Jeremy Kelly, a Director in the World Winning Cities team at Jones Lang LaSalle said: “Bucharest’s favourable economic growth prognosis, combined with the structural reforms associated with EU accession on 1st January 2007, point to rapid market evolution over the next five years.  Growth in both demand and supply across all market sectors will be supported by rapidly improving real estate maturity and transparency.  Bucharest will emerge as one of the CEE region’s core real estate markets before the end of the decade.”

Charles Krick, Head of Jones Lang LaSalle’s newly opened office in Bucharest commented: “It is clear that the real estate investment market in Romania entered a new phase of growth in 2006. Expanding investor interest is evidenced by aggressive pricing for prime assets. The past twelve months have witnessed a rapid increase in the number of institutional transactions, including acquisitions by CA Immo, Charlemagne, Europolis, GLL Partners and Immoeast among others. Office and retail properties have made up the majority of transactions. With market transparency slowly improving the scarcity of available stock is perceived as the main obstacle for investment market development.”

Report Highlights

Strong yield compression - Prime office yields have fallen from 14% in Q4 2003 to sub 7% in Q4 2006. The yield gap with CE-3 office markets has narrowed from 600 basis points in Q4 2003 to 100 basis points by Q3 2006.

Strong Demand Drivers - Annual take-up has grown from c. 50,000 sq m in 2003 to 90,000 sq m in 2005. Provisional figures show a sharp growth in office demand in 2006, reaching over 100,000 sq m in the first six months alone, with 70% of space secured on a pre-let basis.  With Bucharest forecast to be Europe’s fastest growing city economy, Jones Lang LaSalle expects that demand levels will remain high throughout the rest of the decade at around 200,000 sq m per annum, of which 100 – 150,000 sq m per year will represent new additional demand.

Vacancy Rates - Due to several years of low completion levels compared to take up, the vacancy rate for Grade A offices has remained below 5% over the last five years, and is expected to fall to around 2% by the end of 2006.

Demand Driving Stock Increases - As at Q4 2006 Bucharest has a total modern office stock in the region of 800,000 sq m, of which approximately 282,000 sq m is considered to be grade A.  The market is already responding to supply shortages and the office pipeline is growing. Total new office space in the projects planned for 2007 and 2008 is expected to be over 500,000 sq m, although a considerable portion of planned developments could be delayed or abandoned; 12-15% of the planned / constructed space has been pre-let.

Rents - Highest rents are in the range of 18–20 EUR/sq m/month, achievable in the Central-North area, whilst prime pre-leases are secured at 16–17 EUR/sq m/month. In the more congested city centre, rentals are marginally higher at 16-18 EUR/sq m/month.

Occupiers - Bucharest’s major international occupiers include IBM, BAT, Coca-Cola, Oracle, Orange, Vodafone, Microsoft, HP, AIG, DHL, and the headquarters for several banks such as ING, ABNAMRO, HVB, and Raiffeisen. Corporates recently securing 2007 pre-lets include TNT, 3M, Eli Lilly, Romsys, Degussa, KPMG, Zentiva, BIC, Lek/Sandoz, World Bank, Transelectrica, FinansBank Group, the back office functions of Telemobil (Zapp), and BancPost.

Retail Market - The current modern retail stock is estimated to be 150,000 sq m. Development in the pipeline is expected to result in a four-fold increase in stock to 600,000 sq m by the end of 2009. By that time Bucharest will have 10 shopping centres, four retail parks and several supermarkets and hypermarkets with adjacent shopping galleries.

Industrial Market - Total modern logistics stock in Bucharest stands at 250,000 sq m, a small volume compared to Warsaw’s 1.3 million sq m. However, with over 600,000 sq m in the pipeline, the market is poised to expand quickly. Existing warehouse premises, such as Geodis and Cefin Logistics Park, will soon be joined by several new projects.