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CEE Investment Report 2016: The business services sector employed nearly 51,000 people in 2015 in Romania

According to the latest CEE Investment Report 2016 Mission to Outperform report conducted by Skanska, JLL and Dentons in partnership with the Association of Business Service Leaders (ABSL), the upward economy trend in Romania results in attractive investment yields in commercial and office sector.

2016-08-31 17:21:21

Adrian Karczewicz, Head of Divestments CEE within Skanska Commercial Development Europe said that Romania and Hungary are markets to offer extremely attractive yields on the office segment. In the same time, Romania posted an estimated 340 million Euro worth investments in H1 of 2016, 80 per cent more compared to the same interval of 2015, when the Romanian real estate market reported investments worth 187 million Euro.

The report cites: "The macroeconomic figures in Romania quoted in the report show that GDP growth in Romania has been driven by the gradual recovery of domestic demand and strong exports. With 3.8 per cent, the country had one of the highest growth rates in the European Union in 2015, behind Sweden, the Czech Republic and Slovakia. In 2016, a continuous acceleration of GDP to 4.2 per cent is expected and the World Bank foresees the economy growing by 4 per cent in 2018. Nevertheless, Romania's national bank warns that this growth could be compromised in the future by possible increases in the budget deficit. The country is a significant recipient of EU-IMF financial assistance programs, which substantially support the economy.

Domestic consumption and FDI have helped drive economic growth. According to the Romanian National Institute of Statistics, net investment in Romania's economy grew by 8.4 per cent in 2015. The level of education remains one of Romania's strengths, especially in terms of language proficiency and sciences.

Romania's overall tax burden is comparatively low. The cost-effective but talented labor force is a factor attracting outsourcing centers. The business services sector is helping drive the country's economy. According to ABSL & McKinsey data, the sector employed nearly 51,000 people in 2015.

A further driver of the Romanian economy is, as in other CEE countries, the automotive industry, being one of its largest export sectors. The construction sector also contributed to the higher economic growth in 2015 as a positive response to the demand for infrastructure.
The new Fiscal Code and Fiscal Procedure Code, which came into force on 1 January 2016, introduced several incentives for companies and individual investors, combined with a reduction of the standard VAT rate. It should help further accelerate growth and increase investment. Nearly 70 per cent of Romanian CFOs stress that the tax changes should positively affect their business29.

According to Oxford Economics, Romania is forecast to be the fastest growing economy in CEE in 2016. Consequently, occupier market activity is accelerating, with take-up totalling almost 100,000 sqm in Bucharest in Q1 2016, the strongest first quarter ever registered. Romania's flourishing economy has also drawn the attention of property investors. The office investment volume in 2015 in Romania was estimated at 242 million Euro, representing 36 per cent of the of the overall commercial property investment volume. In Q1 2016, the office investment volume stood at 95 million Euro. All of the office properties transacted were in Bucharest. Romania's modern office market is mostly concentrated in Bucharest, but the pipeline in large secondary cities such as Cluj-Napoca, Timisoara and Iasi is strong.

The largest office transaction registered in 2015 was the acquisition of Floreasca Park by GLL from Portland Trust. The most active buyers in 2015 were GLL and Globalworth, the two investors accounting for 73 per cent of the transaction volume. More core investors looking to secure properties with stable, long-term income in a steadily growing economy are coming in as they see the opportunity to improve their returns. Prime office yields are at 7.50 per cent. Yields have compressed by 25 bps since the start of 2015 and are expected to compress further in 2016, albeit at a slower pace. Prospects for 2016 are positive given the projected economic growth of the country, and also the availability of quality product and the still significant yield spread between Romania and Poland or the Czech Republic.

The industrial sector is white hot, especially logistics. M&A and property development centers around Bucharest, but activity is increasing in regional cities - Arad, Deva, Ploiesti and Constanta. Residential development in Bucharest and secondary cities is picking up steam, notwithstanding a new law that limits recourse against certain borrowers under retail mortgage loans. Office development continues apace, although largely in Bucharest. Financing terms for development loans remain tight, and margins are high relative to some other countries in the region."

The CEE Investment Report 2016 Mission to Outperform is a short analysis of the region's potential as an investment location, broken down by chosen countries – Poland, the Czech Republic, Romania, Hungary and Slovakia. Skanska, JLL and Dentons in partnership with the Association of Business Service Leaders (ABSL) present this short guide on investing in Central and Eastern Europe (CEE). The author-partners have each brought their knowledge to the joint enterprise of preparing the document. Skanska, one of the leading construction and development companies in the world, is the top constructor and vendor of office buildings in CEE. JLL is the world's leading real estate consulting company. Dentons is the world's largest law firm with a team of more than 1,000 dedicated real estate lawyers across the globe. ABSL is the biggest organization in the region, associating investors from the business services sector – a significant driver of growth for CEE countries.



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