In the first nine months of 2011, Romanian exports surged to new highs, as demand from Asia and Europe (especially Germany) rose. The improvement in Romanias labour market resulting from the increased export-related activity – unemployment dropped from 8.4% in March 2010 to 4.9% in October 2011 – and concurrently the boost to average wages, which grew by 9.3% y-o-y in September 2011, should also provide a leg-up to consumer spending into 2012. However, we note that our expectation for a cool down in export growth going into 2012 should keep this growth under check and as such we have revised down our forecast for private consumption growth to 3.5% y-o-y, from 4.5%.

The commercial real estate market in Romania is expected to recover reasonably well over the next few years, especially once the economy recovers a sure footing, which will most likely be when the external environment settles. While Romania, like most of the region, is susceptible to shocks from the eurozone sovereign debt crisis – in the form of reduced investment and weakened export demand – the countrys domestic demand is expected to act as a counter balance. However, while we are relatively optimistic for the economy to continue its growth story out of the global financial crisis of 2008-2009, we have revised down our GDP growth outlook for 2012 to 2.5%, from 3.3%, to reflect external pressures.

In line with such an outlook, we see the real estate sectors we cover – office, retail, industrial – in the cities we analyse – Bucharest, Brasov, Cluj-Napoca – as recording stable, though unexciting growth in rental rates in 2012, with supply and demand largely in balance. The retail sector can be considered an outperformer, with internationals constantly entering and many looking to expand their businesses out of the major cities.

Some of the key opportunities currently in the real estate market are:

- EU funding for much-needed infrastructure projects will become available over the next few years.

- New construction projects are beginning to emerge and activity in the building industry will pick up through the rest of the forecast period.

- In July 2011, the Fitch agency raised Romanias credit rating, bringing it back into the range recommended for investments.

Some key risks to the current real estate market are:

- While we are expecting rents for industrial property in Bucharest to rise by between 8 and 10% during 2012, this could be revised down if the countrys exports are affected more than we currently expect.

- The country remains financially fragile and the supply of credit may prove a limiting factor to expansion, both in the economy overall and more particularly in the real estate sector.

- The eurozones current problems will pose a threat to the countrys investment flows and demand for its exports.