ROMANIA RESEARCH & FORECAST REPORT

Transcription

1 ROMANIA RESEARCH & FORECAST REPORT 2012 Accelerating success.

2 2012 RESEARCH & FORECAST REPORT ROMANIA TABLE OF CONTENTS Foreword 3 Major Deals 4 Executive Summary 6 Economic Overview 7 Office Market 8 Retail Market 9 Industrial Market 12 Land Market 13 Investment Overview 15 Residential Market 16 Hotel Market 18 Key Metric Definitions 20

3 RESEARCH & FORECAST REPORT 2012 ROMANIA FOREWORD Dear Reader, The year 2011 was a mix of two totally different journeys, one full of hope, head straight up, during the joyful spring and another in a much slower pace, during the confusing and gloomy days of autumn. The debt crisis that extended throughout the second half of the year stalled the optimistic business plans started in Q1, and what seemed to be the return of the solid growth turned out to be the start of concerns regarding the real European economic crisis. Walking on thin ice, the real estate players have spent most of their time in 2011 negotiating with banks, but even if their doors were open for discussion, the safe deposits were locked and the key thrown in the hands of the mother banks. In order to keep the wheel spinning, they adopted the team work business style and some shook hands with equity partners. They also fought hard for prelease contracts, but few managed to secure one. Food retailers were particularly active and audacious in signing prelease agreements, since the retail figures outperformed those registered in In return, they got the best locations, prices and conditions ever seen on this market. While the few liquid players took advantage and secured very good deals, whether renting or buying, the indebt developers really struggled and some finally collapsed under the pressure of banks. As a result, the number of bankrupt projects exceeded the previous year. It was survival of the fittest and this mood unfortunately cannot lead to win-win situations, but, on the contrary, it carries along a series of consequences. Thus, we witnessed aggressiveness during the early development stages : land owners, bank representatives, project developers, real estate agents and tenants, met for negotiations that eventually fell apart. Driven by the fear of not losing their protection against each other, the parties failed to align their business objectives. The circle of trust who governed the real estate market seems now to be broken. Due to egocentric attitudes and the race for individual advantages negotiations take too long and opportunities are missed. In the global turmoil context, it is no wonder that local disputes only worsen the business course. Since the European debt crisis continues and Greek default still threatens our region, we expect a tough 2012 in terms of market conditions. IMF recently changed the GDP estimation for this year to 1.8%, so this means another year of slow activity, lack of liquidity and financing sources, hence potential losses. Therefore, once again we might find ourselves on the battlefield. I trust that in 2012 all parties active on the real estate market reconsider the values of the real estate business and work together for building a sustainable market with fairness, trust and professionalism. What we need to do is to work out creative solutions to make projects happen since the traditional pillars are no longer available. We need to anticipate the needs of the next generations in order to be competitive in rapidly changing times. I hope that through our research papers and our passion for knowledge and education, Colliers International continues to be the best source of information and analysis for you. I wish you a pleasant read and a thoughtful reflection on how we can turn the market around and be all winners. Sincerely yours, Ilinca Paun Managing Director Colliers International 3 COLLIERS INTERNATIONAL

4 RESEARCH & FORECAST REPORT 2012 ROMANIA MAJOR DEALS OFFICE PREMIA MED THE LARGEST LEASING TRANSACTION OF THE YEAR PremiaQaMed, the largest hospital management company in Austria, leased 27,300 m 2 in North Point building, located in the Northern part of Bucharest, where it will operate the biggest private Romanian hospital in Romania. The deal was mediated by the Office Division of Colliers International and ranked as the largest leasing transaction of 2011 in Romania. LAND INTERPRIME AT THEIR SECOND LAND ACQUISITION IN ROMANIA The Land Division of Colliers International Romania represented Baduc S.A., one of the main local construction materials retailers, during the sale process of the 20,000 m 2 land plot located in Basarab Overpass area, one of the areas in Bucharest that are under fast development. The purchaser, Interprime Properties, part of Inter IKEA Group, looked for a suitable office plot to accommodate their second project in Romania. VALUATION & ADVISORY SERVICES MCDONALD S PORTFOLIO APPRAISAL The Valuation and Advisory Division completed the appraisal of the real estate portfolio of McDonald s Romania, the largest network of quick service restaurants in Romania. The project comprised the analysis of over 30 Drive-Through McDonald s units spread throughout the country, as well as the appraisal of fit-out and interior design arrangements for the leased units. Colliers International has been instructed to provide the valuation for financial reporting purposes. INVESTMENT VICTORIA CITY NEW JOINT-VENTURE RETAIL INVESTMENT The South-African investment fund NEPI, together with the Canadian investors of CD Capital and Benevo, signed a partnership for the development of Victoria City Center, the 56,000 m 2 shopping center in the Northern part of Bucharest. The transaction, mediated by Colliers International, represents a major landmark on the real estate market, as it is the first shopping center development joint venture to be signed in Bucharest in 4 years. 4 COLLIERS INTERNATIONAL BUILDING SURVEYING PFIZER AND ELECTRICA SOLUZIONA RELOCATIONS After launching the Fit Out Project Management service, the Building Surveying division of Colliers succeeded in diversifying its technical products from Project Monitoring and Technical Due Diligence, to Fit-Out Project Management, Measurement Standards, Move Management, Portfolio Optimization, Architectural Design and Master Planning consultancy. Thus, the Building Surveying team managed to offer solid assistance in a wide range of construction challenges, contributing to the reduction of associated risks or undesirable possible cost overruns.

5 RESEARCH & FORECAST REPORT 2012 ROMANIA MAJOR DEALS INDUSTRIAL EMAG, ASESOFT AND FLANCO 14,000 M 2 CONSOLIDATION Colliers was assigned by the three major IT&C players to identify the best solution to accommodate their joint activities, as part of a larger consolidation process. With an innovative approach, Colliers industrial team relocated them to a 14,000 sqm in Europolis Logistic Park, structuring the deal to allow further expansions and a mixed use of office and warehouse OFFICE ING 14,000 M 2 CONSOLIDATION IN CRYSTAL TOWER Colliers International Office Agency team in Romania represented the tenant, ING Bank, in the process of setting their head-quarter in the Cristal Tower building located in Bucharest s CBD. ING also leased 800 m² of office space for a new branch in an adjacent building Metropolis. The deal is one of the largest office leasing deals in Romania in 2011 and it classifies Colliers Romanian Office Agency team as number 1 in terms of market share. RETAIL CORA LEASED 7,700 M 2 IN CITY PARK CONSTANTA Colliers International mediated the transaction through which Cora leased a space of 7,700 m 2 in City Park Mall of Constanta, one of the major cities with over 300,000 inhabitants in Romania. Apart from Cora, Colliers International managed to attract, over the past year, tenants like: LC Waikiki, Stefanel, Stonecreek, Mirano, Noriel, Animax etc. PROPERTY MANAGEMENT GE CAPITAL REAL ESTATE AND ALLIANZ TIRIAC 50,600 M 2 After launching the Property Management division last year, Colliers International succeeded in winning two major clients, a medium sized office building developed by Allianz Tiriac and the two properties owned by GE Capital Real Estate in partnership with Helios Phoenix, in Timisoara and Brasov respectively. In this role, Colliers is responsible for tenant management, sourcing, controlling the operational budget, maintaining and improving the overall performance of the assets, as well as financial services and reporting to the landlord. LAND DEDEMAN 6 MLN. LAND ACQUISITION IN CONSTANTA The Romanian retailer Dedeman, the leader of the local DIY market, bought a 3,5 ha plot in the Northern part of Constanta, in one of the city s dominant retails schemes. The Land Division of Colliers mediated the sale transaction through which Dedeman secured the location for its second store in Constanta, planned for opening in COLLIERS INTERNATIONAL

6 RESEARCH & FORECAST REPORT 2012 ROMANIA EXECUTIVE SUMMARY Executive Summary RECENT TRENDS Economy: Last year, Romania s strong performance in industrial production, as well as its solid export performance helped to recover the country s GDP. Investment: 2011 investment figures reflected a mixed appetite for real estate investments. Following a dynamic H1 where a number of new deals were generated, the market slowed down at the end of H2 as investors took a wait and see approach as the European sovereign debt crisis unfolded. Industrial: The industrial market remained stable as only 10,000 m 2 came on market in Bucharest. Demand decreased by 10%, a level comparable with 2004 s demand figures. Offices: In continuation of the 2010 trend, an increasing number of companies consolidated their offices into a single property. MARKET INDICATORS 2011* 2012* GDP GROWTH UNEMPLOYMENT WAGES INFLATION OFFICE RENTS INDUSTRIAL RENTS RETAIL RENTS YIELDS Retail: The new supply in shopping centers was notable in terms of the size of projects but also significant in terms of the ability of the developers to bring projects online with high occupancy rates of over 70%. Food retailers remained one of the most active segments in the market, followed by large fashion retailers MARKET PROGNOSIS Economy: In the near term, the increased CDS spread is expected to be reflected in domestic interest rates which may hinder investment and consumption. Investment: We are expecting a widening of the price gap between sellers and buyers in the coming months with fewer deals initiated as a result. Industrial: The growth of the industrial market in 2012 will be similar to the previous year. Logistic operators will continue to be the most active players in terms of demand. Offices: As new and existing developers revitalise their optimism toward developing in the Bucharest market, demand will continue to be driven by companies seeking to optimise their space. Retail: The number of preleasing deals in the best located shopping-centres (expected openings in ) will carry on from the positive trend seen last year. * COMPARED TO THE PREVIOUS YEAR 6 COLLIERS INTERNATIONAL

7 RESEARCH & FORECAST REPORT 2012 ROMANIA ECONOMIC OVERVIEW Economic Overview Population 21,904,551 Top Three Cities 2,563, % Bucharest 1,942, % Timisoara 311, % Iasi 309, % Economic Makeup GDP Labour Agriculture 12.2% 29.7% Source: IMF Industry 37.6% 23.2% Services 50.2% 47.1% Source: CIA World Book SUMMARY Despite having a reputation as one of the Balkan bad boys, according to the latest IMF report published January 23 rd, 2012, the Romanian government received praise for its monetary and fiscal discipline. Source: IMF The IMF also upgraded the country s GDP performance for 2011 due to its strong agricultural output GDP estimates were, however, revised downwards to reflect the externalities of the European crisis. While 2011 growth is expected to close at a growth rate of 2.0%, by the end of 2012 we will see a slight decrease in economic growth to 1.8%. Strong industrial production and exports has initiated a sustainable recovery in Romania s GDP. Favourable economic conditions, including lower unemployment rates, kick-started a recovery in domestic demand and revealed that the slump in retail sales has bottomed out. The dips in all three trends are supported by the external impact of austerity measures in the Eurozone and by extension, the EU as a whole. Romania currently has a Stand By Arrangement (SBA) with the IMF for a total of 3.4 billion. While not all of the money has been disbursed, as Romania continues to meet IMF criteria, funds will be made available. Despite the risk of disruptive fallout from the Eurozone it is felt that Romania will be able to meet its fiscal target through continued discipline rather than new policies. Source: IMF Unfortunately despite this upturn in performance, the price of risk by association of both the EMU and EU periphery has meant that CDS spreads on Romanian debt have widened considerably. In the near term this is expected to be reflected in higher domestic interest rates which may hinder investment and consumption. 7 COLLIERS INTERNATIONAL

8 RESEARCH & FORECAST REPORT 2012 ROMANIA OFFICE MARKET Office Market 400, , , , , , ,000 50,000 0 Key Office Figures Total Stock 1,474,000 m 2 Net take-up 145,000 m 2 Vacancy rate 16.5% NEW SUPPLY & PIPELINE SUPPLY In 2011, the modern office stock of Bucharest reached approximately 1.5 million m ,000 m 2 of office space was completed last year and delivered in both central locations and in the outskirts of the city. The pace of new office completions continued to slow down and is expected to be muted in the coming years. DEMAND & VACANCY In 2011, market activity increased slightly, following the trend started in Net take up reached 145,000 m 2 out of the 175,000 m 2 of total occupational market activity. Some of the tenants that renegotiated their contractual terms, also expanded the leased area. In fact, office space expansions represented 8% of total net take up. An increasing number of companies consolidated their operations into a single property. For instance, three of the top ten financing institutions secured new, modern space. Companies who chose to consolidate were able to take advantage of landlords flexibility and current rental rate levels. The most active companies of the year were financial institutions, medical and IT&C segments, which together represented half of the 145,000 m 2 net take up. Area ASKING RENT LEVELS West Piata Presei 16 CBD Baneasa Dimitrie Pompeiu Floreasca South 12 Vacancy West 0% Floreasca Barbu Vacarescu 2% Charles de Gaulle 7% Dimitrie Pompeiu 8% Victoriei 10% Baneasa 18% East 39% Pipera 46% East In terms of availability, 2011 is the first year since 2008 when office take up surpassed new supply. Therefore, the average vacancy rate dropped to 16.5%. Taking out the Pipera area, the vacancy rate will sit at 12.5%. Availability throughout the city varies by area. For example, districts such as Floreasca and Barbu Vacarescu benefit from an almost 0% vacancy rate. RENTS Overall, headline rent levels did not record any significant change in comparison to rental rates in Although asking rents remained stable, the majority of landlords offered rent-free months and other financial incentives, and hence lower effective rents, especially in buildings with high-vacancy. PROGNOSIS For 2012 and 2013 combined, we estimate that another 170,000 m 2 will be completed, out of which 65,000 m 2 is already pre-leased. In 2011, new and existing developers rekindled their optimism regarding the Bucharest market and are seizing the opportunity to build. Taking into consideration prudent tenants, new delivered buildings will have higher technical specifications and be better designed, in attempts to address the needs of clients. Demand will continue to be driven by space optimization processes. Also, as lease agreements come to an end tenants will have the opportunity to move into new office facilities. The lack of large spaces, above 3,000 m2 will lead to a comeback of preleased transactions. Therefore, take up will be of similar value or we might even expect a slight increase in demand. As the market matures, overall asking rents will be stable and may increase on the short term in areas with low vacancy rates. In the last couple of years, local authorities initiated several infrastructure projects, aiming to facilitate and improve the urban traffic situation and thereby enhancing access to several office areas, such us Dimitrie Pompeiu and Western Bucharest. 8 COLLIERS INTERNATIONAL Contact: Maria.Florea@colliers.com

9 RESEARCH & FORECAST REPORT 2012 ROMANIA RETAIL MARKET Retail Market Shopping Centers Area (m 2 ) Romania Bucharest Countryside Shopping Centers Stock* Shopping Centers New Supply* 1,305, , , ,000 20, ,000 *Starting with 2012 Colliers has changed the methodology of calculating retail stock. The new calculation of shopping centers stock includes any commercial scheme planned, built and managed as a single entity, comprising units with a minimum GLA of 5,000 m2. NEW SUPPLY City Bucharest Constanta Shopping Center Baneasa Shopping City (extension) Maritimo Shopping Center Size (m 2 ) 20,000 51,000 Craiova Electroputere Parc 43,000 Arad Galleria 32,000 Oradea Oradea Shopping City 30,000 * The figures are based on the official declarations of the developers SUPPLY In 2011 we witnessed a total supply of shopping centres developments similar to the level reached in 2009 and almost on par with the development levels recorded during the real estate boom. However, the main difference is that the proportion of food retailers (in m 2 ) taking up space is the largest since 2002, reaching almost 30% of the GLA. Although retail news in H1was quiet, H2 saw the total new supply measure 180,000 m 2 of malls GLA, carried out in four new shopping centre projects and one extension. In addition to the size of new retail supply in the market, the percentage of space that was pre-leased was at its highest in comparison to previous years reaching over 70% for all retail projects. Apart from the 20,000 m 2 extension of Baneasa Shopping City, all the other projects were delivered in the countryside. DEMAND The food segment remained one of the most active retail segments in the market, followed by the large fashion retailers led by Germanic operators expanding in the market. Retailers who had previously put their expansion plans on-hold got their plans underway but the decision to expand has become a lengthier process as businesses are more cautious. Retail locations with the largest geographic appeal continued to be Bucharest as well as large cities with inhabitants over 200,000 people. We also witnessed anchor tenants that opened shops in smaller cities (100,000 to 150,000 inhabitants) in order to address a segment of demand not covered yet. Brand No. of opened shops There were several new retailers who entered the Romanian market in 2011, such as H&M, who in less than one year opened 11 shops and agreed on several new locations for H&M 11 New Look 4 Calzedonia 3 Eponge Fashion 13 Wienerwald 3 City Rent level * ( / m 2 /month) Bucharest RENTS Rents remained stable in the top performing shopping centres that had limited vacancy. Different incentives such as free rent or fit-out contributions, as well as clauses that secured the success of the project like certain anchor tenants remained a market practice for existing centres. Incentives were also found in projects that were required to achieve a high occupancy rate at the time of opening. PROGNOSIS Currently there are 10 shopping centre projects under construction but the number of projects that undergo the leasing process is much higher. The quantity of pre-leases in well-located shopping centres ( completions) will continue to increase this year. Cities over 250,000 inhabitants Cities under 250,000 inhabitants 30-35** ,000 m 2 GLA is expected to be delivered in 2012, but given the leasing and construction status, there could be discrepancies in the actual opening dates. The Romanian retail market performed well in 2011, and as a result there is interest among new brands to enter the market in *These represent the highest rent levels that can be achieved in the well performing centers for units of 100 sq m, prime locations **This level represents a market average; there are big differences between cities based on the existing competition In terms of financial conditions we do not expect to witness significant changes. 9 COLLIERS INTERNATIONAL Contact: Georgiana.Andrei@colliers.com

10 REAL ESTATE REVIEW 2011 ROMANIA RETAIL MARKET Retail Market Retail Parks BIG BOX OPENINGS DIY Retail Brand Parent Company Opened Units BauMaxx BauMaxx 1 Bricostore Bresson 1 Dedeman Dedeman 5 Leroy Merlin Leroy Merlin 1 FOOD OPERATORS* Retail Brand Parent Company Opened Units Cora Delhaize 1+2** Kaufland Lidl&Schwarz 11 Carrefour Carrefour Group 2 Auchan MGV Distri-Hiper 2* Selgros REWE Group & Co. * Total size of the box over 5,000 m 2 ** Hypermarkets opened in shopping centers. GALLERY EXTENSIONS Project Owner City European Park (extension) NEPI 1 Braila Jupiter City Jupiter Pitesti RETAIL PARK OPENINGS Retail Park Area (m 2 ) City Colosseum 37,500 Bucuresti Botosani Shopping Center Cora Drobeta 29,000 15,000 Botosani Drobeta Turnu Severin SUPPLY The retail parks planned for H were successfully opened, bringing another 98,500 m 2 GLA on the market. The big retail parks schemes planned to be secured by developers in 2011 were postponed due to the complicated deal structures. Several stand alone units were secured by retailers in the food and DIY segments. Small retail schemes anchored by discount hypermarkets were developed continuing the trend seen over previous years. DEMAND The main focus of hypermarkets was to secure the best locations in the top cities, a trend that will continue. Still, the focus of some retailers and developers grew also towards medium cities with low modern stock of retail per capita. Kaufland and Dedeman were the most aggressive in terms of opening and securing locations. Apart from the leasing market, retailers also played an important role on the buying market. Succes hypermarket, a local brand, opened their first hypermarket units last year replacing PIC in two of their locations Lidl confirmed its aggressive expansion strategy with the first opening and the rebranding of the former Plus stores. RENTS Rents remained stable for most big box segments. The evolution of rents for the gallery operators followed the same trend as the shopping centres Due to the high land prices we may witness structures of retail park transactions that involve sale discussions of part of the boxes to end users. PROGNOSIS Due to economic situation and financing problems, risk minimization will be at the forefront of retail expansion plans. The limited number of good retail park plots at reasonable prices increases competition among retailers and developers in the good locations. Retailer sales are expected to remain at average levels in the short term, minimising the likelihood of higher rents. The smaller strip mall format anchored by discounters of all sizes will continue to represent development opportunities for experienced landlords and developers. There is only one outlet modern shopping center in Bucharest and due to the lack of new brands entry to the market we believe that the existing scheme is sufficient for Romania in the years to come. The retail mix in big boxes will remain limited to hypermarkets and DIY operators as the market awaits new brands to complete the mix of the parks. 10 COLLIERS INTERNATIONAL Contact: Georgiana.Andrei@colliers.com

11 RESEARCH & FORECAST REPORT 2012 ROMANIA RETAIL MARKET Retail Market High street VACANCY LEVELS Area Vacancy Centre 6% Semi-centre 12% Periphery 15% SUPPLY During the last year, a number of family businesses have experienced problems and exited from their commercial leases. In addition, many major networks gave up the unprofitable units leading to slightly increased vacancy rates on high streets in comparison to vacancy rates in After the opening of H&M in H1, along with the previously opened New Yorker and Zara stores on the ground floor of Unirii Shopping Centre, the new, non-traditional high street area expanded in the second half of 2011 with the openings of Stradivarius and Bershka. RENTS BUCHAREST Area Rent level ( / m 2 /month)* Centre Semi-centre Periphery 7-25 * 100 m 2 locations RENTS COUNTRYSIDE City Rent level ( / m 2 /month)* Large Medium Small * 100 m 2, central locations DEMAND In 2011, just like in the previous year, food operators (minimarkets, supermarkets, producers), were the most active segment for high street space. The development of the old centre continued as an entertainment area, generally bringing a mix of restaurants, clubs and coffee shops. Fashion retailers have expressed their interest in this area in 2011 but in the absence of an anchor tenant and the legal and structural issues of these buildings, there were no significant transactions. The Adidas store opening which took place in Q was not followed by expansions from other international fashion operators. The requirements of luxury brands are still primarily directed to Calea Victoriei. Victoria Men - the luxury multi-brand store was opened on the main luxury artery in Burberry has already secured a location which should be opened in H and Max Mara will be relocated in a new location also on Calea Victoriei. The Commercial Gallery of Marriott Hotel increased its mix of luxury brands with the opening of a Valentino store. Calea Dorobantilor is increasingly becoming the preferred location for retailers, but due to the lack of anchor tenants, similar to the situation in the old centre, it makes closing transactions difficult. Lack of shopping centre supply in medium sized cities coupled with the potential demand these cities represent, has forced some retailers to open on high street locations instead of in malls. RENTS Rents were constant in the central and high traffic areas, as demand for high street locations remained unchanged. The rest of Bucharest witnessed a slight decrease in rents of about 10%, similar with the situation in PROGNOSIS We estimate that the supply of retail space in the Old City Centre will increase both through consolidation and redevelopment of older buildings and through new construction of existing plots or instead of demolishing buildings. A higher percentage of classic shopping centre retailers will turn their attention towards retail spaces on high streets in medium sized cities, once the first fashion anchor arrives in the area. Restructuring and consolidation of large commercial networks will continue in Also, most contracts signed in 2007 will expire this year, which will provide the basis for a new wave of renegotiations and relocations. The luxury segment could witness several new entrants from the brands that have been looking at the market for the past few years. 11 COLLIERS INTERNATIONAL Contact: Georgiana.Andrei@colliers.com

12 RESEARCH & FORECAST REPORT 2012 ROMANIA INDUSTRIAL MARKET Industrial Market Thousands m 2 Key Figures Total Stock 922,000 m 2 Take-up 76,000 m 2 Vacancy 15% Prime Headline Rent 4.2 m 2 /month INDUSTRIAL AND LOGISTIC SPACE DEMAND DEMAND & DELIVERIES IN THE COUNTRYSIDE SUPPLY During 2011, the industrial market was characterized by stability as only 10,000 m 2 was delivered in Bucharest, in a build-to suit facility. Thus, at the end of 2011, the industrial and logistic stock measured 922,000 m 2. In the countryside, the modern stock increased by 95,000 m 2 in both build-to-suit facilities and speculative developments. Most developers started their projects only for specific tenants so the majority of new industrial space outside Bucharest was built-tosuit. A few projects started on a speculative basis including in Timisoara and Ploiesti. DEMAND & VACANCY In 2011, demand reached 104,000 m 2 in Bucharest, out of which one third represented renewals and renegotiations. Compared to 2010, demand for industrial and logistics space decreased by 10%. This take-up level was comparable to 2004 levels. Out of the total demand, half was driven by logistic operators. When selecting space, tenants had a propensity to seek out space that combined a mix of quality and an appropriate rental rate as opposed to being purely driven by price. Similar to previous years, most demand was located in the Western outskirts of Bucharest. Demand also came from existing tenants that either relocated or extended their space. Outside Bucharest, over 50,000 m 2 was leased and another 22,000 m 2 was extended. Out of the total activity, the automotive sector was most active in both new demand and renegotiations was the first year when important companies relocated outside of Romania and it is anticipated that the vacant space left behind will soon be occupied. The vacancy rate for industrial space did not change in RENTS In Bucharest, rental levels have remained stable, maintaining the past 12 months. the same values over PROGNOSIS As insecurity still looms over the economic circumstances in the European Union, industrial market trends will not vary in 2012 from the previous year. AREA (m 2 ) RENT ( / m 2 ) FORECAST < 3, Stable 3,000 10, Stable >10, stable While Bucharest remains the most important logistic hub in Romania, in terms of production and manufacturing, cities such as Cluj, Timisoara, Oradea, Craiova, Pitesti, Brasov, will continue to attract new tenants. Similar to 2011, logistic operators will be the most active players in terms of demand. Also, we expect that some of the outsourcing agreements will expire and hence we might see companies change their logistic operator. As lease agreements approach their expiration date, landlords will work to maintain their current tenants. Land transactions for industrial use will be limited as most of the large developers in the market already have additional land capacity for further developments. 12 COLLIERS INTERNATIONAL Contact: Viorel.Opait@colliers.com

13 RESEARCH & FORECAST REPORT 2012 ROMANIA LAND MARKET Land Market For 2012, we expect a moderate evolution and an activity volume comparable to the previous year With the prospect of better economic conditions and more attractive prices, 2011 started as a year with increased investor appetite for land plot acquisition. However, a good beginning is only half the battle as towards the end of the year, macroeconomic turmoil generated by the sovereign debt crisis and euro zone worries slowed down the investors pace, who became extremely cautious when making the purchasing decision. Nonetheless, numerous transactions were finalized during the past year (mostly for retail lands) and several others (for both retail and office land) have advanced to final stage, their conclusion depending on building permit approvals. We estimate that the total transaction volume on the land market in 2011 was comparable to that registered in 2010, even though the number of deals was greater comprised several big transactions amounting over 30 million, that were not repeated in SUPPLY REPRESENTATIVE LAND TRANSACTIONS City Area Value Buyer Bucuresti Calea Plevnei 2 ha 11 M* Interprime Bucuresti Sf. Voievozi & Popa Petre Bucuresti Drumul Taberei & Giulesti 2,400 m M Private Investors 2.7 & 1.5 ha 20 M* Auchan Constanta 3.5 ha 6 M Dedeman Bacau 1.9 ha 4.5 M Retail Developer Bistrita 2 ha 2 M Dedeman *Market estimation; no official information made public A significant number of the developers that undertook aggressive land acquisition campaigns between 2005 and 2008 and did not succeed in completing projects while the markets were in boom, tried to exit Romania and sell their portfolios. Companies in this situation were mostly of Spanish, Israeli or Greek origin and their portfolios consisted mainly of land plots for residential development only. Vendors that did not want to sell their assets at a loss found themselves in the situation of either holding the land plots while expecting a future market recovery, or finding alternatives like joint-venture partnerships for possible developments. Overall the supply of distressed properties remained rather low. Most of the highly discounted land plots were either plots situated at the periphery, or properties suitable for residential use only. DEMAND In Bucharest, the structure of demand seems to have emerged during the last two years and we have observed a segregation of three different layers: 1. Big box retailers/developers continue to be the main players on the market, in search of consolidating their position and their future strategic locations. The highest interest was shown for semi-central areas, within high-density population neighborhoods, excellent infrastructure, accessibility and visibility. We noticed a new trend on the market, that traditional residential or office developers and investors saw the increased potential of the retail sector and reshaped their strategies accordingly. 2. Office developers This segment targeted very well located land plots in Bucharest, in established office areas, with developed infrastructure and proximity to subway stations. They also pay close attention to the advanced status of the permitting process, which allows them to start construction, market and deliver the project ahead of the competition. 3. Residential investors This category was the least active of all and interest was expected mostly in partnerships. By acting this way, investors tried not to block liquidity in land plots and projects that were still difficult to sell in the current market. These investors target almost exclusively Prima Casa small scale developments (below 100 apartment units), and look for land plots within a price range lower than /m 2 of built area. 13 COLLIERS INTERNATIONAL Contact: Sinziana.Oprea@colliers.com

14 RESEARCH & FORECAST REPORT 2012 ROMANIA LAND MARKET Land Market BUCHAREST AREAS WITH LAND PLOTS TRANSACTIONS In addition to the above, a timid demand came from two other segments that continued to expand in 2011: medical and hotel sectors. One of the problems that slowed down transactions in 2011 (besides the increased time frame caused by the authorization process), was the uncertainty of the legal ownership of some of the properties, as well as the events and rumors present in the economic environment, that at times resulted in the revision of already discussed conditions and agreements. PRICES Prices moved slowly compared to 2010, registering a decrease within the range of 5% to 15%, on average. COUNTRYSIDE CITIES WITH LAND PLOTS TRANSACTIONS In some areas in Bucharest where interest proved to be high, we estimate that the prices reached their minimum, except for some specific cases. These categories take into account areas like Charles de Gaulle, Aviatorilor, Aviatiei, Barbu Vacarescu or Calea Plevnei. Peripheral locations as well as those areas with limited development potential (lack or poor infrastructure, residential use only) continued to experience decreasing prices, up to 35-40% compared to FORECAST For 2012, we expect a moderate evolution and a similar volume of activity as in the recently closed year, since investors show a reserved approach, in many cases resulting in the renegotiation of land prices. In this context, we expect average prices to continue on a downward trend, except for those highly targeted areas which are perceived as having good development potential on the short and medium term. Property financing remains a crucial element to the market and we are unlikely to see an increase in demand for land until financing becomes readily available and demand for future developments picks up. 14 COLLIERS INTERNATIONAL Contact: Sinziana.Oprea@colliers.com

15 RESEARCH & FORECAST REPORT 2012 ROMANIA INVESTMENT MARKET Investment Market 14.00% 13.00% 12.00% 11.00% 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% Key Figures Investment Turnover 150 m Prime Office Yields 8% Prime Retail Yields % Prime Industrial Yields 10% CLASSIC INVESTMENT DEALS Property Seller Buyer Praktiker Craiova Astoria Center Louis Blanc City Mall MacroMall Price ( mln.) Omilos Bluehouse 10 Nicholas Abaco Cefin Insolvency company Carpathian OTHER TRANSACTIONS Bluehouse 10 Augustin Constantin Oancea Ioannis Papalekas Local business man Property Type Seller Buyer Victoria City Adama Company Raiffeisen Tower Iris Pitesti Shopping Gallery Joint Venture Intragroup Intragroup exercised existing option EVOLUTION OF YIELDS 1 CD Capital NEPI Adama Raiffeisen Evolution Avrig 3-5 Immofinanz Raiffeisen Property Intl. NEPI H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H Office Industrial Retail 2011 investment figures reflected a mixed appetite for real estate investments. Following a dynamic H1 where a number of new deals were generated, the market slowed down at the end of H2, as investors took a wait and see approach as the European sovereign debt crisis unfolded. TRANSACTIONS In terms of closures, the year was mostly dominated by small sized transactions, of under 20 million. This is a consequence of the low activity of Western investment funds (either private equity or institutional) in Therefore, the most active players in 2011 were the Greek Fund Bluehouse and private investors like Augustin Oancea and Ioannis Papalekas. The overall volume of transactions amounted to around 150 million, of which only 45 million were from classic investment deals. Apart from the three classic investment transactions closed in H1 2011: Praktiker Craiova, Astoria Center office building in Romana Square and Loius Blanc office building in Victoriei Square, the market saw two distressed sales of shopping center projects, namely City Mall in Bucharest and Macromall in Brasov. The most notable transaction of the second half of the year was the joint venture partnership between the Canadian developer CD Capital, represented by Colliers and the South African Fund NEPI, for the development of Victoria City Shopping Center in Bucurestii Noi area. NEPI came in as a 50% partner and will lead the development of the 56,000 m 2 shopping center. This is the first Bucharest shopping center joint venture transaction to be closed on the market since the inception of the crisis and marks a growing trend among investors and developers who are not finding suitable existing projects or available land plots and are thus drawn to joint ventures that ensure good locations, good potential returns and a reduction of risk. The lack of good existing opportunities on the market has also led investors who were initially focusing on acquisitions to reorient their strategy towards development. NEPI is one prominent example - after the acquisition of European Retail Park Braila and Iris Pitesti retail parks they are now developing their own retail projects in Ploiesti and Brasov next to Carrefour hypermarkets. INVESTORS AND DEAL PIPELINE In H1 2011, in the context of the feeble but nonetheless positive economic growth of the country, and the result of Floreasca 169A transaction (at an 8% yield), the market saw a slight yield compression. This brought the expectations of the sellers and the interested investment funds closer and sparked a heightened level of activity in terms of offers, negotiations and potential deals during this period. The main target of the investors remained class A office buildings in prime locations in Bucharest, followed by retail big boxes with good quality tenants and long term contracts. The worsening of the European economic environment coupled with the tightening of the financing markets led to a more cautious approach from investors, which reduced drastically their activity towards year end. Moreover, a number of ongoing deals that were generated in the first half of the year were stalled or even fell through. Nonetheless, the deal pipeline still remains strong, the volume of transactions in due diligence or advanced negotiation stages amounting to million. YIELDS Whereas the first half of the year brought a yield compression trend for prime office buildings to slightly below 8%, the trend was reversed towards the end of the year. The main cause of this development was the tightening of financing conditions. With lending scarce and expensive, investment funds have to be more reserved with the yields in order to reach their return targets. We expect to see a widening of the price gap between sellers and buyers in the coming months and fewer deals initiated as a result. 15 COLLIERS INTERNATIONAL Contact: Blake.Horsley@colliers.com

16 RESEARCH & FORECAST REPORT 2012 ROMANIA RESIDENTIAL MARKET OVERVIEW Residential Market 8,000 6,000 4,000 2,000 Key Residential Figures New units stock* 15,700 Available units* 3,800 Sold Units Source: FNGCIMM 2-3 / project / month Average Price 1,000 /m 2 * In projects with more than 200 units SUPPLY VS. EXPECTED SUPPLY Deliveries Expected Deliveries 1900 PRIMA CASA DISTRIBUTION BY COUNTY 38% 5% Over the last three years the market has averaged 2-3 4% 4% 6% 6% apartment sales per project per month 30% 7% Bucuresti Cluj Ilfov Timis Constanta Iasi Brasov Other The first half of 2008 saw the Romanian residential market at its t peak. Prices per built square meter soared reaching an historical average high of 1,630 and demand accounted for around 60% of the announced stock. The aftermath of the international financial crisis was felt by all real estate segments, bringing the accelerated rhythm of growth of the local market to a complete standstill. The first year of Romanian economic recovery saw the residential market in a precarious position. Even though prices stabilized at an average of 1,000 built m 2, and sales volumes were relatively constant over the last 36 months (2-3 apartments per month per project) consumer confidence still remained low. Investors have slowly returned to the market, although transactions continue to be few and far between. Not surprisingly, for the third consecutive year since the economic crisis, the most active segment of the market has been the one consisting of projects targeting the low income population. SUPPLY Before 2005 one could hardly talk about a new apartment market in Romania. Most new housing facilities were small scale developments located in traditional luxury areas designated for expats that occupied executive positions in Romanian HQ. Between 2005 and 2008 the market heated up and developers confidently announced the delivery of more than 35,000 units over the following years. However, by the end of 2008 the market conditions had changed for the worse. Most investors started pulling out and many end users could not follow through with their promissory agreements. The lack of interested buyers made developers postpone their projects or slow down the delivery rate of secondary phases. Currently, only 44% of the announced units have been completed. Of the current stock of 15,700 apartments in compounds with more than 200 units, 64% were delivered in the first two post crisis years saw a significantly reduced number of deliveries in similar projects (only 16% out of the average of the previous two years). In the last three years the market also received a number of smaller projects, addressing the low income population, located mainly on the outskirts of the traditional residential neighbourhoods. These developers have adapted to the new conditions of the residential sector and have renounced the generous surfaces, luxurious finishes and central locations, for small affordable units with prices similar to those of old apartments. DEMAND Demand followed the upward trend of the local economy with virtually few to no transactions before 2005, followed by an average of units per project per month in the peak years. However these rates are a characteristic of emerging markets and are not sustainable in a mature, stable economic environment. Over the last three years the market has averaged around 2-3 apartment sales per project per month. The most dynamic sector of the residential market has been that targeting the low income buyers with 4-6 units/project/month. An important factor in the apartment acquisition process is access to financing. The transactional blockage of 2008 and the first half of 2009 reshaped the mortgage market when banks imposed more restrictive standards for their clients. Nevertheless, in order to encourage the local real estate segment, the Romanian Government reduced VAT to 5% for properties under RON 380,000 and put in place, in the second half of 2009 a special scheme for First Time Buyers. (Prima Casa) 16 COLLIERS INTERNATIONAL Contact: Annemarie.Fabian@colliers.com

17 RESEARCH & FORECAST REPORT 2012 ROMANIA RESIDENTIAL MARKET OVERVIEW Residential Market 1,700 1,200 Asking price for residential units 700 PRICES BY PROJECT TYPE low 1,300 1, upper middle H H Low projects 910 /m /m 2 Middle projects 1,172 /m 2 1,150 /m 2 Upper middle projects 1,500 /m 2 1,450 /m 2 Average Price 1,050 /m 2 1,000 /m 2 middle market average 1,000 Access to cheap financing enabled clients to benefit from the state guaranteed loan, 5% equity and the maximum interest margin imposed by the government. Already at its fourth edition, the Prima Casa programme accounts for 2.1 billion granted for 52,740 units. Nevertheless the gap between developers expectations and end users actual purchasing power continues to be wide, despite significant drops in prices (40% on average). With an average of 40.2 real estate transactions per 1,000 inhabitants, (third highest in the EU), Romanians were more willing to buy the communist cheaper apartments rather than new units. Only 25% of the granted loans through Prima Casa were destined for new residential units, the remaining buyers securing apartments in old blocks of flats. Residential investors were more active on the market than in previous years. As projects went into default, they were able to buy apartment packages at preferential prices. However, actual transactions were difficult to come by. PRICES Between 2005 and 2008, the market, encouraged by the high demand and accessible financing conditions, registered an asking price growth of 15% YOY. In the two years of economic recession, prices had a steep drop of around 20% per year, followed by a milder decrease of only 10% in The asking price per built m 2 reached an average of 1,000 (VAT not included) at the end of the year. FORECAST PRICE VARIATION H H2 06 H1 07 H H1 08 H2 08 H1 09 H2 09 H1 10 H2 10 H H is expected to have a similar growth pattern to that of the previous year. Despite the positive local economic outlook, the recent European public debt crisis has made both investors and developers sceptical about the recovery pace of the Romanian real estate segment. Demand will be directly dependent on financing conditions. As of January 31 st 2012, the National Bank of Romania has imposed 25% equity criterion for euro contracted mortgages and a 15% down payment for those granted in RON. The Prima Casa programme will be in place in 2012 and is exempt from this new regulation. As it was the case in the previous semesters, demand from end users will most likely be focused on Low income projects and sales will remain at current levels. It is improbable for prices to register any significant fluctuations in the next few months. The difficult financing conditions will avert both buyers and developers from making decisions in the next period. An upward trend is expected as the current stock is absorbed and end users and financial institutions regain their confidence in the local economy. 17 COLLIERS INTERNATIONAL Contact: Annemarie.Fabian@colliers.com

18 RESEARCH & FORECAST REPORT 2012 ROMANIA HOTEL MARKET OVERVIEW Key Figures Number of hotels 1,308 (6.1%) Number of beds 174,750 (-5.6%) Tourist arrivals 7,014,000 (15.5%) Hotel Market SUPPLY The number of hotels increased in Romania in 2011 by 6.1% to 1,308 properties. Three star properties grew 34.2% while two and one star properties had a negative growth (-9.7%, respectively -47.0%). Growth also varied by location such that the highest increase in the number of hotels occurred in secondary cities (24.3%) while the number of hotels at the seaside registered a decrease of -19.4%. Secondary cities, 24.8 % HOTELS BY DESTINATION Other 17.2% Bucharest, 11.1% Source: Trend Hospitality HOTELS BY CATEGORY 1 star, 6.1% Balneo Resorts, 11.5% Danube Delta, 1.4% Seaside, 21.7% Mountains, 12.2% 5 stars, 1.8% 4 stars, 14.8 % The presence of international hotel chains is still limited. Only 7.8% of the room inventory affiliated to a hotel chain is international. International chains are concentrated in Bucharest (4,173 rooms out of 10,573). The main hotel groups present in Romania are Wyndham Hotel Group (1,681 rooms), Accor (1,221 rooms) and Best Western (1,072). In 2011, 75 hotels opened mainly through the renovation of existing hotels (Hotel Grand Targu Mures, Hotel Sportul- Poiana Brasov, Hotel Roman- Roman) but also new built (Ramada Pitesti- Pitesti, Grand Hotel Italia- Cluj Napoca, Hotel Metropolis- Bistrita) and conversions (TulipInn Nerva Traian to DoubleTree Unirii). DEMAND After low levels of demand in 2010, 2011 marked a strong revival in tourist arrivals (15.5%), both in domestic arrivals (16.4%) and international arrivals (12.5%). Overnights increased also but at a slower pace (11.3%), which led to a decrease in average stay to 2.55 days (-4%). The highest increase in tourist arrivals was registered in balneal resorts (+18%) and secondary cities (+16%) out of which Craiova (+38%), Cluj (27%), Galati (+25) and Arad(+19%) registered highest increase. The main feeder market is from the European Union (59.4%), specifically from countries such as Hungary (23.1%), Bulgaria (10.5%), Germany (5.3%), Italy (4.4%) and Turkey (3.5%). 2 stars, 30.7 % Source: Trend Hospitality TOURIST ARRIVAL 20.0% 15.0% 12.1% 12.4% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% 4.4% -13.0% -14.0% 3 stars, 45.9 % 5.5% 16.4% 12.5% % f -5.5% Domestic International BUCHAREST MARKET The number of hotels remained constant (131 properties) but room inventory decreased (-7.3%) mainly due to a change in size of one large property (Rin Grand Hotel from 1,450 to 580 rooms). This change occurred as part of a transformation process in which some of the rooms became residential units. For the second year in row, Bucharest registered an increase in tourist arrivals (14.3%), reaching two million overnight visitors, which is a level similar to Occupancy posted an increase of 11.4% compared to 2010, reaching 56.5%. This increase was not even across all categories, the highest increase was for 4 star hotels (17%) while the lowest increase was for 5 star hotels (7.4%). As the market is based on business travel, occupancy varies very much by season, with low numbers in January and August (35% to 40%) and high numbers in May June, October and November (65% to 70%). For the first time after 2 years, the average nightly rate also went up, with a 4.4% increase to 65.5 per night. The highest increase was for 3 star hotels (6.7%) and lowest increase was for 5 star hotels (3.2%). TRANSACTIONS Altogether, there were approximately 350 properties for sale which represented a decrease of 40.0% compared to the previous year. Source: Trend Hospitality 18 COLLIERS INTERNATIONAL Contact: Lucian.Marinescu@trendhospitality.com