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Industrial real estate market struggles with over-supply

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Despite the increased year-on-year take-up volume registered at the end of 2011, the industrial market in Romania is still characterized by over-supply, with no significant change registered in terms of vacancy rate in the first quarter of 2012, according to a DTZ report. The report showed that some 70,000 sqm of industrial and logistics spaces were completed nationally in 2011, of which only 30,000 sqm was developed speculatively - 10,000 sqm in Timisoara by VGP and 20,000 sqm in Ploiesti by Alinso Group. In Bucharest, no new developments or additional phases in the existing logistics parks have been delivered. Developers have been waiting to rent their current vacancy or seek pre-lease agreements for new buildings.
Consequently, at the end of 2011 the total stock of modern industrial spaces reached approximately 1.4 million sqm across Romania of which 882,500 sqm (accounting for 63 per cent of the total national stock) were located around the capital city.
The report also indicated that no completions were tracked in the first quarter of 2012 and no major projects were expected to be started in 2012. In its report, DTZ emphasized that since 2009, the industrial market had been characterized by a more cautious strategies by developers. Considering the weak macroeconomic situation, this prudent approach is still maintained and therefore the start of the construction for a new project is triggered by a build-to-suit contract or by securing a significant pre-lease. With few projects planned to be delivered in 2012, the build-to-suit schemes will continue to be the main drivers of the construction activity, it said.
The average size of requirements in Bucharest for logistics and industrial spaces reached 2,600–3,000 sqm with only three transactions surpassing 8,000 sqm. For 2011 the trend at national level was fewer deals (10 transactions in total compared to over 30 in the capital city), but with a higher average size of approximately 6,000 sqm.
In 2011 the vacancy rate for class A logistics and industrial spaces located in Bucharest ranged between nine and 12 per cent, showing a slight improvement compared to the previous two years. For the first quarter of 2012, no major change was registered at this level.
Despite the increased leasing activity in 2011, cities such as Timisoara, Arad and Ploiesti still register an increased vacancy rate to around 15 per cent. Considering the reduced take-up expected for 2012 coupled with the lack of new supply, DTZ forecasts a slight reduction in the vacancy rate by the end of the year.
“The rents for industrial and logistics spaces in Romania have dropped as well adjusting to the decreasing demand level, thus having in Q1 of 2012 an average of 3.5 – 3.7 Euro / sqm  /month for surfaces larger than 5,000 sqm in class A logistics spaces in Bucharest and Romania overall. The headline rents for modern industrial and logistics spaces in Romania are generally comparable to those quoted in other CEE capitals such as Prague, Budapest and Kiev, however these still remain lower than the levels applied in Warsaw,” said Rodica Tarcavu, Head of Industrial Department, DTZ Echinox.
For B class warehouse space, asking rents vary between 2.5 and three Euro per sqm per month, the respective owners offering higher flexibility to companies that reduced their activities or have looked to dramatically cut their operational costs.
By year-end, DTZ forecasts rental levels to remain stable. However a decrease in rents could occur depending on wider Eurozone economic conditions.

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