The Rise of the Balkans

8/9/2019 The Rise of the Balkans

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Romania is the Balkans best keptsecret, with enormous potential for rapideconomic growth and development overthe next five years..Source DTZ 2008

Why Romania

Why Constanta


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The Rise of the BalkansEuropean logistics report

ContentsExecutive summary ................................................................................................ 1

Economy and trade ................................................................................................ 4Infrastructure ......................................................................................................... 8

Market Comparison Romania and Bulgaria ...................................................... 13

Industrial Rents .................................................................................................... 15

After years of conflict, the Balkans has entered a new, more positive era and businesses

and investors alike are keen to take part. The prospect of EU accession is opening doors

to both business and market reforms. Roads, railways, ports and airports are being

upgraded and expanded as trade flows begin to surge. The Balkans strategic location

between Europe and Asia gives the region huge potential to become a key hub for direct

trade between the two continents. The following report provides an introduction to theBalkans region and analyses its industrial and logistics property markets.

Executive summary The history and location of the Balkans put them undeniably at the heart of Europe.

The EU recognises its role in helping the region to achieve this and has offered these

countries EU membership. Indeed, Romania and Bulgaria have already joined and

others are set to follow. With the prospect of membership comes the added bonus

of billions of euros to aid in the countries development. Investors, too, are eyeing

the region more closely.

Transport infrastructure is vital to industrial and logistics property markets; the

Balkans infrastructure is historically fractured and of poor quality. However,

conditions are improving, both within and surrounding the region, mainly due to a

number of significant infrastructure projects, such as TRACECA, TEN-T, and Pan-

European corridors. Eventually, the Balkans will be fully integrated into EU transport

systems. The new Silk Road presents another opportunity for the region and will

help facilitate its increasing role as a transportation hub between Europe and Asia.

Ships are currently the main mode of transportation for trade between the EU and

China. However, many companies are exploring the possibility of rail and land routes

as it is much quicker the transport of cargo by rail can take half the time oftransport by sea.

Logistics operators will seek those locations with excellent access and connections,

such as in and around ports, airports and transport corridors. Ports and airports, in

particular, are benefiting greatly from improving infrastructure and rising levels of

worldwide trade several have already started expanding. The port of Constanta in


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Romania is one of the fastest growing ports in Europe and boasted the title of the

fastest growing port in the world in 2005.

Increasingly, China is driving the Balkans logistics markets and this will result in the

development of a number of logistics hotspots. Trade between China and Europe

has grown significantly in recent years, and, in 2007, the EU overtook the US as the

main destination for Chinese goods.

The credit crunch that emerged at the end of 2007 will continue to influence the

world in the medium term. The turmoil in the credit markets began in the financial

sector and rapidly spread to the wider economy. However, we believe that as the

European industrial market recovers, the Balkans will increasingly establish itself as

Southern Europes key industrial hub providing access to all West European markets

via the increasingly important Rhine Danube navigation link. We believe that the

developing transport infrastructure in the developing Balkans region will help to

drive their economies forward out of the Global recession at a faster rate than

elsewhere in Europe.

The purpose of this report is to provide an insight into the primary Balkan countries with

seaports on the Black Sea or Aegean and to analyse their industrial property markets.


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The Central European Free Trade Agreement (CEFTA) has been recognised as an

effective tool for opening the region to competition and growth and helping prepare the

Balkans for EU accession. It was therefore decided to expand the agreement in 2006 so

that it now includes Albania, Bosnia and Herzegovina, Croatia, Serbia, Kosovo,

Macedonia, Moldova, and Montenegro. This agreement will greatly benefit the

industrial sector by encouraging trade and investment in the region.


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Economy and tradeMacroeconomics and the performance of the industrial property marketsare closely linked.

Logistics operations are not confined to operate within one countrys borders.

Therefore, strong economic growth in one country can raise demand for logistics anddistribution property in another. The following section provides a brief overview of the

economies of the Balkans and their performance over the last few years.

Emerging from hibernationThe last decade has seen the Balkans continue its

transition from primarily centrally-planned economies towards fully fledged market

orientated democracies. The region has generally outperformed the rest of Europe this

decade, driven by trade growth, large inflows of investment and private consumption.

Relative political stability and economic reforms have underpinned large investment

flows into the Balkans over the last 6 years. Indeed, gross fixed investment (as a % of

GDP) was higher than the EU average in all countries, except for Serbia and Turkey, last

year. This ongoing process of modernisation has been paramount to developing a

manufacturing base to satisfy growing EU demand for cheap manufactured goods.

Unsurprisingly, those economies with greatest access to EU markets have tended to

achieve the greatest gains. The consequence of economic reform and development has

been strong employment and real wage growth across the region. These labour market

developments have been joined by an expansion in the availability of consumer credit

which grew at double-digit rates across the region last year. This appetite for borrowing

has been a major boon to consumers, who have been happy to borrow amid low


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interest rates and expectations of permanently higher future income streams. Indeed,

private consumption was the largest contributor to growth in seven of the 12 states in

2007. Despite these positive trends, the region remains very diverse with respect to

income, standards of education / healthcare and infrastructure. For example, GDP per

head varies from a high of $32,000 in Greece to a low of $1,200 in Moldova. The varying

speed of integration with the rest of the EU has been shaped by several factors: regional

tensions, varying access to EU export markets, and varying success in liberalising the

economy.

Declining inflation and structural reforms have been important achievements over the

last decade, yet there is much more to achieve. In particular, the business investment,

property and labour markets remain more restrictive than their Western European

counterparts. The current market turmoil from the global economic downturn

represents a significant downside risk to the short-term outlook. Going forward,

policymakers will continue to face the challenge of managing credit inflows while

minimising the risks of flights of capital and economic instability. An over-reliance on FDI

and rising credit growth has contributed to some of the largest current account deficits

in Europe.

TradeTrade is growing in the Balkans, but their huge current account trade deficit is a risk to

the economy. The Balkans have witnessed strong growth in both exports and imports

over the past ten years. As can be seen from the charts featured here, export growth inthe region has consistently outperformed the EU average. If we look deeper into the

figures, it may not be a surprise to see that the EU25 accounts for more than half of all

trade with the Balkans. In 2006, the EU25 accounted for 57% of the Balkans exports and

51% of total imports in 2006 (WTO). Surprisingly, trade with the US is minimal. Turkey

exports the most to the US, but as a percentage of total exports, it accounted for just 6%

in 2006 (EIU).


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Buzzing skies and the Black Sea boomThe north-western range of ports and airports (such as the ports of Rotterdam and

Antwerp) continue to dominate freight transportation in Europe. However, over the last

five years, ports and airports within the Balkans have witnessed strong growth and are

gradually emerging as logistics hotspots.

The fact that the region is surrounded by several seas the Black Sea, Mediterranean

Sea, Adriatic Sea, Ionian Sea, Aegean Sea, and Marmara Sea makes maritime shippinga prime area for growth going forward. Moreover, the regions ideal location between

Asia and Europe gives its ports a competitive advantage and opportunity to develop into

major trade hubs.

Historically, levels of container transport in the Balkans have been relatively low. This is

changing. The Black Sea in particular has witnessed strong growth in sea traffic in recent

years. As a result, a number of countries on its shores have implemented plans for port

expansion.

Bulgariaboasts 380 km of Black Sea coastline with two container ports Bourgas andVarna. Varna is home to two container terminals with a through-put of 100,000 TEU.

Bourgas also has a container terminal and is linked by road and rail networks to several

of the Balkans other major industrial inland areas. There are plans to add more

container terminals to Bourgas, which could increase cargo handling to 150,000 TEU by

2010.


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Rising ConstantaRomania has the smallest amount of Black Sea coast at just

240km and only two container ports. One of these Constanta

can claim to be the biggest port on the Black Sea.

Fastest Growing Port in

the world (2005)

In 2006, the port handled over one million TEU, more than any

other port on the Black Sea. The port even held the title of the

fastest growing port in the world in 2005, when the number of

TEUs handled grew by 99%. In fact, between 2002 and 2006,

growth in the number of TEUs handled averaged 57% per year.

To put this in context, Rotterdam Europes largest port

experienced growth of only 10% over the same period.

Rapidly Expanding

To maintain high growth rates the port is expanding and has

built a new South Container Terminal which will increase

capacity to 2 million TEU a year.

Plenty of spaceIn contrast to Rotterdam, which suffers from a lack of space, the

port of Constanta has plenty of space available for further

expansion.

Deepest port on

the Black Sea

The port is the deepest port on the Black Sea meaning that it can

accommodate the largest container ships.

Improvinghinterland

connections

Constanta is being incorporated into the trans-European

transport network a massive ongoing pan-European transport

infrastructure programme. Also, its location on the Danube River

(also undergoing expansion) means that it is directly connectedto the port of Rotterdam. This will benefit both ports, as cargo is

transferred from one to another. Going forward, cargo from

China bound for Rotterdam may seek to stop at Constanta in

order to make use of the inland waterway as an alternative to

the sea.


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Infrastructure


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TEN-T With an estimated cost of 600bn, the EUs trans-European transport network

(TEN-T) is one of the largest and most expensive transportation projects in the world. Its

aim is to provide a highly efficient and integrated transportation system for EU member

states through new and expanded roads, railways, canals, shipping lanes, airports, and

even a European satellite system Galileo that could rival the US GPS system.

Following EU enlargement in 2004, it was decided to focus investment on 30 key

projects. These were designated priority axes and projects. Six of these pass through

the EU Balkan countries of Greece, Romania, Bulgaria, and Slovenia and will, therefore,

be a major boost to industry and trade. Each axis is briefly described in the table below:

Pan-European Corridors TEN-T only covers EU members. In order to improve

infrastructure links with neighbouring non-EU countries, the EU has introduced what is

known as the Pan-European Corridors programme. These corridors were created in the

early 1990s and consist of several transport routes across the CEE and the Balkans. Prior

to expansion, the corridors lay outside the EU, but, with the entry of 12 member

countries in 2004 and 2007, this has now changed. As a result, the European


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Commission set out a new policy in January 2007 called the Guidelines for transport in

Europe and neighbouring regions. The policy identifies the five most important

transport axes between the EU and its neighbours. It also aims to strengthen regional

cooperation and integration with countries such as the Balkans in the long term.

Motorway priorityaxis no. 7

This 15.5bn motorway project will pass through the heart ofthe Balkans to connect the main cities, airports and ports of the

region. When completed in 2010, a series of motorways will

zigzag the countries of Greece, Bulgaria, Romania, and Hungary.

Moreover, with connections to five ports (such as Constanta in

Romania), eight airports and nine major roads, the region will

increase its position as the gateway of South eastern Europe.

Inland waterway priorityaxis no.18

The 1,542 km Rhine-Main-Danube axis is an often congested

trade route running from the North Sea (the port of Rotterdam)

to the Black Sea (the port of Constanta), but large vessels are

restricted because the river is not deep enough. A total 1.9bn is

being invested to deepen the river, which will encourage trade

through the Balkans via waterways.

Motorways of the Seapriority axis no. 21

Motorways of the Sea is literally the creation of a network of

water motorways and aims to improve the efficiency and

reliability of freight transport, thus providing an alternative to

often congested land routes. Four Motorways of the Sea have

been identified, one of which directly concerns the Balkans. This

is the motorway of south-east Europe and connects the Adriatic

Sea to the Ionian Sea and the eastern Mediterranean including

Cyprus.

Railway priorityaxis no.22

From the heart of the EU to Southeast Europe, this 2,100km line

will pass through eight EU countries to form the backbone of the

eastern Europe railway network. With links to the ports of

Athens, Constanta, and Thessaloniki, the railway will allow

connections between the Baltic Sea, Aegean Sea, and the Black

Sea.

Railway priorityaxis no.29

The railway axis of the Ionian-Adriatic corridor consists of two

interlinked railway lines connecting the ports of Greece

Igoumenitsa, Thessaloniki, Volos, Alexandroupoli, Piraeus,

Patras, Astakos, and Kalamata with each other and the rest ofEurope.


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The five axes are estimated to cost 45bn. The two axes that pass through the Balkans are the

Motorways of the Sea and the South Eastern axis. Motorways of the Seas link the Baltic,

Barents, Atlantic, Mediterranean, Caspian and the Black Sea of the Balkans, as well as an

extension through the Suez Canal towards the Red Sea. The South eastern axis links the EU with

the Balkans, TRACECA in Turkey, Armenia, Azerbaijan and Georgia, and further with southern

Caucasus, the Caspian Sea, Egypt, and the Red Sea. The Balkans dedication to this project was

cemented when they signed a resolution of commitment in December 2006.

Western Europe has grown accustomed to the steady decline and exodus ofheavy industry and logistics operations to lower-cost countries such as India andChina. More recently, a growing number of companies have chosen to locatecloser to home in CEE where they can still get the cheap labour and space theyare seeking.

Because of itslower labour costs and dramatically improved economic and political conditions,

the Balkans are also now appearing on the radar of investors and companies looking to

outsource. In January 2008, Nokia announced its plans to shift the manufacturing of mobilephones from Germany to Romania. Labour costs are rapidly rising in the CEE, and, as a result,

we would expect to see a spill over of industry into the neighbouring Balkans; in 2007,

manufacturing wages in Poland were estimated at $9,891 a year, compared to $4,068 a year in

Romania (Business Monitor International). The following section looks at why the Balkans are

gaining in interest and examines the regions industrial property markets in more detail.

Maindrivers of growthApart from cheap labour, there are a number of other reasons

behind the fast expansion of the Balkans industrial property markets, including:

Rapidly expanding economies

Rising disposable incomes

Improving transport infrastructure throughout the region A strategic locationbetween Europe and Asia

The Balkans are already desirable as a strategic transportation hub between Asia and Europe,

and those locations close to good transport links will be in most demand. Apart from airports

and ports, which will always be the most popular for logistics operators as they benefit the

most from globalisation, transport corridors are also important. Transport infrastructure is

rapidly improving through TEN-T and the other policies. The transportation corridors that pass

through the Balkans will strongly impact the decisions of where logistics operators choose to

locate. EU accession is also a driving force for the industrial market. A study by the European

Stability Initiative shows just what a difference EU accession can make. As an example, Romaniaand Bulgarias textile industries have boomed since their accession in January 2007.

Macedonias textile industry has also been revived as a result of EU membership prospects.


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Bulgaria Romania

Bulgarias industrial market is immature and

demand is small, although growing. Occupier and

developer interest has been rising as result of EU

accession, strong economic growth, increased

foreign investment, and the rapid development of

the retail sector. The capital of Bulgaria, Sofia,

dominates the industrial market. Other important

locations are Plovdiv, due to its strategic

geographic location, and the Black Sea ports of

Varna and Bourgas.

Like Romania, Bulgarias infrastructure has

suffered from underinvestment. But, flush with EU

funds, Bulgaria has pledged to spend 5.5bn on

road infrastructure projects by 2009 and a further

2bn by 2015. Investment has also gone into the

countrys main airports Sofia, Burgos, and Varna and ports Varna and Bourgas. All of this should

boost the countrys industrial and logistics

markets. The country is also located at the

crossroads of the Pan-European corridors, thus

guaranteeing the rapid development of the

logistics sector.

Much of the existing stock in Bulgaria is old and

outdated. Development is slow and large

companies prefer to build warehouses themselves.

New industrial zones are forming throughout thecountry. Construction in Sofia has been most

intensive around the ring road, along the TEN-T

priority axis, and the international airport. The

largest scheme that dominates new supply in Sofia

is the Sofia Airport Scheme, located 300m from

the new airport terminal. This is a 165,000 sq m

Class A business park that incorporates 22,000 sq

m of logistics space. Prime industrial rents in

Bulgaria have remained stable over the last couple

Romania is the Balkans best kept secret, with

enormous potential for rapid economic growth

and development over the next five years.

Bucharest dominates the countrys industrial and

logistics sectors and is popular due to its strategic

location 225km from the port of Constanta,

850km from Budapest, and at the junction of two

Pan-European corridors. Other secondary locations

are now becoming popular, such as Timisoara,

Cluj, Arad, Sibiu and Brasov and Constanta. Cefin,

Eyemaxx, CTP, Phoenix-Helios, VGP, WDP and

ProLogis all have major projects planned or under

construction in these areas. Manufacturing,

particularly car production, is located in the west

and north of the country. Multinational car

producers are attracted to the north and west

because of its close proximity to Hungary, lowerlabour costs, and better availability of more

competitively priced land compared to Bucharest.

Industry and logistics are currently hampered by

poor infrastructure, but the situation is improving.

There are a number of large scale infrastructure

improvements, such as the new A2 motorway

between Constanta and Bucharest. In addition,

three of the TEN-T priority projects pass through

Romania, all of which should lead to new emerging

logistics locations, as accessibility to regional citiesimproves.

Industry and logistics are currently hampered by

poor infrastructure, but the situation is improving.

There are a number of large scale infrastructure

improvements, such as the new A2 motorway

between Constanta and Bucharest. In addition,

three of the TEN-T priority projects pass through

Romania, all of which should lead to new emerging


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of years and currently range between 54 and 60

per sq m per year.logistics locations, as accessibility to regional cities

improves. The market is currently characterised by

high demand for modern warehouse space.

Demand for new flexible space continues to grow

each year and is driven primarily by large

multinational companies entering the market or

those relocating from unsuitable old facilities. Theretail sector plays an increasingly important role in

the logistics market and the arrival of large

multinational companies signals stronger demand

going forward.

The modern warehouse sector is generally

undeveloped in Romania. However, the western

and north western regions are witnessing

increased development activity due to their

attractive locations and good connections with the

rest of Europe. Most new developments arelocated along the A1 highway to the west of

Bucharest.

Prime industrial rents in Bucharest ranged

between 48 and 55 per sq m per year at the end

of Q3 2007.


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Institute of Metrology Romania

Research Institute of Metallurgy - Romania

National Institute of Research and Development for Non-Ferrous and Rare Metals

NATIONAL INSTITUTE OF RESEARCH AND DEVELOPMENT FOR

NON-FERROUS AND RARE METALS


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The Rise of the Balkans