The first three quarters of 2023 look good for the industrial & logistics real estate sector. Overall, total leasing demand of 550,000 square meters in the Q1-Q3 2023 period was largely comparable to last year’s level, according to data from Colliers, with the note that this result only includes leasing deals part of the public domain, i.e. deals part of the local real estate forum or those reported in other public documents, like financial reports of companies or media reports. Colliers consultants estimate that direct deals between landlords and tenants that end up unreported are quite significant and likely add at least 30% to overall leasing volumes. Colliers consultants also attribute the market's strong growth to the fact that Romania is seen as a more visible regional distribution hub by companies targeting the South-Eastern part of Europe, but not just for this region.
Bucharest (36%), Timisoara (26%), Brasov (12%), and Slatina (10%) account for the bulk of the Romanian modern industrial & logistics (I&L) leasing deals concluded in 2023 in the first 3 quarters of the year, cementing a trend which was expected by Colliers – that deals outside the Capital city will outshine those in Bucharest, given that in the past the lion’s share (well over 50%) were done here. In other countries in Eastern Europe with a developed regional economy and where geographical distances are longer, the capital’s share has been much lower for many years. For instance, Warsaw accounts for less than a quarter of Poland’s total modern warehousing stock, whereas Prague represents one-third of Czechia’s. Both shares are closer to the relative weight of the capital cities in the countries’ GDP, whereas Bucharest represents roughly a quarter of the country’s GDP with more than half of the I&L stock.
Total supply should reach 7 million square meters this year, up from 6.2 million square meters at the end of last year. With another half a million square meters expected to be added in the coming quarters in different regions of the country, it is obvious that the focus is shifting from the Capital to other cities.
“This shift in focus is largely explained by several factors, including an increasing focus from retailers on various regions of the country in which they had previously had limited exposure, a growing trend of industrial operations, partly due to the re-shoring/friend-shoring movement, availability and cost of the labor force, and recent or expected improvements with regards to infrastructure. Another quite relevant trend which we have also spoken about is the emergence of Romania as a more visible regional distribution hub. Initially, interest in such locations was primarily aimed at Bucharest, but we have noticed numerous companies looking at other cities for such hubs, including in the southern part of the country. Furthermore, amid more costly labor markets in Poland, Czechia, and Hungary, Romania is becoming an even more attractive proposition as a regional center, which may explain the recent growing interest around the country. In addition, Romania offers comparable labor costs to China for industrial operations”, explains Victor Cosconel, Head of Office & Industrial Agencies at Colliers.
Sector-wise, this year it was the logistics sector’s turn to rank up nearly one-third of total leasing deals, with some 160,000 square meters of the leases being signed by logistic companies, followed by automotive with roughly 120,000 square meters of leasing deals. As in the past, if we trace the bulk of deals signed by 3PL operators and companies related broadly to the retail sector, it is still likely that the wider consumer sector is responsible for the bulk of the demand.
The vacancy rate for prime warehouse spaces remained in single digits, mostly below 5%, in most submarkets in Romania, including Bucharest, meaning that tenants over a certain size may have difficulties in finding the space they want in terms of costs and location. Consequently, Colliers consultants believe that the market favors landlords at the moment in many parts of the country. In other words, rent increases recorded over the last year and a half are more than indexation-related.
“Up until a year and a half ago, we would see quoted rents around 3.7-3.8 euro per square meter for prime properties around Bucharest, but there was a gradual increase towards 4.0-4.5 euro per square meter last year. By the middle of 2023, the low point was already starting to look around 4.5 euro per square meter, with developers quoting rents towards 5 euro per square meter in areas of the country with very limited supply. Of course, these figures are for smaller surfaces and a regular lease duration, as bigger tenants, who seek BTS units and contracts past 7-10 years, will see substantially lower rental costs”, points out Victor Cosconel.
The outlook remains very optimistic for the local industrial and logistics scene and there is still significant room for growth compared to other CEE countries. While Romania has similar consumption levels (volume-based indexes) to Poland or Czechia, its warehousing stock per capita is 2-3 times smaller than in these countries. This means that both demand and development are expected to remain strong going forward, even discounting the fact that both Poland and Czechia act as regional distribution hubs to a much larger extent than Romania.
“Overall, 2023 is shaping up as potentially the best year Romania has ever seen in terms of how vibrant the I&L is. We expect to see new records for leasing activity in the subsequent years, particularly as the stock can easily surpass the 10 million sqm level by the end of this decade and have plenty of room to grow at the same time. The local market is still a fairly untapped market by European standards (a 7 million square meters stock is dwarfed by regional peers like Poland – 30 million square meters or Czechia – 11 million square meters) and offers an interesting proposition given its fairly low wages and qualitative labor force. On the other hand, we consider that the geopolitical changes currently underway globally favor the idea that many logistical and manufacturing operations will try to shift away from Asia close to home, meaning that Western European manufacturers may prefer bringing at least some of their operations close and Romania is set to be a prime destination”, concludes Victor Cosconel, Head of Office & Industrial Agencies at Colliers.
In summary, Romania can accommodate much more I&L stock, probably up to close to 10 million square meters by the end of this decade. Another positive change in Romania is the perspective of a much improved infrastructure. Some of the new roads will open up new markets for I&L operations. For example, the new ring road around Bucharest is already leading to fresh interest in the southern area of the Capital, while the highway to Moldova will finally create a bridge to that part of the country, which will likely lead to more logistics and manufacturing operations there.
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