Currently, there are 34 units throughout the country. The Romanian expansion of H&M was one of the most successful new market entries in terms of profitability. H&M has become the most active retailer in Romania in the last three years, managing to secure locations in all key retail projects and targeting even cities below 100,000 inhabitants. With the opening of the first high street location in Bucharest they also launched the first H&M Home, which they plan to roll out in several of their stores.

    27 Romania, Back in the Spotlight

    AFI Palace Cotroceni Bucharest,

    Promenada Mall Bucharest,

    Romanian presence of the Top 20 retailers in Europe

    60% 65% 70% 75% 80% 85% 90% 95% 100%

    Hugo Boss

    Louis VuittonStarbucks

    Adidas

    Claire's

    Geox

    Gant

    Jack JonesMax Mara

    Massimo Dutti

    Diesel

    G-Star

    Foot Locker

    TimberlandTommy Hilfiger

    Lush

    Mango

    Benetton

    The Body Shop

    H&M

    Zara

    Coverage (%) of the key European markets

    Not present

    Not present

    Source: JLL

    Mass-market retailers

    Mid-to-up market retailers

    Upmarket retailers

  • LogisticsLogistics

  • Many of the major 3PL players are present in Romania, mainly in and around Bucharest: Kuehne & Nagel, DB Schenker, Ceva Logistics, DSV, Gebruder Weiss, Geodis, Maersk, Rhenus, Gefco, etc... Due to the forecasted increase in retail sales, supported by the positive results registered in the last 12 months, we expect that 3PL companies will soon be in a position to develop further.

    The Romanian retail market is controlled by 9 large international groups: Lidl & Schwartz (Kaufland & LIDL), Auchan (Auchan, Leroy Merlin, Decathlon, Orsay, Norauto), Carrefour (Carrefour, Carrefour Express, Carrefour Market, Supeco), Cora, Metro, Selgros, Rewe

    Romania is strategically located in Europe, being crossed by 4 (Billa, Penny Market, XXL Mega Discount), Delhaize (Mega Image) major Pan-European corridors and benefits from one of the largest and Profi. Almost all of these groups have a national coverage and commercial deep water ports in CEE. Romania is also a large therefore require efficient logistics solutions.consumer market, with over 20 million inhabitants with a growing spending power. With a country level vacancy rate estimated at between 13 and

    14.5%, the market is expected to continue to develop mainly on a built-to-suit (BTS) basis, with only a few speculative projects in the pipeline.

    Prime headline rents in Bucharest for logistic space is between 3.6-4/m/month. Since the onset of the financial crisis, headline rents registered a soft decrease while the gap with net effective rents widened. Service charges and parking space rent are additional to the warehouse rent. For the vast majority of modern buildings, leases are triple net, with all costs included in the service charges, which are reconciled annually. On average, service charges in Bucharest for Class A space are in the range of 0.7 to 1 /m/month.

    The current modern industrial stock is estimated at almost 1.8 million m, with close to 1 million m in and around Bucharest. Approximately 75% of the stock in the capital city is clustered in its western part, along the A1 highway. Other industrial hubs have been established in Ploiesti, Pitesti, Craiova, Timisoara, Arad, Oradea, Cluj-Napoca, Sibiu and Brasov. Romania's industrial market of is still underdeveloped with a total stock per 1,000 capita of just 89 m versus 431 m in the Czech Republic. Bucharest is significantly undersupplied compared to its regional peers, as can be seen in the chart below.

    There are several drivers for the logistics market in Romania. Among them manufacturing (especially in the automotive sector), the expansion of 3PLs and the strong growth of modern retail.

    Logistics

    Phoenix Logistics Center, Bucharest greater area

    Europolis Park, Bucharest greater area

    29 Romania, Back in the Spotlight

    Industrial stock and population in CEE capitals

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    3.0

    Bucharest Budapest Warsaw Prague Bratislava

    Millio

    n

    Population (inhabitants) Industrial stock (m)Prime rents (/m2/month)

    Bucharest Regional cities

    Distribution centers 3.6-4.0 3.5-3.75Distribution centers (exceeding 20,000 m2)

    3.5-3.7 3.25-3.5

    Light industrial 3.5-4.25 3.5-3.75Other costsService charges 0.7-1.0 0.7-1.0

    Source: JLL

    Source: JLL

  • Manufacturing

    Ploiesti West Park

  • The majority of these facilities are located around Pitesti and Craiova (close to Dacia and respectively Ford) or in the western part of Romania due to the obvious advantages of this region - proximity to Central and Western Europe, Romania's main export markets, present and planned highways and the well qualified labour force.

    The most important company producing auto parts in Romania is Continental, which operates in several locations in the country. Runners-up include auto safety equipment producer - Autoliv

    The manufacturing sector is currently the main driver of the Romania, with 2 factories, one near Brasov and another in Lugoj,

    Romanian economy and is expected to remain the key source of and the Japanese Takata Corporation with a plant in Arad. Other

    GDP growth in 2014, as it has during the last few years. important names include Delphi, TRW Automotive Safety Systems,

    The manufacturing sector is well diversified, however automotive Leoni Wiring Systems, Johnson Controls, Star Transmission

    has become the most important branch of the Romanian industry. (Daimler Benz), Lear Corporation, Bosch, Yazaki, Schaeffler and

    Other key branches are FMCG and the oil and gas related Hella.

    industries. Romania also has a long tradition in furniture production, pharmaceutics, heavy industry, machinery and home appliances.

    FMCG industryAutomotive industry

    Romania has attracted many of large multinationals in this industry that have opened production facilities around the country. Moreover,

    With over 50 years of automotive tradition, Romania is an important some FMCG companies, such as Unilever and Procter & Gamble

    automotive hub in the CEE and SEE region. Romania is the 9th are controlling their SEE operations from Romania.

    largest car producer in the EU, ahead of Italy, and in 2013, has This industry is of particular importance considering the size and

    registered the highest growth rate at 22%. The 2 major car growth potential of the market, but also given the fact that almost

    producers present in the country, Renault and Ford, together with 45% of Romanian's household expenditures remain directed

    Continental, are the dominant players in the Romanian automotive towards food and beverages. All branches of this industry are well

    sector, all registering turnover figures in excess of 1 billion locally.represented by both local as well as international companies.

    Renault has a 15 year presence in Romania after the acquisition of The largest company in the FMCG industry by turnover is British

    the Dacia plant in Pitesti in 1999. Currently, the four most successful American Tobacco, with a history of over 20 years in Romania,

    Dacia models out of a total of seven are produced here as well as operating a plant in Ploiesti. The other top spots are completed by

    parts for cars assembled in other plants of the group. JTI, Philip Morris, Coca Cola, SAB Miller, Procter &Gamble and

    Ford took over the former Daewoo factory in Craiova in 2007. The Heineken.

    Ford B-Max model is assembled in this unit, which is also producing several modern engines for other Ford vehicles.

    Oil and gasRomania has not only attracted car manufacturers, but also various

    Romania has a long history of oil extraction, which began more than automotive related industries producing tyres, car seating, steering

    100 years ago. Currently, the country is the 4th largest oil producer wheels, electrics and electronic systems, plastic components,

    in Europe and still has many important and unexploited reserves on exhaust systems, etc.

    the Black Sea continental shelf. OMV Petrom (Austrian group OMV is the main shareholder) is the largest company in Romania and the largest oil and gas company in SEE. It employs over 20,000 people and had a turnover of almost 6 billion in 2013. Other important companies are Rompetrol (owned by the Kazakhstan national oil company), Lukoil, Mol, ExxonMobil and Chevron. Besides the companies dealing with extraction and processing, a large number of companies providing equipment and support have been attracted by the country. Last year, Texas based Lufkin Industries opened their second production unit in the Eastern Hemisphere, in Ploiesti West Park, where they manufacture oil extraction equipment. Other important names in this segment that are present on the Romanian market are the Cameron, Tenaris, Wheaterford and the Schlumberger Group.

    31 Romania, Back in the Spotlight

    Manufacturing

    Ploiesti West Park

    Car manufacturer Main figures Present since 1999 18,000 employees 80% of the cars exported Car production capacity: max 424,000 units/year

    Present since 2007 3,500 employees 90% of the cars exported Car production capacity: max 350,000 units/year

    Ford

    Renault

  • www.jll.roCOPYRIGHT JONES LANG LASALLE IP, INC. 2014. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

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