COLLIERS N Romania Research Report

REAL ESTATE REVIEW
ROMANIA 2010
OFFICE I RETAIL I INDUSTRIAL I LAND I INVESTMENT I CONSULTING I VALUATION I BUILDING SURVEYING
CONTENTS
ECONOMIC OVERVIEW 4
OFFICE 6
RETAIL 8
INDUSTRIAL 10
LAND 12
INVESTMENT 14
CONSULTING 16
VALUATION 18
BUILDING SURVEYING 20
HOTEL 22
TAX ASPECTS 24
LAW 26
Colliers International, Real Estate Review Romania 2010 3
Dear friends,
After 14 years of intense activity on the Romanian real
estate market, I can say we have been fortunate to live
through a major boom and a major crisis, experiencing
all the ups and downs that come with these.
We have quickly grown from a team of 5 in 1996
working to service our rst clients from a one
room oce: Microsoft, Coca Cola, Unilever and
MobiFon to over 100 people and hundreds of clients
serviced in 2008 across all major industries.
And then came 2009 and everything changed.
The global crisis hit Romania much harder than anyone
imagined and brought us back to reality, working hard for
every client and rethinking the way we run our business.
It became imperative to change the attitude towards
clients, to understand them better and address their needs
with innovative services we had to make a change.
And we did.
We restructured the rm, closed a division (the
residential sales), added a new business line (focused
on servicing banks) and changed the whole mentality
of the team by going back to our values. It was not
easy but, looking back at 2009, I think we made the
right decisions given the situation the market was in
and we allowed the company to ght and survive.
I can say with condence that after the crisis, Colliers
Romania will emerge as a new company, with stronger
values, better services and most importantly, as a more
human company. Our young and energetic team is
putting all their eorts this year to oer a personalized
touch for each client, with more attention paid to
details and a fresh air in the solutions they provide.
There is not much to say about the Romanian market in 2009.
The overall lack of condence aected demand for space
of any type, most companies choosing to wait and
see the eects of the crisis and so the market activity
dropped by 70 80% compared to the boom years.
Nobody knows when the market will pick up again.
Optimists say that 2010 is going to bring more
activity and growth in the economy while pessimists
say that 2010 will bring another major crash in the
over-leveraged nancial markets pushing the global
economy into the deepest recession ever.
While watching closely the macro-economic changes
and learning about crisis management and new
customer strategies, I believe the answer may be
less technical and more linked to the consumers
condence and the psychology of the masses.
Are we a generation/nation of optimists or pessimists?
Are we strong enough to take the faith into our
hands and change the legacy of the history?
Like Winston Churchill, I am an optimist, there
is no much use of being anything else.
Yours sincerely,
Bogdan Georgescu
Managing Partner, Colliers International
When will the market recover?
The answer may be less
technical and more linked to
the consumers condence and
the psychology of the masses.
4
After Romanias economy recorded an average growth of 6%
per year between 2001 and 2008, the global developments of
last year reversed this trend with a series of negative eects.
A contraction of 7% was announced for the economy, while
Foreign Direct Investments halved to EUR 4.9 billion in 2009.
Unemployment has grown throughout the year and was
estimated to reach around 8% by year-end. Unemployment is
expected to grow further in 2010 as bankruptcies loom and
the public system is in need of reform. The accumulation
of foreign-currency denominated debt by households and
companies and a depreciation of about 10% of the local
currency against the Euro during the second half of 2008
put a strain on debt servicing by borrowers in 2009.
The budget decit was expected at more than 7% of
GDP and the government was obliged to agree to
EUR 20 billion of international aid led by the IMF.
On the positive side, the current account balance has
signicantly improved. The decit contracted by 69%, from
EUR 16 billion to EUR 5 billion, which represented 4.5%* of
GDP (versus 12.3% at the end of 2008). Although the FDI
volume represents roughly half of the activity recorded
in the same period a year before, it indicated continued
interest of investors towards Romania and has successfully
covered the current account decit up to October.
Ination was at 4.74% at the year end and is
targeted at 3.5% for 2010 and 3% for 2011.
In 2010 the Romanian economy is expected to return
to growth (albeit by a modest 0.5 2%) based on
expectations that western economies will rebound
and improve our export activity, banks will re-start
lending and consumption will start to grow. For 2011
the World Bank estimates a growth rate of 4.6%.
Lending is currently very tight due to both lack of credit
supply and its very high cost. Banks started to compete
ercely for attracting local deposits at the beginning of
the year as foreign funding has dried up. Interest rates for
deposits in local currency recorded as much as 16% in January
to March, while the price of new loans exceeded 20% in the
same period. The cost of money has come down signicantly
by the end of the year towards 15% in local currency,
while interest rates on deposits have fallen below 10%.
The year-end exchange rate between the Euro and RON
(4.25) was considered sustainable by most analysts and
the RON could even strengthen in the following year.
Some traders in Bucharest and London are already betting
on this strengthening of the local currency in 2010.
A large domestic market, a cost eective labor pool, a
correction in real estate prices and a stable currency add up
to signicant opportunities for businesses and investors, as
was the case ve years ago. The major positive dierence
to add is that Romania is currently a European Union
member, a status that provides it with signicant stability.
GOVERNMENT: ROMANIA HAS A PRESIDENT
AND MAJORITY COALITION GOVERNMENT
Last years demise of the coalition government arose in a
delicate period amidst the deterioration of public nances.
Planned disbursements of funds from the countrys EUR 20
billion aid led by the IMF were put on hold until the country
has a strong government in place able to commit to strict
IMF requirements on reforms in the public system (among
others to reduce the scal decit to 5.9% next year).
ECONOMIC
OVERVIEW
National Bank of Romania *
MACROECONOMIC INDICATORS
2008 2009 2010F
Real GDP (% change) 7 7 1
CPI (%, yoy, eop) 6.3 4.7 4.0
Current account balance (% of GDP) 12.4 4.8 4.8
Unemployment rate (eop, %) 4.4 7.6 8.3
Sources: FocusEconomics, National Commission for Prognosis
Therefore December elections were eagerly expected when Romanias former
president, Traian Basescu, was freshly re-elected and a new government was
appointed headed by the former Prime Minister Emil Boc of PD-L. After being able
to secure a partnership with UDMR and other minority parties, as well as the
joining in the party ranks of some PSD representatives, PDL is mathematically
the leader of a majority coalition, having the prerequisites to eectively lead
the government in a coming period that demands for serious reforms.
Last year brought negative eects: economic contraction, rise
in unemployment and increase of the budget decit. But in
2010, the Romanian economy is expected to return to growth,
based on exports and a revitalization in consumption.
69%
Contraction of the
current account
decit
FDI volume was
half of the activity
recorded in 2008.
Investors continued to
show interest towards
Romania.

Source: National Bank of Romania

6
By the end of 2009 a record supply of new buildings
were developed, taking the total stock of oce space
to 1,250,000 sqm. Concurrently, however, adverse
economic conditions led to a major decline in oce
space transactions leading to higher vacancy rates and
lower rents. Therefore 2010 represents a an ideal time for
tenants to reduce their rental costs by securing convenient
oce space at sustainable nancial terms. Now is the
right time to assess the market and make a move.
SUPPLY
Oce supply peaked in 2009 as close to 405,000 sqm
of modern quality space was delivered on the market,
double the amount in 2008. This was a result of projects
that started during the 2007 2008 period of boom for
the real estate industry, projects that took between 12 to
20 months to deliver, some suering postponements.
From the total delivered space, only 15% was located in the
city centre, while the remainder was evenly split between
the semi-central and peripheral areas. While oce stock
in the latter areas has grown steadily since 2006, the
evolution of CBD supply registered a slower pace due to
the reducing availability of land plots for development.
Taking a glance at who delivered oce buildings in 2009,
the majority were foreign developers. Among them, three
Greek companies delivered 30% of new supply, a similar
volume to that delivered by domestic rms on the market.
DEMAND
In 2009, over 90,000 sqm of space was leased, uniformly
distributed between the three oce areas. The average
space leased on the market was around 1,300 sqm.
Most companies that leased space in 2009 had
done so due to one of the following reasons:
Their current leasing agreement expired
The opportunity to nd superior quality space at lower
rents and also a good chance for companies
to relocate their headquarter closer to the centre
Force majeure incidents created immediate
demand for roughly 13,000 sqm on the market.
Compared to 2008, oce take-up decreased by 60% last
year. To put this into perspective, more than 80% of the
leasing activity in 2008 was driven by preleasing, whereas
in 2009 none of the transactions represented pre-lets.
This situation has two main causes. Firstly, the oce
vacancy rate has increased materially since 2008 so
pre-leasing was no longer essential as companies could
nd space in most of the existing buildings on the market.
Secondly, taking into consideration the economic downturn,
most companies were confronted with the insecurity of
their future operations or with downsizing and lay-os. As
a result, expanding the necessary oce space was not on
their agenda. Finally, companies with the need to extend
space prospected the market but did not commit in 2009.
Sub-leasing was an option for companies looking
to cut costs, especially for those with leased areas
larger than 2,000 sqm. Companies that took such
measures were from the auto industry, the construction
sector and also those in the consultancy eld.
OFFICE
MARKET

Colliers International monitors class A buildings, over 3,000 sqm.

2009 economic conditions changed the market rules, as business downturn led to
signicant increase of the vacancy rate. The lack of pre-leases commanded no ground
breaking for major projects. As rents dropped, 2010 is an ideal time for tenants to reduce
their rental costs by securing convenient oce space at sustainable nancial terms.
By December 2009 vacancy grew considerably in all areas
and the overall rate hiked to 18% after an almost zero
vacancy in 2007 and 3% in 2008. The CBD area registered
an unusual 10% vacancy, together with the semi central
area, while the periphery peaked at a record 30%.
RENTS
While it was common to pay between 22 and 24 EUR/sqm
for CBD oce space in 2008, rent levels in 2009 dropped by
20%, below the EUR 20/sqm threshold. A similar drop has
been registered for the semi-central and peripheral areas.
Although the new market conditions brought space at
signicantly lower rents, relocation costs were rather high,
determining most companies to nd short term solutions
and try to renegotiate or sub-lease some of their space.
In an eort to make their projects attractive to
tenants, landlords became exible in oering incentives
such as rent free months and allowances for t out
expenses. For tenants, such measures have the
advantage of lowering the net eective rent.
For a ve year contract, it is common for a company to
benet from a three month rent free period. For longer
lease terms, free rent periods can increase. Overall these
extras lower the net eective rent by 10% or more.
FORECAST
Our research shows that 2010 will bring another ca.
200,000 sqm of new oce space, 50% less than has
been delivered in 2009. This potential supply will be
found mainly in buildings where construction was held
up in 2009. In addition, unlike previous years, 2009
witnessed no ground breaking for new major projects.
There are in total around 500,000 sqm of oce projects in
pre-construction phases, but with very low likelihood that
any of these will be started in the next six months, meaning
that for 2011 2012 expected new deliveries will be low.
Overall, rents will maintain their downward trend established
in 2009 by another 10 to 15%. In some areas, where vacancy
is already high, we may even see a 20% decrease in rents.
Due to this trend, companies occupying multiple spaces/
leases will have a great opportunity to consolidate.
Also centrally located buildings, with good access, will
be available at lower rates compared to 2009 and
2008, becoming nancially attractive for a larger base
of clients. For the CBD, vacancy rate is anticipated to
stay within 10%, while the overall market vacancy rate
is expected to further increase to reach 20 25%.
We expect that those companies who have closely prospected
the market in 2009 for better space at aordable rents, but
did not commit to a space, will close their searches. This
would lead to more than 50% increase in leasing activity
compared to 2009, according to our estimations.
On the other hand, landlords will remain exible in
their negotiation with potential tenants, continuing
to oer incentives for t out and free rent periods,
thus lowering net eective rents. Agreements
will be more advantageous for tenants.
On the longer term, as we dont expect to see signicant
new supply in 2011 while the economy and business
is forecasted to grow, the market equilibrium will
change again. For all these reasons, 2010 will likely
be the ideal time for tenants to make their move.
Horia Moldovan associate director, ofce leasing division
LEASE VS. PRELEASE
2008 2009
Lease 18% 100%
Prelease 82% 0%
RENTS (EUR/sqm/month)
CBD Semi-center Periphery
Average rent 18 20 14 15 10 12
Parking price 120 100 90
Service charge 4 5 3 4 2.5 3.5
8
RETAIL
MARKET
In a market shaken by the dicult economic period,
where overall private consumption levels dropped
by 15%, retailers main focus in the rst half of 2009
was the optimization of their store network.
SUPPLY
2009 witnessed the highest discrepancy between the
number of shopping centre projects ocially announced
for delivery and the actual delivery of space. Some projects
were delayed for 2010, while others were postponed for
an indenite period of time. Thus, although more than 20
projects were announced to be completed in 2009, totalling
835,000 sqm of GLA, only 27% of the announced retail space
was actually delivered 158,000 sqm of GLA in Bucharest
and a further 70,000 sqm of GLA outside of the capital.
The supply of existing retail space available for leasing was
reduced by the closing down of two retail schemes (Armonia
Braila and Trident Sibiu). Concurrently it was boosted by
rising vacancy levels in existing shopping centres. Adding
all the sources of retail space supply, namely current
vacancies in existing shopping centres and new projects
with anticipated delivery in 2010 and 2011, total availability
of modern retail space now stands at around 337,000 sqm.
Of this, 128,000 sqm are available in existing centres while
209,000 sqm are oered for prelease in future developments
both in Bucharest and other locations nationwide.
DEMAND
In an attempt to ensure the survival of their brands, retailers
started to implement various restructuring strategies
by looking at each of their stores as a prot centre. Thus,
they applied cost reduction measures ranging from rent
renegotiations to the closing down of unprotable locations.
Despite such measures, some retailers did not
manage to meet their nancial obligations towards
creditors and were forced to declare insolvency.
Even though insolvency is seen as a drastic undertaking,
for retailers with cash ow issues, it represents a legal
protection from creditors that provide them with the
opportunity to restructure and renegotiate their contracts
with suppliers and with landlords. Therefore, even if a
retailer is under insolvency, they are still in a position
to maintain well performing stores and to expand in
new locations if very good opportunities arise.
The rst part of the year was very poor in terms of
leasing transactions. In the second half we noticed a
signicant increase in demand for retail space, especially
in existing shopping centres. Thus, retailers that managed
to adapt to the new economic conditions started to
look strategically towards the future and seize the good
opportunities that appeared on the market: obtaining
locations in well performing shopping centres at
competitive rent levels. Moreover, 2009 also marked the
entrance of a few notable brands such as Decathlon,
C&A or Kiabi. The new brands focused rst on opening
locations in Bucharest where they targeted both the
existing and the newly delivered shopping schemes.
The GLA we presented excludes the hypermarkets
and other big boxes from the retail schemes.
1
DELIVERIES
In Bucharest In the countryside
Militari Shopping Center,
Grand Arena, Cotroceni
Park, Extension of Plaza
Romania
Galleria Suceava, Galleria Piatra
Neamt, Era Oradea, Extension
of Iulius Timisoara,
Extension of ERP Focsani
Total GLA: 158,000 Total GLA: 70,000
NEW TENANTS 2009
Retail type Brands
Fashion
Desigual, Franco Feruzzi, Xside,
Jack&Jones, Vero Moda, Sasch,
Brookseld, C&A, House, GAP,
Yamamay, Kiabi
Accessories & Jewelry Coyoco
Health & Beauty Marrionaud
Sportswear Go Sport, Kix, Decathlon
Kids Sergent Major, Smyk
Home dco Next Home
Food Cinnabon
RENTS
In the cost cutting mindset that dominated the economy
in 2009, retailers started extensive rent renegotiation
campaigns in almost all shopping centres. The magnitude
of the renegotiations varied dramatically from one unit
to another and it depended on the retail segment, the
reputation and performance of the shopping centre, as
well as on the importance of the retailer for the centre.
Rent reductions ranged between 10% and 50% and thus
created signicant dierences in rent levels between
shopping centres, especially in the countryside. Regardless
of the level of discount, renegotiations were usually
concluded for limited periods of six months up to one year.
The strong negotiating positions of retailers that still have
the nancial power to expand also forced a signicant rent
decrease in projects under construction. The conditions
that some of the anchors are requiring in order to enter a
shopping centre can include, apart from a low rent, free
rent months or t out allowances. The rent concessions
are usually granted for 1 or 2 years, though landlords
are trying to limit their loss as much as possible.
FORECAST
Based on ocial shopping centre announcements, 2010 should
bring six new shopping centres to the market, totalling
209,000 sqm of GLA. Some of these projects may still be
delayed until 2011, while the supply of retail space in other
regional locations might continue to be impacted negatively
by further closures of poor performing shopping centres.
Nevertheless, we expect that improving economic and
nancial conditions could help some of the projects that are
currently on hold to restart construction works, but none of
these could realistically be delivered by the end of this year.
The demand for retail space and hence the number of
transactions are expected to increase in 2010, especially
towards the second half of the year. Demand will remain
focused on existing shopping centres, while pre-leases will
only be signed for shopping centres with a strong chance
of being delivered (proven nancing, active construction
works) and with a good location and tenant mix. The
demand for retail space in the coming year will not be
suciently high as to determine a rise in the rent level.
On the contrary, the current renegotiated rents are expected
to be maintained at least until the second half of 2010. For
the worse performing centres, they are expected to see
further rental decreases last long into the end of 2010.
HIGH STREET
The general declining trend of the retail market was
felt throughout Bucharests high street market.
Nonetheless, the prime retail area still signicantly
outperforms the secondary and peripheral areas
both in terms of vacancy and rent reductions.
In order to secure new tenants, landlords were compelled to
reduce their asking rents by an average of 20 25% compared
to the beginning of the year (or 30 35% from the peak reached
in H2 2008). Even retail spaces with well performing tenants
suered rent reductions through renegotiations of 15-30% that
were concluded mainly for a temporary period of 1 to 2 years.
Demand for prime high-street locations came mainly from
luxury fashion brands and coee shops. Apart from the
decrease in rents, the ourishing of the coee shop segment
was also facilitated by the progress of infrastructure
works in Bucharests Old City Centre (Lipscani area), the
solving of legal issues with some of the retail properties
and the areas increasing appeal to the younger crowd.
The outlook for the Bucharest prime high street in
2010 is promising as demand from luxury brands is
expected to increase. Rents, however, will continue to
witness slight reductions, especially in the secondary
and peripheral areas, as the demand from banks,
telecoms operators, pharmacies and casinos the
main clients before the crisis will remain low.
Demand for retail space and the number of transactions are expected
to increase in 2010, although not sucient to determine a rise in the
rent level. The outlook for the Bucharest prime high street in 2010 is
promising as demand from luxury brands is expected to increase.
Georgiana Andrei manager, retail division
HIGH STREET
Area Vacancy Rent decrease
Available spaces
2
Occupied spaces
3
Prime 10% 15 20% 10 20%
Secondary 15% 20 25% 15 25%
Peripheral 20% 25 30% 15 25%
asking prices
following renegotiations
2
3
10
2009 was a silent year for the industrial market. Due to
modest deliveries, the stock of industrial space increased
very slightly, while the demand for logistic space was also
very weak during the year. The rst important transactions
could be seen to the end of the second semester.
SUPPLY
At the end of 2009, the industrial stock for Inner- and
Greater Bucharest had changed very little compared
to 2008. Only 33,000 sqm of new stock was delivered
on the market, a y-o-y decrease of 90% in new
supply, taking total stock to 900,000 sqm.
Inuenced by the recent economic downturn
developers stopped or postponed the construction of
their projects. New deliveries, which occurred only in
the rst quarter, represented extensions of existing
industrial parks which were started in early 2008.
In these conditions, availability started to become a
visible problem on the market. Large scale space was
dicult to nd, only one unit larger than 10,000 sqm
being available to potential tenants. Most logistic parks
only had units of between 1,000 3,000 sqm on oer.
Outside of the capital, Helios Phoenix delivered
15,000 sqm within Olympian Logistic Park in Brasov.
Other projects have been postponed, driven by a
lack of nancing and increasing levels of risk.
DEMAND AND VACANCY
Demand for industrial and logistic space also registered a
decrease. A total of almost 100,000 sqm was leased in 2009,
roughly 50% of the volume recorded in the previous year.
Market uncertainty, driven by worsening economic conditions
in late 2008 and early 2009, meant many occupiers froze
their expansion plans. This is the main reason why Q1
2009 recorded very low activity only 6,000 sqm of space
being leased. As companies adapted to the new reality and
moved on, leasing picked up in the latter part of the year.
In an attempt to reduce costs, tenants renegotiated
rents, reduced occupied space or relocated. These
movements have increased the vacancy rate threefold
since 2008, settling it at 12% at the end of 2009.
In the most important transaction closed on the
Bucharest market in 2009, Antalis leased 10,000 sqm
in Portland Trusts Bucharest West logistic project. The
transaction was intermediated by Colliers International.
The landmark transaction last year took place outside
Bucharest. Unilever, the consumer products conglomerate,
was advised by Colliers International in securing a
30,000 sqm industrial space including over 1,000 sqm
of annexed oce space in West Park Ploiesti. The space
will serve as a regional distribution centre for Unilever.
INDUSTRIAL
MARKET


RENTS
The winners of changing market conditions were smaller scale tenants who were able
to nd more options on the market. Tenants looking for warehousing units smaller
than 3,000 sqm could nd readily available space at rents representing a 10 to 15%
discount compared to the previous year. However, larger units were more challenging
to secure, and rents have not moved signicantly in this area. As a result, the rent range
between maximum and minimum rents on the market has decreased substantially.
FORECAST
Millennium Logistic Park was the only speculative development under
construction at the end of the year and will add 12,000 sqm of new space to the
industrial stock in southern Bucharest. Considering this, we will have only very
limited new stock delivered on the market before the second half of 2010.
As a result, tenants with large requirements will have to secure space by pre-lease
agreements or in built-to-suit facilities in order to obtain a good level of rent or
to simply secure space. On the other hand, smaller tenants will enjoy the current
vacancy levels in terms of nding optimum locations, competitive rent levels
and favourable contract terms. As absorption of the available spaces continues,
however, landlords will not stay as exible as they are today, which makes the
current period most attractive for potential tenants to renegotiate or relocate.
The vacancy rate is expected to increase further in the short term, up to 14% in 2010, due
to tenants who are expected to release occupied space in the rst quarter of the year.
Markets outside Bucharest are also developing in terms of industrial space
supply, most notably cities like Ploiesti or Timisoara. In 2010 West Park in
Ploiesti will bring 30,000 sqm of modern warehousing space to the market, fully
leased by Unilever. In Timisoara, Invest4See will deliver the rst phase of 12,000
sqm in Timisoara Airport Park, the construction of which started in 2009.
INDUSTRIAL SPACE RENTS
Area (sqm) Evolution E/sqm/mo Outlook
< 3,000 Decrease 4.50 4.75 Stable
3,000 10,000 Stable 4.00 4.50 Stable
> 10,000 Slight increase 4.00 4.25 Stable
As market conditions improve, we may see a decrease of the available space by
the end of 2010. With the occupation of the available spaces, however, landlords
will not stay as exible as they are today, which makes the current period most
attractive for potential tenants to renegotiate or relocate their operations.
Viorel Opait manager, industrial division
12%
Vacancy rate
Business uncertainty
led to cost cutting
options.
Tenants renegotiated
rents, reduced
occupied space or
relocated.

12
LAND
MARKET
After nine months of standstill, the land market in
Bucharest started to revive towards the end of 2009.
Despite the substantial re-adjustment of prices that fell
back to 2006 levels, the value of land assets transacted
last year hardly reached 10% of the value recorded
in 2008. However, the change in perception over the
last months brings condence that the market will
witness a positive development in the coming year.
DEMAND
The demand for land properties was very limited throughout
2009. The abrupt slowdown on the end-user markets
(residential, oce, retail, industrial space) combined
with the fear of a potentially extended economic crisis
determined investors to be extremely cautious in acquiring
land. The lack of bank nancing for land purchase was
another underlying factor of the steep fall in acquisitions.
The most active buyers in 2009 were the large retailers,
especially discount stores (such as Plus Discount,
Penny Market) and Do-It-Yourself (e.g. bauMax)
that are still continuing their expansion plans at the
national level. These buyers prefer semi-central plots
in densely populated neighborhoods or peripheral
locations beneting from very good exposure.
Demand also came from private high net worth individuals
that were searching for very good properties at highly
discounted prices. Even some developers chose to use their
surplus of cash to take advantage of the opportunities that
appeared during this period rather than continue with
projects that were proving dicult to sell or lease. The
most relevant example is the EUR 30 million acquisition
made by Liebrecht & Wood for approx. 60 hectares of land
for commercial use located at exits from Bucharest.
The new restrictions of the Urbanism Law that came into
force on October 1st represented a big factor of concern
for potential buyers. The new regulation limits the
construction density allowed therefore some investors
have conditioned the acquisition of land upon obtaining
Building Permits, in order to insure against the risk of
attaining lower than desired building coecients.
SUPPLY
As a consequence of the diculty in obtaining bank nancing
for developments due to the very strict conditions (40 60%
equity; 40 50% pre-lease for oce projects, 50 60% pre-lease
for commercial centers and minimum 30% o-plan sales
in case of residential projects), developers were forced to
put projects on hold. In some instances large portfolios of
land were put up for sale most of which having mortgage
loans attached. Thus, they were looking for investors that
would either acquire the land by taking over the loan or
enter into a joint-venture agreement in which to bring
fresh equity into a development. However, in the majority
of cases, the mortgage loan exceeded the price that
potential investors were willing to pay for the properties.
Towards the end of the year, some banks started
the long-awaited liquidation of guarantees for non-
performing loans. However, what they brought so far on
the market were mainly unattractive properties. In the
case of good properties, banks preferred to restructure
rather than execute loans. Towards the end of the year
the market also witnessed the rst bankruptcy cases
among developers. The most noteworthy example was
EFG Crevedia Development, owner of approx. 124 ha of
land in Buftea, which was nally sold by the liquidator
at approx. a 75% discount from the expected price.

PRICES
If during the rst part of 2009 landowners and investors found it dicult to
estimate property values in the context of the general uncertainty in markets,
by the year end the market got closer to an expected price balance. The average
decrease in asking prices for land plots in Bucharest ranged around 40 60% of
the levels registered during the peak period. However, not all landowners were
ready to accept the market downturn and, as a consequence, we witnessed
situations of similar properties being marketed at signicantly dierent prices.
The total value of transactions completed during 2009 was almost 90%
lower compared to that of the previous year. The price discount diered
signicantly depending on the type of buyer involved. While retailers and
companies buying to develop projects for their own use accepted discounts
of approx. 50%, investors proved to be extremely opportunistic and ready to
acquire only at 20 30% of the price they would have paid in 2007 2008.
FORECAST
The market signals towards the end of the year, including the increasing
number of closed transactions, gave landowners the condence that 2010 will
bring more activity on the land market. We estimate that prices have almost
bottomed out and only slight downward adjustments, if any, will be seen.
We expect the rst part of 2010 to remain dominated by the quest for distressed land
that has appeared only in very limited amount untill now on the market. By the end
of next spring, we should have a clearer understanding whether banks will proceed
with the execution of non-performing loans at a larger scale than in 2009, including
also good properties. Nonetheless, investors on the land market will likely start
having a less opportunistic approach and will make decisions based on the absorption
potential of the local market for end products rather than for speculating purposes.
90%
Drop in transaction
volume
Large retailers were
the most active
buyers in 2009.
Demand also came
from private high net
worth individuals.
Distressed land has
been extremely scarce
in 2009.
The land market was probably the quietest segment of real estate
during 2009: very few and mostly opportunistic buyers, only low-value
transactions actually completed and in small number, delayed reaction
of landowners with respect to adjusting price expectations.
Sinziana Oprea broker, land division
AVERAGE ASKING PRICE FOR LAND IN BUCHAREST (EUR/SQM)
Area Sub-area Price
Central Aviatorilor, Dorobanti, Romana, Universitate, Unirii 1,500 2,500
Semi-central Baneasa, Crangasi, Progresului, Vacaresti, Mihai Bravu, Colentina 500 800
Peripheral Sisesti, Pipera, Ghencea, Berceni, Pantelimon 200 400
14
Beyond the turmoil of 2009, the new year will provide
many opportunities for investors to buy assets in the
Romanian market. The low liquidity levels of 2009 and the
less intense competition for assets led to adjustment of
expectations by vendors and indicate towards a bottoming
out in the market. The forecasted return to growth of
the economy, the long-term undersupply of stock in
occupational markets and the return of banks support are
the primary reason for an up-turn in transaction activity.
Investors who will be rst on the market will benet most.
TWO TRANSACTIONS IN 2009
In a harsh global economic environment the Romanian
investment market came close to a standstill in
2009. However, two transactions of reference were
closed with a total value of EUR 120 150 million,
indicating that this period still provided opportunities
for investors able to close transactions.
The start of the year saw the acquisition of Fabian
Romania Limited from the London AIM market by
Black Sea Properties. The London based fund owned 11
properties, six of which were income producing oces,
with a total Net Asset Value of around EUR 80 million.
In the second half of the year, European Retail Park
Braila, a retail scheme of 53,000 sqm developed
by BelRom, was acquired by New Europe Property
Investments (NEPI) in a transaction estimated at EUR
63 million. The deal was nanced by a mix of debt,
conditioned share swap and buyers equity tying the
announced yield of 9.4% to these particular conditions.
PRIVATE EQUITY FUNDS LOOKING FOR HIGH RETURNS
With core funds out of play and not expected back earlier
than the second half of the year, only private equity funds
were looking at opportunities. Their targets were yielding
products that could provide 25% IRRs on invested capital.
Some funds had also yearly cash-sweep requirements,
around 15% on equity. With dicult nancial markets and
no distressed sellers, these were challenging targets.
Moreover, buyers estimated rental value of proposed
projects very conservatively, which led to a substantial
discounting of the price estimated by vendors. Although
the price changes on international markets have reduced
the expectations of local vendors, the above conditions by
investors led to prices that were mostly rejected by vendors.
In terms of product classes, buyers were looking at all
commercial property assets, a sign of trust for both the
business and consumer markets. Bucharest was singled out
as a target market only by some active players, while other
funds were looking at opportunities in the region as well.
PRICES
Four reasons made it dicult to determine fair prices
in the market last year. First was the very low liquidity.
Second was the complexity of the closed transactions
either in terms of the assets traded or the nancing
structure. Thirdly, the high bid/ask spreads between
investors and vendors highlighted aggressive positions by
both parties. This was facilitated by the lack of pressure
on buyers, not rushed to spend money in an unsafe
context, as well as sellers, unforced by their creditors.
The anticipated volume of distressed sales failed to appear
and some banks have even publicly stated that they would
not execute debtors but prefer alternative solutions. Fourthly,
most investors (although not all) were focused on their
IRR targets and not yields, which varied greatly depending
on the specic parameters of each player and project.
The positive outcome, however, is that the yield gap
started to close. If the estimated spread was as much
as 250 bps in the rst semester, it had closed to 100
bps in some cases, in favor of buyers, by year end. This
is an important indication of a thawing market.
INVESTMENT
MARKET


FORECAST
Most of the fundamentals support an attractive investment environment in the
following year, inviting investors to act on the opportunities lying ahead.
First, conditions in the international economic and nancial markets have markedly
improved and investors have commenced activity in the more developed markets.
Secondly, the reducing bid/ask spread is the most important sign that there is
interest to trade by parties on both sides and that agreements are getting closer.
Thirdly, with time passing it is more likely that banks will put pressure on
non-performing products and some quality assets could feel the heat too.
Fourthly, we may soon see a new phenomenon of forced buyers. The
clock is ticking on the committed capital that needs to be spent or returned
to shareholders, which makes the least sense for money managers.
Finally, many investors believe long-term in Romania due to the size of its
market and the economic and political safeguard of its EU membership.
The country is now post-elections and there are forecasts for positive
economic growth this year. At current stock levels, the commercial
property market will be in short supply once business grows again.
We believe that the main risks to real estate investment in 2010 will be related
to Romanias coupling to the international economy. In the unlikely but possible
event of a second round of disruptions, Romania will feel the impact.
The un-friendly nancial and sluggish lease markets of last year persuaded investors
to consider more innovative schemes for nancing and structuring deals. We will see
more of these approaches in the year ahead as buyers and vendors bridge the gap.
The positive outcome of 2009 is that the yield gap started to close.
If the estimated spread was as much as 250 bps in the rst semester, it had
closed to 100 bps in some cases, in favor of buyers, by year end.
This is an important indication of a thawing market.
Blake Horsley manager, investment division
120 150 Mil. EUR
Total value of the
two major
transactions
closed in 2009
Black Sea Global
Properties bought
Fabian Romania Ltd.
New Europe Property
Investments aquired
European Retail Park
Braila.
16
CONSULTING
residential market
Whereas until 2008 the supply of new apartments came
solely from developers, last year the market witnessed
a new supply source of new appartments: the investors.
Thus, after several years of being the largest consumers
of new residential projects, during 2009 investors entered
into erce competition with developers to ooad stock.
Demand evolved from a standstill during the rst
quarter to modest activity in the second quarter and
to an increase in sales towards the year end due to
the start of the Prima Casa program in July.
SUPPLY
The end of the year found the residential market with
a total supply of approx. 9,000 unsold new apartments
available for sale either directly from developers (6,000
units) or from investors (approx. 3,000 units). Compared
to 2008, however, the volume of modern residential
supply available for sale registered a decrease of 18%.
The 6,000 unsold units are available in 35 projects, already
delivered or under construction. Although no new residential
project started during 2009, supply levels witnessed
changes either due to projects or phases being put on
hold or due to apartments reentering the market as a
result of pre-contracts being cancelled by customers.
Several projects that registered great success during the
booming years (100% o-plan sales) were severely aected
during 2009, as their delivery date occurred in the middle of
the nancial crisis and many pre-contracts were cancelled
because buyers could no longer complete the sale.
The most common method of payment for o-plan
apartments required an advance payment when signing
the pre-agreement and a nal installment to be paid at
the delivery of the project. As a result of the impossibility
to meet the nal payment, a large number of units could
not be sold and eventually became available for sale.
The delivery of new ats continued to increase in
2009 as modern residential stock reached almost
11,000 units at the end of the year. 2,000 units were
completed during the rst half of 2009; a further 4,000
units were delivered in the second half of the year.
DEMAND
In total, approximately 1,300 apartments were sold during
2009 (in apartment complexes with over 200 units), a 63%
contraction compared to 2008. Putting aside investors
demand share in 2008 (around 30% of the total sales), the
reduction in end-user demand compared to last year was
50%. In 2009 investors did not buy on the residential market.
Demand behaved dierently throughout the year. The
rst half of the year started with a three months deadlock
period and ended with total sales of 515 units, driven by
projects that accepted the new market conditions and
oered smaller prices and favorable methods of payment.
In the second half of 2009, demand was supported by
the governmental program Prima Casa. However, the
program only inuenced the sales activity of those projects
that reduced their price and oered apartments in the
limit of 60,000 EUR. Consequently, during the second
half of the year, approx. 800 more units were sold.

PRICES
The 2009 end of year analysis shows moderate reduction in prices for new
appartments (19%) comparable to the prices decrease for old units (20%). The
average price for new dwellings closed the year at 1,300 EUR per built sqm (without
VAT), marking a 19% reduction from its December 2008 level. The price had a steady
evolution throughout 2009, with a similar decrease for each half of last year.
Most developers preferred to keep higher asking prices on their lists, but were
more exible when negotiating with clients. Therefore, the eective price
for a closed transaction may be up to 10 15% smaller. Moreover, developers
oered a variety of incentives such as: fully furnished and equipped kitchens,
parking spaces, storage rooms or discounts for a limited number of units.
FORECAST
Most likely, 2010 will follow a similar pattern to last year: supply will witness very
little change, demand will depend greatly on governmental initiatives and end-users
condence, while prices will continue their falling trend, but at a smaller rate.
The stock of 9,000 unsold units at the end of 2009 qualies the residential
market in Bucharest as oversupplied at the moment. However, when
comparing the stock of new apartments in Bucharest to other capital
cities in Central Eastern Europe, it is easily noticed that Bucharest lags
behind signicantly on a stock per capita basis. Thus, over the medium-long
term, we believe that Bucharests residential market has great potential
for further development. Over the short term (2010), real demand will
greatly depend on the Prima Casa program and any new governmental
initiatives (e.g.: 5% VAT for all new apartments regardless of price and size).
Thus we expect the downward trend in prices to continue,
although at a slower pace. We estimate that the price decline
for 2010 will be moderate, up to a market average of 10%.
63%
Reduction in total
demand in 2009
Investors did not buy
residential properties.
End-user demand has
halved.
Prima Casa program
supported demand in
the second semester.
Note: The Consulting Division monitors
quarterly the residential market in
terms of new supply, sales and prices.
During 2009, the residential market witnessed an oversupply of delivered
apartments. In addition, the market lacked in o-plan sales. Most likely, 2010 will
follow a similar pattern to last year, with little changes in supply, while demand
will remain dependant on governmental initiatives and end-users condence.
Stefania Baldovinescu manager, consulting division
Sources: National Institute of Statistics, Czech Statistical Oce, Hungarian
Central Statistical Oce, Central Statistical Oce (GUS)

18
VALUATION
MARKET
WHY ETHICS?
Recent events in the nancial world have demonstrated the
destructive eects of unethical conduct and made this a
very important concern in political and business thinking.
Ethics also became a major topic in the real estate
community over 2009. Did appraisers play an important
part in the inated values on the market or were they only
witnesses to the tremendous change which happened
during 2006 2008? Have they remained impartial and
correctly reect underlying market fundamentals? Did they
respect the code of ethics recommended by regulatory
institutions or surrender under the short-term pressures of
fast emerging markets? In this paper we would like to discuss
how ethics in valuation can be measured and controlled.
Clients of valuation services have the right to receive
clear answers about what measures are implemented
by a service provider in order to assure high levels
of professionalism and ethical standards.
The importance of ethics is also crucial for the provider
company itself. Research completed by RICS and issued in
May 2010, surveyed major real estate rms to reveal the
extent to which ethics matter: All the rms involved in the
study recognize that high ethical standards are essential to
maintaining the reputation of the rm and that of the wider
profession. It is well recognized that individual professional
reputation, as well as corporate reputation, has an economic
value which is enhanced by high ethical standards. Ethical
principles therefore have a commercial value. Perhaps more
signicantly, the absence of ethical values has a commercial
cost, and sometimes the cost can be devastating where the
outcome is loss of business and/or serious adverse claims
1
.
ETHICS IN THE VALUATION FIELD
The denition of professional ethical conduct endorsed by
the Royal Institute of Chartered Surveyors, a governing
body for the real estate profession globally, is simple
and explicit: giving of ones best to ensure that clients
interests are properly cared for, but in doing so the wider
public interest is also recognized and respected.
Taking only the rst part of the denition would be a
mistake, especially for the appraisers who are often under
client pressure. The wider public interest is an essential
reason why an appraiser should remain an independent
party in the valuation process (consider for example
the relationship between a borrower and a creditor).
WHO ARE THE REGULATORY
INSTITUTIONS IN THIS MATTER?
The Royal Institute of Chartered Surveyors (RICS) has
developed the most recognized code of conduct for the Real
Estate profession in Europe and beyond. RICS membership
requires respecting the rules of conduct developed by
the Institute. The most important companies on the real
estate market in Europe employ RICS members or are
member rms themselves. The general principles and
rules of conduct by RICS are presented in their Red Book
publication, Practice Statements and Guidance Notes. In
addition to the Practice Statements RICS issues separate,
but consistent, Rules of Conduct for Members and Firms.
A similar code of conduct, specially devised for appraisers,
is presented in the International Valuation Standards
by the International Valuation Standards Committee. In
Romania, these rules are ocially adopted by the National
Association of the Romanian Appraisers (ANEVAR).
RICS standards and rules are mandatory only for its
members, while the norms imposed by International
Valuations Standards and ANEVAR are mandatory
for all the authorized appraisers in Romania.
WHAT ARE THE MAIN PRINCIPLES OF
CODE OF CONDUCT IN VALUATION?
The main common values promoted by RICS, IVS and ANEVAR
are: Integrity, Competence, Condentiality, Transparency,
Independence and the Management/Avoidance of Conicts
of Interest. In the following we will briey describe each
of these. Unless otherwise noted, quotations are made
from the Rules of Conduct for Members, June 4th 2007,
or the 6th Edition of the Valuation Standards, both issued
by the Royal Institute of Chartered Surveyors, or the
International Valuation Standards, 8
th
edition, 2007.
RICS Research Report Ethics for surveyors, an educational dimension.
Commercial Real Estate Practice and Professional Ethics May 2009
1
Integrity is related to overall professional behavior of the
valuer, advising him to be honest and trustworthy in his
or her activity: never deliberately mislead, whether by
withholding or distorting information. This code expects the
appraiser to not put his own gain above the interest of clients
and consider the wider interest of society in their judgment.
Competence is related to the technical knowledge of the
appraiser and to the concept of specialization. Members
shall carry out their professional work with due skill, care
and diligence and with proper regard for the technical
standards expected of them. A valuer should deny an
instruction if it is outside of his or her professional
competence or there is a limited awareness about the
proper approach of the valuation subject. In this latter
case the valuer should form a team together with an
expert in the eld. Acceptance of any competence
makes a valuer accountable for all his or her actions.
Condentiality is one of the most important concerns
in the relationship between the valuer and client. It
also aects third parties as the real owner of the
valued property or the lending bank. There is a general
duty to treat information as condential where that
information becomes known as a result of the professional
relationship, and is not in the public domain. If due to
an existing conict of interest, the condentiality cannot
be kept, then the instruction should be declined.
Conicts of interest is another important pillar. The valuer
should declare any potential conicts of interest, personal
or professional, to all relevant parties. This issue appears
especially when the appraiser has previously analyzed the
subject property before the current instruction or in the
case when the valuer is part of a larger company, including
other departments that have dierent interests in the
subject property. In this case the appraiser or the rm
should complete several actions in order to avoid such a
conict. The creation of Chinese walls is such an example. A
potential conict should be disclosed in writing to the client,
agreement sought and obtained as to how it will be managed
and the result should be included in the terms of engagement.
Independence and transparency are the main values
that should be achieved by an appraiser in order to avoid
conicts of interest. A valuer should not let sentiments
or their own interest to eect professional judgment and
should share the full fact with the clients, making things
as plain and intelligible as possible. Independence is
endangered, for example, each time the valuation result is
discussed (read negotiated) in advance of its completion
with either the client or another party interested in the
valuation. It is necessary for the valuers to identify any
threats to their independence and objectivity and take
the appropriate action before accepting the instruction.
WHAT SHOULD A CLIENT KNOW BEFORE
SIGNING THE TERMS OF ENGAGEMENT?
The client should understand how the valuer must translate
into reality the ethical principles presented above and insure
that his interests are not in conict with the service provider.
Please, nd below these and several other issues that the
client should address before signing a service contract:
1. What is the relevant experience of the
valuer with similar properties?
2. Are there any possible conicts of
interest regarding this instruction?
3. Might the valuer manage the conict, if any?
4. How does the valuer ensure condentiality
for the information provided by the client?
5. What is the complaints handling procedure
within the valuers company?
6. What is the level of the valuers professional indemnity?
A client should know before signing the terms of engagement
if the company has working complaints handling procedure
and professional indemnity insurance. Also, the client may
ask if the valuer has undertaken continuing professional
development or if he or she has recent experience in
the relevant area. These issues do not exhaustively
cover all the ethical standards, but they should help the
client create a proper relationship with the valuer.
Clients of valuation services have the right to receive clear answers about what
measures are implemented by a service provider in order to assure high levels of
professionalism and ethical standards. Ethical principles have a commercial value.
Raluca Buciuc associate director, valuation division
20
BUILDING
SURVEYING
As the market followed the negative trend of the
last year, no new greeneld developments managed
to obtain nancing for medium and large projects,
either commercial, oce, residential or industrial.
In the present business context, the importance of
Project Monitoring has substantially increased as it
provides to the stakeholders, most importantly to
the banks and investment funds, a useful tool for
risk management in the construction process.
Professional building surveyors can provide not only
technical supervision but also leasing contract analysis,
expenditure completion scenarios according to market
segment, demand forecasts on specic real-estate
markets and detailed expenditure cash ows.
Currently, in Romania, there are approximately 90
supervised projects under development. The monitored
projects, controlled by the most active companies in
this eld, represent residential compounds (45%), oce
buildings (20%) and shopping centers (35%) and a few
infrastructural developments and building refurbishments.
In the present article, we would like to oer a brief insight
about two important aspects which contribute to the
success of one project from the construction perspective:
FIDIC contracts, and proper management of soft costs.
FIDIC CONTRACT GENERAL CONDITIONS
REGARDING THE INSURANCE
In the present real-estate market, only the experienced
developers managed to succeed in delivering announced
projects within reasonable targets of budget and timeline.
For the parties involved in a construction agreement,
it is recommended to follow the conditions of a FIDIC
contract (Federation Internationale des Ingenieurs
Consultants), which can signicantly reduce their risk
exposure. Still, a special care should be paid to the
implementation of the General Conditions of the FIDIC
contract which must be aligned to the Romanian law.
The requirements for the construction works insurance
serve to protect the involved parties against the
potential risks related to the construction process.
Therefore, the FIDIC terms and conditions recommend
that the insuring party (the Contractor or the Developer)
shall insure the Works, Plant, Materials and Contractors
Documents for not less than the replacement cost
including the costs of the demolition, removal of debris
and professional fees and prot. In addition, an insurance
which shall cover liabilities for claims concerning
Contractors Personnel must be maintained during the
entire working period for the involved human resources.
The insurance terms should also cover the situation which
may arise when one party is charged in respect of an
incident for which another is responsible, either partially
or totally. So, it is recommended that the insuring party
maintains insurance against each partys liability for
any loss, damage, death or bodily injury concerning any
physical property or person (other than the ones mentioned
above), as a result of his entrepreneurial activity.
SOFT COSTS MANAGEMENT
When estimating the construction budget, the main focus
is usually set on the hard costs, more precisely on the direct
costs of the construction and utilities. Besides these, it is very
important to take into consideration all the indirect costs
related to the project, also known as the soft costs, and to
estimate them not only considering the particularities of the
project, but also considering the trend of the market. The
soft costs usually include project management expenditures,
consultants costs, building permits, design fees, brokerage
fees, marketing costs, nancial costs and contingency costs.
An accurate estimate of these costs, as well as the
presence of a professional project management during
the construction process, assures a successful completion
with minimum overrun. Excesses became common
phenomena in the market during the last two years and
lots of projects were delivered with cost overruns of at
least 5 10%. These undesired additional costs can be
prevented during the development process, conditioned
by a careful monitoring and analysis of the expenditures
correlated with a distribution of soft costs per category.
Our experience shows that a higher percent of soft costs is
usually allocated to project management and design fees
(around 3% of the hard costs each). Project management costs
are related to the construction administration team, while
design fees vary depending on the size and type of the project.
Other costs, which are usually estimated as percentage of the
hard costs, are the Building Permit fees, including the costs
of the building permit and the municipal taxes estimated
to be 2.4% of the hard cost and the Consultants costs
(real estate, legal etc.) which are generally calculated based
on the market evidence at 1.5% from the hard costs.
Brokerage and marketing fees are usually approximated
based on revenues generated by the project on completion.
Marketing fees are typically estimated at 1%, while brokerage
costs at 12.5% of revenues obtained during the rst year
for commercial properties or 1% of total revenues for
residential developments. Soft costs also include nancing
fees which are usually set at 9% of the nanced amount.
In addition to these types of costs, it is recommended to
allocate a safe amount to contingency (roughly 5% of hard
costs) in order to cover the possible price changes and
costs arising from special risks. From our experience, we
noticed that dierent overruns can also appear due to
unexpected soft costs, and the above contingency does
not always cover these additional costs. A special care is
recommendable to be paid during soft costs estimation,
in order to avoid supplementary expenditures.
The graphic below shows how soft costs (estimated
as percentages out of the hard costs) can uctuate
during the dierent phases of the construction period.
Even though real estate markets are in continuous
change, the underlying trends must be understood for
a correct estimation of soft costs in future projects.
A signicant amount of soft costs is spent at the beginning
of the project, in the pre-development phase, when the
costs with Consultants, Design, Marketing and Building
Permit are considerable higher than the ones registered in
the following period. In the next phases, all these costs will
know a downward trend, with the exception of Consultants,
which will slightly grow at the end of the construction. If
the movement of Contingency depends of the Hard Costs
evolution and Financial Fees depends of the total costs
evolution (hard and soft costs), the Project Management
fees are usually constant during the project development.
Also, from the experience of previous projects, Brokerage
fee is rather stable during the construction, larger fees being
registered in the last phase, before the nal completion.
When estimating a construction budget, the main focus is usually set on the hard
costs. Moreover, it is very important to take into consideration all the indirect
costs related to the project, also known as the soft costs. An accurate estimate
of all these costs assures a successful completion with minimum overrun.
Raluca Laudoniu manager, building surveying division

22
NATIONAL HOTEL MARKET ANALYSIS
The tourism industry was one of the most aected by the
downturn of world economy, whose eects were visible
from as early as Q3 2008 and which nally led to a severe
decrease for both hotel services demand and tourist
expenditure. The cutting down of travel budgets determined
travelers either to decrease the length of stay, either to
downgrade transport and accommodation to a lower,
cheaper solutions or to use new technologic solutions as
a substitute for travel. Business and conference tourist
segments were the most impacted and destinations that
relied on those types of customers were the most aected.
The decrease in demand for hotel services was conrmed in
Q4 2008 and has continued across 2009, and consequently,
the number of tourists seeking accommodation in
Romanian hotels reduced with 14% y-o-y and the
average length of stay dropped to less than 3 days.
As a result, the occupancy levels went down by 20% as
compared to the gures registered in 2008. The second half
of last year has however, showed signs of slight recovery
thanks to room rate adjustments operated by hoteliers and to
a stabilization of the economic climate in Western European
countries, which are the main tourist generators for Romania.
The most important overnight generators were still the
neighbor countries: Hungary (25%) and Bulgaria (12%) which
have decreased y-o-y by 4% and 20% respectively. The
most signicant drops in the number of tourist arrivals
were registered by Germans (15%) and Italians (14%).
The hotel oer was relatively constant as compared to the
previous year, most projects that were in the pipeline at the
beginning of 2009 being delayed or canceled, while no new
developments were started due lack or cost of nancing.
Around forty hotel projects are however announced
for the following years which will add almost 6,000
rooms to the existing supply. The penetration rate
of international brands is still one of the lowest in
Europe, with little over 7% of hotel inventory, currently
being aliated to an international chain of hotels.
The number of transactions has also decreased signicantly,
with an estimated volume lower then EUR 15 million.
Even though many properties were on sale due to the
diculties that arose, buyers failed to appear because
they either found it dicult to nance such acquisitions
or they decided to wait for the price to go even lower.
BUCHAREST HOTEL DEMAND
Tourist arrivals decreased on average by 8% in Bucharest
in 2009 and the average length of stay reduced from 2.1
nights in 2008 to 1.8 last year. Since 80% of tourism in
Bucharest is business-related, the Capital has been seriously
impacted by the economic crisis that forced companies
to reduce their expenses for traveling and inicted major
changes in tourists behavior. Upper segments of hotels
were the most aected, especially in terms of rates.
The occupancy for the Bucharest hotel market was 56% in
2009, a decrease by 7% y-o-y, signicant drops being seen
in the rst 6 months of the year, while towards the end of
2009 the values came close to the levels registered a year
before. The real problem for hotels was the room rate, which
staid constantly and consistently below levels of 2008, with
an average value of EUR 73 in 2009. The average daily rate
decreased by 30% y-o-y, and the biggest challenge in the
following years for hoteliers will be to build-up ADR again.
HOTEL
MARKET

BUCHAREST HOTEL STOCK
Segment # of Hotels # of Rooms <50 Rooms 50100 Rooms >100 Rooms
5-star hotels 11 2,038 2 3 6
4-star hotels 52 5,899 24 13 15
3-star hotels 63 2,640 48 10 5
2-star hotels 21 912 15 4 2
1-star hotels 6 375 3 2 1
Total 2009 153 11,813 92 32 29
BUCHAREST HOTEL SUPPLY
At the end of 2009, Bucharest accounted for 153 hotels, with
little over 11,800 rooms on the Bucharest hotel market.
Even though the accommodation supply has increased by
12% y-o-y, the Bucharest hotel market still shows signs of
immaturity with regards to the hotel oer: the majority of
hotels have under 50 rooms (60%), segmentation is severely
unbalanced (over half of hotels are 4-star properties), brand
penetration is still low (13% of the total number of hotels).
FORECAST
After a dicult year 2009, the following year 2010 shows
some moderate signs of optimism. Western European
countries have started to post quarter to quarter
increases of the GDP and Romanias economy is expected
to rise by 0.5% in 2010. As GDP has historically been a
good indicator for the appetite to travel, an increase in
demand for hotel services is consequently expected.
In the same time, hotel supply will remain relatively constant
on the short term since access to nancing will continue
to be dicult. Subsequently, many of the existing projects
in the pipeline will remain blocked and new ones are will
be very scarce. This is the reason why we believe that
occupancy levels will continue to recover from the drops
they previously registered. Rebalancing demand and supply
ratio will determine also the ADR to stop falling, and star
to increase but in a smaller pace than the occupancy.
The problems which hotel owners are facing will raise
opportunities for investors: both the acquisitions of
distressed properties priced below their market value,
and the investment in new build hotels, thanks to
the decrease in land value and construction costs.
Despite the diculties, opportunities for hotel investment
still exist especially for midscale hotels, in secondary
cities and in mixed-use developments and. Hotel
chains and operators will strengthen their presence
as nancial institutions will require professional
operating solutions as an guarantee for good results.
Trend Hospitality
Baneasa Business & Technology Park
4244 BucurestiPloiesti Ave., Building A2, 4th oor
District 1, 013696, Bucharest, Romania
Phone: +4021 203 5065; Fax: +4021 203 5061
Email: tinu@trendhospitality.com
Web: www.trendhospitality.com

24
REAL ESTATE INVESTMENTS IN
ROMANIA TAXATION ASPECTS
The recent legislative developments in the area of tax
law that entered into force starting 1 January 2010 have
brought some important changes for Romanian taxpayers.
However, the real estate business environment in
Romania is not signicantly impacted by these changes.
We are presenting below some key aspects that should be
considered by individuals or companies investing in Romanian
real estate properties either directly or via a Romanian entity.
TAXATION OF RENTAL ACTIVITIES
Rental income is subject to a at 16% tax that is applicable
to both companies and individuals but with certain
dierences in the computation of the tax base.
Specically, in case of Romanian companies, apart from
other tax deductible expenses, the tax base is decreased
by the scal depreciation of the building (except for land
which may not be depreciated). Further to the latest
changes of the tax regulations introduced in May 2009,
reserves from the revaluation of xed assets, including
land, performed after 1 January 2004 will be gradually
recognised as taxable income proportionally with the
recognition of tax depreciation of these assets or at
once at the time of their disposal. This rule concerns the
revaluation reserves that are deducted from prots for tax
purposes through depreciation or through expenses with
alienation of assets. In eect, this change eliminates the tax
revaluation of assets which was available for several years.
With regards to the rental income obtained by
individuals, the tax base is determined by deducting
a 25% expense quota from the gross income,
which in eect reduces the tax rate to 12%.
Alternatively, individuals also have the option of deducting
actual expenses. If an individual closes more than 5 rental
agreements, he/she has to register as merchant and pay a
16% tax on rental income less relevant deductible expenses.
DISPOSAL OF REAL ESTATE ASSETS
Capital gains obtained by Romanian companies from
disposal of Romanian real estate properties are subject
to a 16% prots tax (minimum income tax rules was
introduced starting 1 May 2009). The taxable gain is
determined as the dierence between the selling price
and the scal value of the xed assets sold. In the case of
depreciable xed assets (buildings), the deductible scal
value is dened as the entry value less scal depreciation.
Distribution of net prots is further taxed with a 16%
dividend tax. However, there are situations when the
tax can be reduced below 16% and even to nil (e.g. via
tax treaties, EU Parent-Subsidiary Directive).
As an alternative, the shareholders of a Romanian
company can opt to sell the shares of the company
rather than selling the companys property. In this case,
they are liable only to the 16% income tax applied to
the capital gain obtained through the company sale.
In case of capital gains obtained by individual investors
from disposal of real estate property, the tax depends on
the period of time the property was owned for. Namely,
the tax for real estate properties sold within 3 years
of acquisition stands at 3% of the transaction value for
transactions up to RON 200,000, while for transactions
exceeding RON 200,000, the due tax is RON 6,000
plus 2% of the amount which exceeds RON 200,000.
A building is new if sold by the end of the year following its rst
utilization/occupation, or is transformed in certain conditions.
1
Sales of properties held for more than 3 years, are taxed at 2%
of the transaction value for transactions under RON 200,000,
while for transactions exceeding RON 200,000 the due tax is
RON 4,000 plus 1% of the amount exceeding RON 200,000.
Individuals performing sales of real estate as a business
cannot apply the above rules but instead they need to follow
a taxation scheme similar to that applicable for companies.
VAT ASPECTS
Rental of real estate property is normally VAT exempt.
However, any taxable person performing rental activities
may opt to charge a 19% VAT on such transactions.
As a rule, the sale of old buildings/parts of buildings
and the underlying land, as well as of any other type
of land is VAT exempt without deduction right unless
the taxable person performing such transactions
opts to tax the sale with 19% VAT. This exemption is
not applicable to sale by a taxable person of a new
building or land on which buildings can be erected.
Starting with December 2008, a 5% VAT tax rate
has been introduced for the sale of social housing
(including related land) under certain conditions
(i.e., houses of maximum 120 square meters and not
exceeding RON 380,000 in value net of VAT).
Individuals trading in real estate as a business are to
be treated as taxable persons. Thus, when performing
taxable operations (e.g. sale of new buildings) the
individuals are liable to register for VAT purposes if the
volume of their transactions exceeds EUR 35,000.
LOCAL TAXES
Owners of buildings are liable to pay an annual building
tax to the local authorities. For companies, such building
taxes range between 0.25% and 1.5% of the book value
of the building. However, the building tax may increase
to up to 10% if the building has not been re-valued for 3
years. For individuals, the tax rate is 0.1% and is applied
to the value of the building, which is calculated based on
minimum established values provided by law (starting
from 2010 these values were increased by approximately
20%). Hence, for equivalent property, the tax base for
individuals can be considerably lower than for companies.
With regards to the tax on land, both companies
and individuals owning land are liable to pay a tax
which is established as a xed amount per square
meter, depending on the location of the land.
Local councils may grant exemptions from payment of
building and land taxes to companies under certain state
aid schemes established for regional development.
Ernst & Young provides a range of services
including assurance, advisory, tax advisory
and compliance, and transaction advisory.
Ernst & Young srl
Premium Plaza Building, 15th Floor
6369 Dr. Iacob Felix Street, 011033 Bucharest
Alex Milcev, Tax Partner
Phone: +40 21 402 4000
Fax: +40 21 310 7124
Email: oce@ro.ey.com
Web: www.ey.com
26
On 14 October 2009, the Law no. 261/2009 approving the
Emergency Government Ordinance no. 214/2008 entered
into force, modifying the Construction Law, i.e. the Law
no. 50/1991. This normative deed brought a series of
signicant changes to the procedure for authorization
of constructions in Romania. These changes have been
further implemented by the new methodological norms
to the Construction Law, approved by the Order no.
839/2009 of the Ministry of Regional Development and
Housing and producing eects as of 23 November 2009.
The legal novelties are a consequence of the integration
in the European Union and of the correspondent
obligation of legislative harmonization; this time the
aim was to harmonize the construction legislation with
the environmental assessment procedure under the
Council Directive 85/337/CEE. The stages for obtaining
the authorization of construction works have been
reconsidered for including those allowing the assessment
of the environmental impact of a particular project.
Any applicant for a building permit (demolition permits
excluded) must, after obtaining the urbanism certicate,
apply to the environmental protection authority
for an initial assessment. This authority will decide
whether the respective project falls into the category
of projects subject of the environmental assessment.
The applicant shall then notify the competent public authority
conrming its initial application for obtaining the building
permit. The procedure for environmental assessment
shall take place after the submission thereof, but prior to
drafting/nalizing the technical documentation and shall
be completed by issuance of a statement/point of view of
the environmental protection authority, or by issuance of
an administrative deed of the environmental protection
authority, which shall be dierent depending upon the
environmental eects of the investment objective: an
environmental permit or a Natura 2000 endorsement.
Another concern of the law maker was to implement
a mechanism for ensuring the transparency of the
endorsement/ authorization procedure.
To this aim, the public is informed and consulted
in relation to the proposed investment.
The building permit and its annexes must be published
on the local public authoritys website or posted at its
headquarters. Furthermore, any person whose rights or
legitimate interests has been prejudiced by the issuance of
the building permit or by the refusal to issue the building
permit is entitled make a claim in relation thereto.
The suppliers and the administrators of urban facilities
are under the obligation to post at their headquarters and
on their web pages all the data necessary for drafting the
technical documentation for obtaining their approvals.
Steps have been taken for standardizing the permitting
related requirements when the intended development
exceeds the administrative territorial unit of a county
(or Bucharest city limits, as the case may be).
CHANGES TO THE CONSTRUCTIONS
PERMITTING PROCEDURE
Furthermore, some clarity has been brought in relation to
the major changes in design; the changes of the theme have
been expressly dened. In case of changes of the theme, a
new building permit has to be issued; the changes of theme
will lead to starting the permitting procedure of the project
again to the extent they exceed the limits of the original
endorsements/environmental administrative deeds. In case
such changes occur, the developer/owner must stop the
performance of works until a new building permit is obtained.
In respect of the local changes to the technical
solutions, under limited conditions, they do not
require the issuance of a new building permit; those
conditions have been claried to a certain extent.
In addition, the rule that the building permit and the permit
for the works for site organization have to be issued in
the same time has been introduced by Law no. 261/2009.
The celerity of the permitting process remains a grievance,
but some positive measures have been implemented in this
respect. To the extent the documentation is complete, the
bodies competent to issue the endorsements required under
the urbanism certicate must comply with their obligation
to issue the respective approvals/endorsements within 15
days from the date of the application. Failure to do so is
deemed to constitute tacit approval (except for endorsements
issued by the environmental protection authority).
The sanctioning regime has been amended in
several respects, making the law rougher.
For example, buildings erected without a building permit
on land belonging to the public or private domain of
the state or administrative-territorial units may be
demolished without a demolition permit and without
a court ruling ordering the demolition, on the oender
costs. The complaint against the sanctioning minutes
shall not suspend the demolition of such buildings.
The mandatory contribution of 0.5% of the estimated value
of the construction works to the Construction House,
provided under the Emergency Government Ordinance no.
214/2008 has been now removed. However, it continues to be
provided for in other pieces of legislation, maintaining the
subject matter under debate. Consequently, a clarication
of the law maker in this respect would be recommendable.
The recent amendments are a small step in the
direction of streamlining and transparency of procedure
and could lead to a more predictable process and
increased responsibility of the individuals involved.
Oana Albota, Senior Associate
oana.albota@pelilip.com
Floreasca Business Park
169A Calea Floreasca
Building B, 5th oor
014459 Bucharest, 1st District, Romania
Phone: +40 21 527 2000
www.pelilip.com
Floreasca Business Park
169A Calea Floreasca, Building A, 7th oor
Bucharest 1, 014459, Romania
Phone: +4021 319 77 77
Fax: +4021 319 77 78
Web: www.colliers.ro
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REAL ESTATE REVIEW

Source: National Bank of Romania

Colliers International monitors class A buildings, over 3,000 sqm.

Colliers International, Real Estate Review Romania 2010 11

Colliers International, Real Estate Review Romania 2010 15

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