BRICKS & MORTAR: Romania construction sector to grow appreciably

By bne IntelliNews April 17, 2008

Bartlomiej Sosna and Ovidiu Oancia of PMR -

The improving economic situation and EU accession will drive the Romanian construction sector into record territory over the next two to three years. This performance will be achieved in all construction sectors - civil engineering, non-residential and residential construction - but several limitations still threaten these prospects.

Growth in the Romanian construction sector was much stronger in 2007 than in the previous year, up 33.6% to €15bn in 2007, and is expected to maintain a high growth rate in the coming years. The triggers for growth in the construction sector are the positive economic performance and access to EU funds, which will be spent on infrastructure currently in poor condition.

Commercial property to expand beyond the capital

After many years of being dominated by the capital of Bucharest, developers and investors have started to consider other locations for commercial property. The relative saturation of the market in Bucharest and rising land prices are making investment less effective than in other locations. This is mostly applicable to commercial buildings (shopping centres or other large format outlets like hypermarkets and DIY stores) and warehousing facilities or logistic centres. For the moment, locations like Cluj-Napoca, Timisoara or Constanta are being considered due to much lower land prices and superior purchasing power in the case of commercial space or their location advantages for modern industrial space (located closest to Western Europe or on the Black Sea shore).

At the moment, Bucharest is still the undisputed leader in office space, both in terms of existing stock and announced projects. A relatively limited number of announced projects are holding demand much higher than the supply; however, it is expected to reach a balance in three to four years. Meanwhile, developing cities are being sized up for office space buildings, of which Cluj-Napoca is considered noteworthy.

As our recent report, "The Construction sector in Romania 2008. Development forecasts for 2008-2010," shows, non-residential construction also has positive prospects due to the high demand for these kinds of buildings, mainly in commerce, industry, and services, powered by important inflows of FDI.

Civil engineering projects - aiming at EU funding

Romanian transport and environment infrastructure is in poor condition in need of essential investment. As a member of the EU, Romania is now eligible for a development-funding scheme currently allocated for the 2007-2013 period. According to the Romanian programme for accessing these funds, the total value of the transport infrastructure work for the specified period is €5.7bn, of which €4.6bn is EU contribution, an amount that will be allocated to agreed priority areas. Another €5.6bn (of which €4.5bn is EU funding) will be utilised for environmental infrastructure work.

The Romanian government has set very ambitious goals for motorway construction, planning to complete over 1,800 km of motorway, with investments amounting to €13bn until 2013. Besides the state budget, several other options are being considered, including commissioning the motorway construction work for a limited period. Airport construction is set for large investment as well, as stated in the EU funding programme. Romania has witnessed spectacular growth rates in the number of air passengers over the past few years, including a 40% rise in 2007. In the environmental sector most of the funds will be spent on water, used water management, and waste management. Civil engineering construction is about to experience a period of strong increases. We expect this segment to grow faster than the market and it will increase its share in total construction and assembly output starting from 2009.

Residential construction driven by improving living standards

Dwellings in Romania differ greatly from those in most EU countries in terms of surface and quality, and many of them need renovation. In addition to this, there is a housing shortage in Romania, estimated by PMR at around 1m dwellings. By 2010, around 50,000 dwellings will be completed each year. In 2007 the number of completions increased by over 20%.

The housing shortage holds the demand at a very high level. Due to the improving standard of living among the population, the housing loans market is expanding. More and more Romanians can afford to apply for mortgage loans. This situation has kept the developers busy but has also raised house prices greatly. Up to now most residential projects have been announced and carried out in Bucharest but they are becoming more and more visible in other cities.

There is still however, a series of factors that can negatively influence the construction market in Romania, most notably the lack of construction workers due to work emigration and the capacity of Romanian construction companies to take up large construction projects.

To read the full PMR report click here.

Bartlomiej Sosna and Ovidiu Oancia are analysts at the market research company PMR

Send comments to The Editor

Related Articles

Macedonia kept on hold as Balkans edges towards EU goal

Clare Nuttall in Bucharest -   Macedonia’s EU accession progress remains stalled amid the country’s worst political crisis in 14 years, while most countries in the Southeast Europe region have ... more

Romania’s Dacia changes gear

Clare Nuttall in Bucharest - Automaker Dacia has been highly successful in exporting to markets across Europe and the Mediterranean area since its takeover by Renault in 1999, but the small ... more

INTERVIEW: Romania’s Fortech prepares for next growth stage

Clare Nuttall in Bucharest - In the last 12 years, Fortech has grown into one of Romania’s largest IT outsourcing companies – a home-grown contender in a market increasingly populated by ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335