CONSTRUCTION – REAL ESTA TE SECTOR
IN ROMANIA
Paper
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CONSTRUCTION – REAL ESTATE SECTOR IN ROMANIA
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TABLE OF CONTENT
1. General – economic overview ... 3 2. Construction - real estate ... 5
2.1 Rule system 5
2.2 Leading construction companies 6
2.3 Sector evolution and current situation 7
3. Sub-sectors ... 9
3.1 Residential 9
3.2 Office 13
3.3 Retail 15
3.4 Industrial 18
4. Construction organizations and main trade fairs ... 21 5. References ... 22
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1. GENERAL – ECONOMIC OVERVIEW
As a member of European Union since 2007 and a member of NATO since 2004, Romania is currently one of the most dynamic large markets in Europe with a population of about 20 million people.
The Romanian economy has registered a solid growth over the recent year, 2017 placing Romania first in Europe with a growth rate of 6,9%. Private consumption was the main growth driver, which was boosted and supported by tax cuts and strong wage growth. Low unemployment and some increased investment in the second half of 2017 supported the economic growth as well.
The economic growth has been widely spread across all sectors in Romania, the highest share to GDP formation being allocated to services, followed by industry, construction and agriculture.
Contribution of the main activities to GDP (%)
2014 2015 2016’ 2017’’
Agriculture, hunting, forestry & fishery 4.7 4.2 4.1 4.4
Industry + energy / gas / water 25.3 24.1 24.1 24.2
Construction 6.2 5.9 6.1 5.9
Services 52.3 53.7 55.4 56.1
Gross Value Added (GVA) 88.5 87.9 89.7 90.6
Net taxes on products 11.5 12.1 10.3 9.4
Gross Domestic Product (GDP) 100.0 100.0 100.0 100.0
‘ semidefinite data
‘’ provisional data
Source: Romanian National Institute of Statistics
According to the National institute of Statistics, the impressive GDP growth rate recorded in 2017 was mainly due to the increase in agricultural production (+18.3% compared to 2016), in information and communications sector (+10.9%), in professional, scientific and technical activities (+9.9%) and in wholesale and retail, repair of vehicles, transport, storage hotels and restaurants (+8.4%).
According to various sources the GDP growth is expected to slow over the next two years as it returns to more sustainable levels, but still high with growth of over 4%.
The growing economy in Romania has generated new working places and the unemployment rate has registered a decreasing trend, reaching an estimation of 4.6% in 2018.
Inflation rate declined between 2013-2016, mainly influenced by the evolution of food prices (lower due to the VAT rate cuts to 9% from 24%), however during 2017, the inflation rate started to increase due to significant wage raise, although core inflation was still modest. The inflation rate is expected to get over 4% by 2018 as the government introduces further public sector wage hikes.
2. CONSTRUCTION - REAL ESTATE
2.1 RULE SYSTEM
The construction regulatory system in Romania is a traditional one where the majority of the laws, standards and norms are adopted and enforced from the central government level. The local public authorities could intervene at the local level only regarding the local planning requirements.
After 1989 the entire legal framework and technical regulations were subject to change, in order to adapt to European Union practices.
• Law on Building Permit (50/1991; 125/1996; 453/2001) & amendments October 2016
• Law on Construction Quality (10/1995)
• Housing Law (114/1996 + Ordinance 44/1998)
• Government Decision on General Urban Regulation (525/1996)
• Law on Protection of the National Cultural Heritage (1998)
• Law on Efficient Use of Energy (199/2000)
• Law on Urban and Spatial Planning (350/2001) & amendments October 2016
Other important legislation which regulates construction activities at a broader general level include the Romanian Constitution and the new Romanian Civil Code (entered into force in October 2011)
Laws and regulations for specific functional categories of construction (residential, hotels, office buildings, schools, hospitals etc) are also in place.
Construction procedures, timing & costs
(Source: EU Commission, Construction sector Romania 2017)
2.2 LEADING CONSTRUCTION COMPANIES
2016 Company Turnover
(mil. EUR)
Profit
(mil. EUR) Employees
1 Strabag 203 4,6 615
2 Bog'Art 111 1,5 413
3 Constructii Erbasu SA 85 1,6 667
4 CON-A 81 4 580
5 Astaldi SPA 75 -15,8 487
6 PAB Romania 61,5 6,8 303
7 Danya Cebus 42 12 44
8 Build Corp 38 2 62
9 Aktor SA 37,7 -5,8 287
10 ACI Cluj SA 33 0,75 365
TOTAL - 768 - 3.823
(Source: wallstreet.ro - Registry of Commerce, Ministry of Finance)
2.3 SECTOR EVOLUTION AND CURRENT SITUATION
Prior to the start of the crises at the end of 2008, the Romanian construction industry was one of the most vibrant in the European Union. The year 2007 brought the fastest growth of the construction market after 1989 and the beginning of 2008 placed Romania first in Europe by growth rate.
Because of the financial crisis at the end of 2008, the construction sector in Romania recorded a deep decline in 2009-2010. During the years 2011 and 2012 this downward trend market continued, the evolution of the new development prospects in the construction sector faced many challenges.
However since 2013 the construction market in Romania has been registering a positive rebound. Residential construction has been the major driver for construction sector growth, the Government support having a positive impact, although non-residential constructions have continued to expand on all sections as well.
The value of the construction market in 2017 was around EUR 8.9 billion, its contribution to the formation of GDP being 4.6%, but business owners say that the market potential could be as high as 8-9%.
According to data released by the EU Commission, the total investments in constructions dropped by 42,5%
between 2008-2009, and though it has been recovering since then, it was still 29% below the 2008 level in 2016. Investment in the construction sector totaled EUR 17,6 billion in 2014, out of which EUR 3,7 billion was invested in dwellings and EUR 13,9 billion was dedicated to non-residential and civil engineering.
(Source: EU Commission, Construction sector Romania 2017)
Amongst challenges which the sector faces are the low public investments and decline in workforce.
However the forecast is optimistic, the construction industry being expected to continue its upward trend.
Rising income levels and an increase in the employment rate are propelling the demand for residential property. Further the boom in the service sector (particularly in IT, retail and trade) is driving the demand for office space, retail and industrial developments in the country.
Although Bucharest has been the main attraction for construction investments, in the past few years developers have been targeting other large cities as well, especially Center, North-West and West Romania (Brasov, Sibiu, Cluj, Timisoara), major construction projects being under development and others being about to launch.
In the past decade the construction sector has started to be oriented towards green-buildings, so buildings that are friendlier to the environment and towards investments in mixed-use projects (office, residential and commercial spaces). This trend will continue to rise in the years to come. More and more green buildings will continue to appear driven by demand of young generations and the increasing global need for sustainable development.
Given these circumstances, the increase of all real-estate construction segments (residential, office, retail and industrial), and the orientation towards green buildings, the construction sector has registered and will continue to register a strong demand of modern technology, construction and interior design materials, from middle to high quality materials.
3. SUB-SECTORS
3.1 RESIDENTIAL
The residential market recorded modest improvements after 1990 for almost a decade. The first signs of change appeared after 2004 when Romania started to export labor force and a constant flow of incoming money started to hit the market. In addition, the new born credit market generated the short booming period in the Romanian real estate that lasted 4 years. 2007 was the year which registered a record number of residential projects, both in Bucharest and the country at large. However, the residential booming period in Romania was characterized by a rapid increase in prices which did not reflect the real purchasing power of the population, surpassing the average income of the inhabitants.
The residential market continued to develop through the first half of 2008 while the second half of 2008 was a turning-point moment.
The turmoil within international financial markets started to show repercussions on the Romanian real estate market with severe effects for the residential segment. Thus between 2009 and 2012 developers focused on finishing the already started projects instead of launching new developments. The demand did not keep the pace with deliveries and the stock of delivered but unsold apartments was on a rise trend. As a consequence the sales prices registered a sharp decrease of up to 30% compared to 2007, getting much closer to the requirements of middle income customers. The residential market started to stabilize and recorded slight improvements in 2013-2014 while 2015-2016 showed clear signs of revival. According to the National Institute of Statistics 52.206 new dwellings were completed across Romania during 2016 which was 11% more compared to previous year.
(Source: analize imobilare and imobilare.ro)
The residential market has followed a positive trend over 2017 and 2018, registering increases in development pipeline and new completions, active levels of demand and an accelerated growth in average prices. A new residential supply of 53.301 units was completed in 2017 in Romania, representing a 2% raise compared to 2016 and the 4th consecutive year of growth. However the activity on the residential sector was still below the top performance recorded in 2008.
(Source: analize imobilare and imobilare.ro)
The residential demand has also registered increases as from 2016, especially helped by an accelerated increase in salaries (+15% EUR), residential sales witnessing positive results for both the new and old properties, stimulated also by the “First House” governmental program and 5% VAT facilities.
(Analize imobiliare – data Q2 2018)
Residential prices have started an upward evolution from 2015 accelerating year-by-year and reaching a 10% increase throughout 2017. Prices will continue to increase in 2018 and the demand will maintain at higher volumes than deliveries.
Analize imobiliare – data Q2 2018
New residential projects (data spring 2017)
Source: Analize imobiliare (data spring 2017)
3.2 OFFICE
The Romanian office market recorded a rapid growth starting 2003 mainly due to the foreign newcomers companies that profited from the economic growth to extend their operations, to the relocations and also to the expansions of the existing foreign companies. 2003 marked the rise of the business park concept, which over time proved to be a success. Starting 2006 the developers became more and more interested in the efficient, good quality buildings, with large floor plans and pleasant landscaping, and started similar projects which, because of the high demand, were all fully leased upon delivery in 2007. The office segment continued to perform remarkably well during 2008 as pre-existing unsatisfied demand corroborated with increasing development activity initiated in the previous years contributed to a further market expansion.
The office segment was hit by the economic crises in the second half of 2008, the next 2 years to come registering significant contractions of demand and strong increase in vacancy rates. In terms of availability 2011 was the first year since 2008 when office take-up surpassed new supply. The office market has shown signs of recovery as from 2013 when due to a stable demand rate correlated with the relatively low level of new completions, the vacancy rate has registered a downside trend.
In 2016 the office market was considered by the analysts the most active segment of the real estate market, registering an impressive take-up (Bucharest 41% higher than in 2015), a significant volume of new deliveries and a demand of 50% higher than in the boom years.
Bucharest – the capital-city has been a competitive office building market, followed by a few major cities such as Iasi, Timisoara, Cluj where several international service providers and IT companies among others have established hubs, boosting demand for quality offices.
The office sector reached a mature stage of development, the year 2017 being characterized by record volumes of new demand, deliveries of multi-phase business parks and strong pipe-line development in Bucharest and across the main cities, coupled with decreasing vacancies and stable rents.
Source: GVA Active, Romania real estate market report 2018
Source: Active Property Services, Romania real estate market report 2017
Main projects in Bucharest – office sector
3.3 RETAIL
Due to the strong economic growth starting 2003, the retail market recorded a quick development, focusing on the development of new shopping centers, high street shopping and retail parks. During 2003–2008, the demand for retail was in a continuous upward trend, the sector becoming the target of international retailers and developers. The year 2008 was one of the best years for the retail segment in Romania since 1989. But the international financial crisis at the end of 2008 affected the Romanian retail market too, the trading environment started to deteriorate and, as a result, most of the retailers slowed down or postponed their expansion plans. In 2009 the overall retail activity continued to decrease while 2010 was marked by a more optimistic atmosphere among retailers due to the slight stabilization of sales, although the improvement of the sector was very modest. As a consequence the offer of retail units was higher compared
to the absorption capacity of demand, the vacancy rate was relatively high, which led to considerable rent compressions. This trend continued during 2011-2012 as well. The retail segment was mainly supported by the super/hypermarkets and do-it-yourself centres, however other subsegments were also present:
fashion/malls, furniture, banks, household appliances, casinos, pharmacies, telecom operators etc.
2013 witnessed a market rebound with expansion of retail chains across the country, especially the food sector. The period 2014-2016 was extremely favorable to the real estate sector in Romania, in 2015 the retail market being the star of the Romanian real estate industry in terms of development of new facilities or modernization or expansion of the existing ones. Significant increased development in all retail subsegments has continued since then, 2017-2018 registering growth in supply and demand, coupled with decreased vacancy rates both on the shopping centre and retail park markets. Modern retail accounts for over 50% of the market. Trade is very well centered around some big players.
Source: Active Property Services, Romania real estate market report 2018
3.4 INDUSTRIAL
Due to the Romanian economic growth in all sectors, there were recorded high levels of industrial space demand throughout 2004–2008. 2007 was a glorious year for the overall industrial sector. The Romanian industrial market faced the global storm at the end of 2008 rather well. During 2009 and 2010 the supply recorded a slowdown, as a number of new projects or extensions of existing projects confronted delays due to capacity and financing constraints. The years 2011–2013 were characterized by stability in terms of industrial activity with low delivery and low demand, same vacancy rate and same rent levels.
Starting 2015 the logistic sector has come under spotlight. Booming investments in manufacturing and retail, coupled with the presence of numerous automotive companies, have resulted into an increased demand for logistics facilities.
2015 marked the highest level of new supply of industrial and logistics spaces since 2008, an increased transactional activity, a higher take-up and a deep decrease of vacancy rate. The most dynamic occupiers were companies active in the retail sector (37%), followed by distribution & logistics (30%) and production sector (26%). The upward trend has been followed also during 2016 and 2018.
Bucharest dominates the country’s industrial and logistics sector being followed by other large regional markets, such as Timisoara/West Romania, Ploiesti and Pitesti/South Romania, Cluj/North-West Romania and Brasov/Center Romania.
The most attractive locations for the industrial and logistics centres in Romania have been the 3 highways:
A1 (Bucharest-Nadlac/West Romania), A2 (Bucharest-Constanta/South-East Romania) and A3 (Bucharest- Bors/North-West Romania), due to the good connections with the rest of Europe, however other regions in the country are being targeted as well.
Source: Colliers International
4. CONSTRUCTION ORGANIZATIONS AND MAIN TRADE FAIRS
Organizations
The Romanian Association of Building Contractors (ARACO) http://www.araco.org/
The Union of the Romanian Architects http://www.uniuneaarhitectilor.ro/
The Order of the Romanian Architects (OAR) http://www.oar.org.ro/
The Association of Distribution of Construction Equipment https://www.aduc.ro/
The Association of Construction Material Manufacturers http://www.apmcr.org/
Trade fairs
Construct & Ambient Expo
http://construct-ambientexpo.ro/?limba2=en TiMon
http://timon.ro/
RomTherm
https://www.romtherm.ro/en/
5. REFERENCES
Publications / Press Releases / Market Reports:
Romanian National Institute of Statistics European Commission
Erste Group Research Business review.ro Wallstreet.ro
Doing Business Romania
Analize imobiliare – imobiliare.ro GVA Active
Activ Property Services C&W Echinox
Colliers International
Disclaimer
The information in this publication is provided for background information that should enable you to get a picture of the subject treated in this document. It is collected with the greatest care based on all data and documentation available at the moment of publication. Thus this publication was never intended to be the perfect and correct answer to your specific situation. Consequently it can never be considered a legal, financial or other specialized advice. Flanders Investment & Trade (FIT) accepts no liability for any errors, omissions or incompleteness, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organization mentioned.
Date of publication: December 2018
