Money Buzz! Europa

Tag: brexit

  • The Romanian industrial market could feel major effects from a hard Brexit

    The Romanian industrial market could feel major effects from a hard Brexit

    The UK is the 5th or 6th biggest export destination for both Romania and the country’s major trading partners – Germany, Italy and France. Thus, a negative Brexit scenario would have significant second round effects via Romania’s other trading partners which do a significant amount of business with the UK.

    According to estimates from the real estate consultancy company Colliers International, we still expect the stock of modern industrial spaces to grow considerably in the next three years (by 2023).

    Romania’s goods exports to the UK are nearly two thirds bigger in terms of absolute value than the service exports, but the latter likely have more value embedded as British demand generates around 12% of external demand for domestic IT services, for instance.

    Strictly on the goods side, the UK is a major destination for various manufacturing sectors (including automobile industry), the textile sector and agriculture. Around 9% of the Romania’s car exports head to the UK, with a hefty export demand also coming from various car parts; in the women’s apparel segment, the UK attracts over one quarter of the exports.

    “A negative Brexit scenario could lead to a significant short-term impact, but it would also lead to longer-lasting effects as global value chains have become closer integrated and Romania’s biggest export partners do a considerable amount of business with the UK. Over a longer term, it is quite difficult to say how things will settle, though Romania’s relatively low wages, healthy productivity gap to labor costs and good connectivity to Western European markets would offer some advantages”, Laurentiu Duica, Partner, Head of Industrial Agency at Colliers, said.

    Overall, industrial and logistics take-up increased some 40% in the first three quarters of 2019, to 306,300 sqm, but this figure is nearly 27% below 2017’s same period. 2019 still looks like a solid year overall (including the fourth quarter).

    Domestic industry is already contracting amid less than favorable indicators coming from Romania’s major trading partners (Germany especially). One of the staples of Romania’s industry – its auto sector, is likely to feel the pinch of global trends, with the auto manufacturing sector seeing its first decline in a decade.

    Private consumption remains quite decent in Romania amid (still) double-digit wage growth in year-on-year terms, meaning that the need for industrial and logistics spaces assigned to the expanding retail sector throughout Romania should remain a driver in 2020; so will the expansion of e-commerce, which is growing quite fast alongside traditional brick-and-mortar operations.

    The industrial and logistics stock will grow considerably in the next three years (by 2023), if infrastructure projects really start to become visible and fiscal policies will not experience major changes designed to discourage investments in this segment.

  • In case of a hard Brexit, there could be pressures on office buildings in Bucharest

    In case of a hard Brexit, there could be pressures on office buildings in Bucharest

    In case of a hard Brexit, just a modest 10% decrease in trade flows with the UK would shave around 0.1% of Romania’s GDP and bring potential pressures on good office buildings, as among companies tied to the UK economy are blue-chip tenants, according to data from the real estate consultancy company Colliers International Romania.

    The UK is Romania’s 4th biggest service export destination, after Germany, Italy and France, with around 8% of total, though it also generates nearly 12% of the IT service exports, underscoring the deep ties to the office market in Bucharest and other parts of the country.

    A “business-as-usual” context remains the main scenario for economic life after Brexit, but it is important to understand the deep economic ties between CEE and the UK, particularly if the worse comes to pass. Furthermore, global value chains have only gotten closer intertwined in recent years.

    Brexit process would risk disrupting CEE’s high value-add services exports

    Under an adverse scenario, the Brexit process would risk disrupting one of the CEE’s main economic staples: its high value-add services exports. Romania has seen export services to the UK more than double in the recovery phase after the crisis, outpacing by a wide margin the average growth rate. Several significant British companies operate service centers out of Bucharest (like the London Stock Exchange or British American Tobacco’s global service center), while other big international names dedicate a large part of their activity to UK partners.

    “The longer the Brexit process drags on, the longer uncertainties will linger, so companies on both sides of the table – continental Europe and the UK – may want to hedge a bit their future. We believe that it is unlikely that companies in the UK will move a huge chunk of their workforce, particularly after Brexit, in the EU or Romania (several hundreds or above), rather they may want to establish a small foothold in Europe, with CEE economies potentially serving as prime destinations due to their good mix of labour costs and skills, as well as cheaper office spaces”, Sebastian Dragomir, Head of Office Advisory at Colliers, said.

    The UK is in the top destinations for service exports for CEE countries, including very high value-added services in business services or IT&C. This suggest that a negative effect on such trade flows may be more than what seems at face value for Eastern European countries.

    (countries’ exports to the UK, share of total) Romania CEE-6 EU-27
    Total services 8.2% 7.3% 9.1%
    Travel services 17.0% 4.9% 9.3%
    IT&C services 11.5% 12.1% 10.2%
    Other business services 8.2% 10.1% 9.2%

    Source: Eurostat, Colliers International Romania

    “A simple estimation suggests that just a 10% decrease in Romania-UK trade flows would knock off some 0.1% of the GDP over the short term. Still, effects may be stronger than this suggests, as the country is the biggest overall source of external surplus via the trade channel (so quite negative for the RON); for real estate, companies tied to the UK economy are among the blue-chip tenants in Romania’s office buildings, meaning potential pressures on good buildings”, Silviu Pop, Head of Research at Colliers, concluded.

    Overall, Romania’s modern office market remains robust and could set a record this year based on gross take-up; after increasing some 18% in the first three quarters of 2019, total demand on the Bucharest office market reached around 263,000 sqm, which means the full year figure could print above the previous all-time high of c.350,000 sqm, reached in 2016. That said, new demand is cooling and is set to print in line with the average for this cycle, rather than its highs.