August 14, 2017

Bucharest welcomes new FDIs and catches the eye of real estate investment funds

Bucharest welcomes new FDIs and catches the eye of real estate investment funds

Romania is on the rise. After spectacular 2016 economic results and a record-breaking FDI level of EUR 4.1 billion, the country's prospects for 2017 look very promising. Bucharest, a specialized IT hub in the CEE region, has recently welcomed several new global brands such as Fitbit and the Coface Group. This influx has boosted the city’s office sector and is making Romania's capital city an attractive destination for investment funds. The yield spread between Western and even other CEE markets is still significant, with prime office yields in Bucharest at around 7.25 percent.

Investor sentiment in Bucharest is bullish, with office transactions totalling approximately EUR 460 million in the last 18 months, close to 34 percent of the entire commercial real estate transactional volume (EUR 1.35 billion) registered in this period.

“The highest ever FDI flow, and the latest improvements in Romania’s economic growth forecasts, a 4.4 percent increase according to the World Bank, show that the country is in very good shape. As a developer, we identified Romania's huge potential in 2013. Since then we have successfully leased and sold our first office project, the three-building Green Court Bucharest complex to Globalworth. The sales agreement regarding the third building was signed in June and this year we have also started construction on two new office projects in Bucharest – Campus 6 and Equilibrium. A constantly growing economy, top-quality office assets let to prestigious tenants, underpinned by high prime yields at 7.25 percent all serve as a guarantee of an excellent deal and long-term profitability in Bucharest. These qualities are definitely attracting investors to the market,” says Adrian Karczewicz, Head of Divestments CEE at Skanska commercial development business in Central and Eastern Europe.

The largest office transaction registered in Bucharest in the first half of 2017 was the acquisition of the Art 7 Business Centre by Hili Properties, a division of Hili Ventures headquartered in Malta and a newcomer to the Romanian market.

“The flow of new capital into Romania continues. After welcoming such players as PPF and Growthpoint in 2016, the first half of 2017 marked the entry of several new names to the Romanian real estate market, either through the purchase of regional platforms or individual assets. This is illustrated by South African group Atterbury's acquisition of an office and retail portfolio. Based on deals currently in due diligence or being marketed, we expect 2017's total investment volume to hit or exceed the EUR 1 billion mark. Bucharest will play a key role in this activity although liquidity in secondary cities has also improved significantly and accounted for close to 75 percent of H1 2017 investment volumes,” adds Kevin Turpin, Head of Research CEE at JLL.

Welcome to a rapidly developing IT hub in the CEE region

Occupier demand in Bucharest for 2016 hit an all-time high of 364,000 sqm, a 46 percent increase on 2015. The business services sector, especially IT&C and BPO companies, is the most active sector in terms of leases. And this trend is set to continue as the latest studies reveal that the software and IT business services sector in Romania is expected to exceed the EUR 4 billion milestone in 2017. This business branch grew by 11.3 percent in 2016 y-o-y, with a turnover of EUR 3.6 billion. This year alone, Bucharest welcomed several new major multinationals. Systematic A/S, the biggest privately-owned software company in Denmark, will produce communication software for NATO, and the US fitness wearables giant, Fitbit, plans to hire 200 people at its research and development centre in the city.

“Currently there are 110 BPO/SSC/IT/R&D centres and around 70,000 people employed in the business services sector in Bucharest. IT has the largest share, and we therefore expect it to be the main driver for office space demand in 2017. IT and BPO/SSC tenants are followed by banks, pharmaceutical and health companies. Some of the biggest names in business can be found among the companies that have opened their new centres in Bucharest including General Motors, Huawei, Pfizer, Deloitte European Delivery Enter, Vox Pro, Hexaware and more. Dimitrie Pompeiu, Floreasca Barbu Vacarescu, Center North, Center West and West are the most popular districts for business services providers. These areas of the city are still growing, with many office developments under construction,” comments Cosmin Patlageanu, President at the Association of Business Service Leaders in Romania.

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