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Logistics industry: Growing demand

The industrial, logistics and office sectors in Bucharest were the drivers of the real estate development market in the first nine months of the year.

2017-12-06 10:24:33 - From the Print Edition

According to the latest market report published by JLL, Bucharest City Report, over 215,000 square meters (sqm) were delivered in the Romanian industrial market between January and September, of which 187,000 sqm were only in Bucharest.

The remaining 28,100 sqm are located in the central area of Romania. The total stock in Romania exceeded 2.9 million sqm at the end of September. By the end of the year, were announced projects totalling 120,500 sqm in Bucharest, Timisoara and Roman, with the modern stock in Romania exceeding three million sqm.

The largest deal in the first half of the year was the acquisition Renault Warehouse Oarja by Globalworth, for approximately 42 million Euro.

Bartosz Mierzwiak, Logicor: 2017 will certainly be a record year on the Romanian warehouse market

After the 2008 global financial crisis affected Romania, over the last few years, the country got back on the path of rapid economic development, according to Bartosz Mierzwiak, managing director, Logicor.
"The process took a little longer than in other countries, and it has also been reflected on the logistics and storage market," Mierzwiak told The Diplomat – Bucharest. "New investments in these sectors have almost disappeared at this time, but currently Romania has the fastest growing economy in the CEE region. There is a rise in consumption, which has been positively affected by a reduction in VAT and real wage growth, which in turn makes retail the main driver of growth. As is well known, it has a big impact on the logistic and storage sectors. According to a JLL report, the current vacancy rate amounts to seven to ten per cent at country level and less than five per cent in Bucharest, which is a record result in Romania. Investors are gradually becoming more confident about the stable growth on this market, resulting in a significant number of new investments in the last year and promising plans for the next year."

According to Logicor's managing director, Romania faces the same challenges that Poland was facing only a few years ago: "One of the key tasks is to launch an efficient program for the construction of motorways and express roads. The average speed of TIR truck in the CEE countries is much lower than in Western Europe, and this is a key element influencing the development of the logistics and warehouse sector. The rapid transportation, which will allow the goods to be transported in a predictable time 500-600 km away, will change the character of new investments. Instead of a few smaller warehouses within a distance of 200-300 km away from each other, much larger facilities will be built in the strategic regions of the country. This will affect the profitability of the investment itself, the logistics and retail industry, as well as the return of key investors to the Romanian market. At the same time, in a forward-looking perspective, it is very important to remember that in addition to the macroeconomic indicators and the developed transport infrastructure, a stable and predictable legal and regulatory environment is an important factor that has a major impact on business development."

2017 will certainly be a record year on the Romanian warehouse market, explained Mierzwiak: "According to JLL experts, the total of the manufacturing and logistics spaces in Romania has increased by nearly half a million sqm in the first three quarters of 2017. In my opinion, this is only the beginning of growth and this trend is expected to continue in the coming years. Taking Western Europe's perspective, the entire CEE market is still in the early stages of development - for instance looking at the indicator reflecting the ratio of the number of square meters of space to the population of a given country. In Germany, a country with over 80 million inhabitants, there are 80 million sqm of warehouse spaces. In all CEE countries, with a similar number of inhabitants (about 85 million), we have only 25 million sqm of warehouse spaces, of which less than three million sqm is in Romania. This shows that there is still a great potential on that market."

In his opinion, economic and political stability makes business more predictable. "It enables faster decision making and higher investments, which brings benefits to the country′s economy," said Mierzwiak. "Romania has seen a great potential for growth over the last few years - labour costs are still considerably lower than in Western Europe and increasing consumption and retail sales translate into enhanced attractiveness of this market. Further economic development and maintaining a stable legal and regulatory environment are key factors in rebuilding the confidence of large investors and bringing back liquidity to this market."

Daniel Cautis, Dunwell: We are seeing a growing demand for the Moldavian region

The real estate component has gained an increasingly important role in the growth of tenants′ business in industrial parks in the past two to three years, according to Daniel Cautis, managing partner at Dunwell.

"The highest share is seen by logistics and e-commerce retailers, followed by FMCG and automotive manufacturers, where the former must be constantly connected to the developer market offer to size business development and to estimate as accurately as possible the cost of each new project," Cautis told The Diplomat-Bucharest.

"In the past, the real estate segment was focused on the retail sector - shopping centres and offices. Their maturing has had a direct proportional impact on the industrial sector only in the last three years, being the start of a consolidation and an accelerated progress. As highways in the West have facilitated new and constant openings for automotive production, rising FMCG consumption has started to develop and expand industrial parks."

According to Cautis, the basis for this demand was both the opening of new shopping centres in Bucharest and secondary and tertiary cities, as well as the development of new offices in the Capital and secondary cities, all of which stimulate the industrial segment directly. "The ever-growing e-commerce sector is an additional catalyst for sector development, along with changing and enforcing fire protection legislation, in which case tenants have to relocate from old premises with expiring authorizations in modern locations, with sprinkler installations and valid authorizations. All of these changes and developments have led to rapid growth, with many trading processes. If three years ago the vacancy rate was around 15 per cent, the rate is now below three per cent and the demand exceeds the offer. Thus, developers rent out the parks from the design and preconstruction phase, choosing fast lifting options and speculative constructions."

In Timisoara, VGP expanded its park, CTP is building its second location, and WDP inaugurates its first, as the latter two developers are constantly growing. CTP expanded both of Bucharest′s Parks (KM13 and KM23 of A1) and from Pitesti, has acquired two projects in the western area of the capital (DNCB) and started a new location in Cluj. With the same appetite, WDP rented 100 per cent of its new park in Bucharest (north), acquired a DNCB location (west), extended its location in Cluj and prepares to deliver new projects in Oradea and Roman.

"We are seeing a growing demand for the Moldavian region, a development area with no Class A space, where the TRC developer plans to build a park in Bacau, their next step after the successful completion of the Cluj project," said Cautis. "In Bucharest, the P3 investment fund has increased its park and is preparing for the next expansion phase, and the new developer MLP Group has announced its intentions by purchasing a 19-ha land on DNCB (West). At the same time, along with the development of industrial parks, we see an increase in retailers' desire to have their own locations, ongoing projects both in Bucharest and in the country."

According to Dunwell's managing partner, we are in a period of progress in which developers have understood the market, are pursuing tenants and building spaces or acquiring new land in neighbouring locations or other potential cities. "In this sense, the market gets a new dimension and maturity, stimulated by demand and the competitive spirit of developers. This competition stimulates the stock of available space, putting pressure on commercial conditions."

Cautis also said that both developers of industrial parks and tenants (logistics, retailers, FMCG, e-commerce, automotive manufacturers) are looking for legalistic stability, predictability of tax and minimum wage being essential in any business plan along with the availability of labour beyond social assistance. "A newcomer to Romania will be reluctant to assume an investment in an uncertain context like today's, and will choose a more predictable alternative. Also, the eternal promise of - but continuing lack of - highways limits the industrial development potential in Romania, especially in the area of Moldova - the longer the transition time, the more unattractive the area becomes, regardless of the unemployment rate," Cautis concluded.

CTP wants to reach 1.25 million sqm in 2018

This year, CTP will probably build around 200,000 sqm in Bucharest and still have another 60,000 - 70,000 sqm in the country, according to company officials. "We also have spaces to rent in Arad and Deva that we have bought. In Bucharest, we are in advanced talks for renting a unit of 10,000 sqm. We hope to rent it before this building is completed. Most of the demands come from the retail area. Demand is higher than in past years, the stock has doubled, and the space available in Bucharest is not that much."

At kilometre 23 on highway A1, CTP is building 85,000 sqm that are fully rented. The cost of constructions is usually around 350-365 Euro per square meter.

CTP acquired Phoenix Logistics Centre with approximately seven million Euro from the Dutch company LSREF3 Alpha Dutch Holdings B.V.. Phoenix Logistics Centre (PLC) was integrated into CTPark Bucharest and is located in Chiajna, at the crossroad between A1 motorway and the "Centura" ring road, only ten kilometres distant from the Bucharest′s city centre. PLC has a total surface of 43,000 sqm, out of which 21,000 sqm are lettable area.

The rentable areas are ideal for storage, logistics, distribution and light industry activities. PLC is fully leased at the moment to DB Schenker. The developer′s plans for the logistics park in Chiajna include an upgrade and refurbishment throughout the park. The total investment for these processes is estimated to reach 1.5 million Euro.

"We have decided to increase our stock of logistics and industrial spaces in order to reach a total leasable area of approximately one million sqm in Romania by the end of 2018," said Ana Dumitrache, Co-Country Head of CTP Romania. "The demand is high, and I am very optimistic that we will accomplish this target and even exceed it. Phoenix Logistics Centre has an ideal location for a logistics park: extremely close to the city centre and with very good commercial exposure due to the direct access to A1 motorway and the city ring road."

CTP also acquired a logistics park, situated near Bucharest, Chitila Logistic Park (CLP), following an investment of 17.3 million Euro (CLP). The transaction was concluded in September.
CLP has been purchased from UBM Development, the leading European real estate developer. This acquisition is part of CTP′s strategy of reaching a total leasable area of approximately one million sqm in Romania by the end of 2018.

CTP′s plans for the new acquired property include an expansion and the first phase of development is planned to start at the end of this year and will consist in building around 13,000 sqm of new warehouses.

"The decision to buy Chitila Logistic Park is in line with our continuous investments made in the last several months," said Dumitrache. "We aim to grow our stock of industrial and logistics spaces, both near Bucharest and at a national level, in order to respond to the increased new demands from the market and to satisfy our clients' need to expand their businesses."

CTP entered the last quarter of 2017 with results that exceeded the previous prognosis.

The Romanian company′s portfolio grew with 73 per cent and reached more than 700,000 sqm of logistics and industrial spaces and a total market value of 364 million Euro. 2017 is the year with the most accelerated development pace: over 180,000 sqm GLA were built by CTP in Romania and approximately 300,000 sqm are in the construction pipeline with delivery dates estimated for Q1 2018.
Currently, the vacancy rate of the spaces ready to be leased is under three per cent. In the first three quarters of 2017, new leasing agreements were signed with strategic clients in seven parks owned by CTP near Bucharest and other strategic locations in Romania. Some of the deals are with new tenants and other agreements are with existing clients that expanded their spaces to accommodate the needs of their growing businesses.

"2017 was our best year so far. The stock of logistics and industrial spaces grew and exceeded 700,000 sqm and we invested according to plan in CTPark Bucharest West which is designed to become the largest logistics park in Eastern Europe," stated Ana Dumitrache, Co-Country Head of CTP Romania. "We continued to invest and acquire land and properties in key areas of Romania. In the future we will maintain our development′s rapid pace according to the needs of our current clients, but we plan to begin some speculative constructions too."

CTP′s plans for 2018 include the development of circa 200,000 sqm in CTPark Bucharest West and 290,000 sqm in different cities of Romania, such as Pitesti, Cluj, Turda and Chitila.

CTP, a full-service international developer operational in Romania since 2005, specializes in delivery and management of high-tech personalized business parks. They started three years ago to expand rapidly on the market by acquiring different business parks, mainly logistics ones, reaching a total lettable area of over 376,000 sqm. Present in Arad, Timisoara, Cluj, Turda, Deva, Sibiu, Pitesti and Bucharest, the company established an ambitious growth plan of one million sqm by the end of 2018, either through new acquisitions or through their own constructions.

P3 is looking to expand their current park

Real estate logistics developer P3 is currently building two warehouses, one of 14,000 sqm and a second of 41,000 sqm, and they plan to start a third one of 10,000 sqm.

E-commerce and increased focus on last-mile delivery are the main market stimulators these days, as well as the growth of second and third logistics hubs for companies outside of Bucharest as they look to optimise their delivery times throughout Romania.

"Bucharest is still very strong, with a lot of activity also in Timisoara and Cluj," P3 added. "As a country, we are still a long way behind the market stock of other CEE countries, such as Czech Republic and Poland. In addition to the usual points regarding better highway infrastructure, authorities can also consider improvements in the speed of urban planning, analysis of property tax levels at a county level to encourage more development in their counties, and finding ways to help warehouse workers commute to - and potentially also live closer to - the warehouses."

P3 stated that logistics warehouses are very attractive to smaller towns that neighbour the big cities, as warehouses create new jobs and new jobs create taxes, which can be used to improve the community: "What is interesting is towns with lower property tax than others will generally attract more logistics development than towns with higher property tax, and therefore these towns will in turn create more jobs, and more tax revenue for these towns which can then be spent on infrastructure projects like schools and roads. "Available workforce is becoming the largest concern for tenants, now equal to quality road infrastructure. This will heavily impact expansion in the coming years and as such, any cities with innovative solutions will be well placed to secure new logistics developments. Towns could look at putting on more buses to bring workers from nearby towns, or creating small hostels in warehouse areas for workers to stay in."

P3 is looking to grow and they are focused on expanding their current park, while looking for further expansion in Bucharest and selected locations elsewhere.
Pan-European logistics property investor-developer P3 announced the handover of a new warehouse at P3 Bucharest to customer E van Wijk. The 13,900 sqm logistics facility is a class A building and also includes 400 sqm of offices.

"We are delighted to be able to hand over this new warehouse to our long-term customer E van Wijk," said Sinziana Pardhan, P3′s Country Head in Romania. "The building is part of our ambitious expansion programme in Romania. Two more buildings will be delivered at P3 Bucharest park by the end of the year. Our aim is to make the park the most important logistics hub in Bucharest area. The P3 business model differs from many others in the sector, as we are not looking for a quick return on construction and sale, instead we buy and develop property to hold in our own portfolio on a long-term basis."
A team of 40 people will be based at the facility, which will be used to distribute an average of 15,000 pallets a month. The warehouse storage capacity is of 18,000 pallets, offering the possibility of ground and shelves storage.

The warehouse is divided into two sectors, for ambient and temperature-controlled areas, offering the possibility of also keeping food products. Logistic E Van Wijk′s focus is on clients from different industries, such as electro, food, retail, agro-business, marketing, constructions and many others.

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