advance May 2013 Romania Too large to be ignored

Romania Too large to be ignored advance May 013

Romania. Too large to be ignored Dear Readers, Romania is one the most developed countries in the region when compared with its SEE peers, though it still has some way to go in order to reduce the economic gap when compared with the more mature CEE economies. Maybe this is both the curse and the advantage of the country? Which is the most similar and most relevant country to compare Romania with? In this report we will look into Romania's opportunities from various angles. Regardless of how we approach the issue, please bear in mind that Romania has been an EU member state for many years, obtaining membership on 1 January 007 following years of implementation of necessary reforms. Its EU membership as well as its NATO membership (since 004) are Romania's wild cards, placing the country into the larger EU trade zone and into the pool of countries with a stable political and social environment. This report is meant to offer a fresh, updated overview of the country's key macroeconomic indicators, investment opportunities, real estate markets and to be an easy tool to be used by any multinational corporation interested in placing investments into Romania. We would like to thank our partners, FiNEXPERT and Lugera - The People Republic, for their valuable input and interest in supporting the initiative in highlighting Romania as an attractive business and investment location. Gijs Klomp, MRICS Managing Director Jones Lang LaSalle Romania

3 Romania. Too large to be ignored About Romania Macroeconomics With a population of some 0 million inhabitants (October 011 Census), Romania is simply too large to be ignored. In the European Union, Romania ranks 9th largest in terms of area and 7th largest by population. These factors make Romania one of the largest consumer markets in the EU, as well as an attractive manufacturing hub. The country is divided into 4 counties, with its capital and largest city being Bucharest (and Ilfov) with almost million inhabitants. The metropolitan area of surrounding Ilfov County increases the capital's population by additional 30,000 inhabitants. The modern economy began in the year 1990. After two decades of privatization, there are currently only a few companies that remain in the hands of the Romanian state. The banking sector is almost entirely privately managed, with a couple of the commercial banks being largely owned by the Romanian State (i.e. Saving Bank/ CEC). Historically, the first 10 years after the collapse of communism were the most fragile. The following years, featuring a more stable economy, are considered to have preparation years for European Union accession. At present, the country is seeking to join the Schengen area and in 5-7 years, to be part of the monetary union and adopt the Euro. Romanian Athenaeum, Bucharest The second tier cities are mostly selected by economic importance rather than population and include: Cluj Napoca, Constanta, Timisoara and Iasi each having a population of some 300,000 inhabitants. The third tier cities include, but are not limited to: Brasov, Sibiu, Targu Mures, Craiova and Galati. As in other CEE & SEE Countries, the capital city Bucharest, is the most developed and represents the economic, social and cultural center of Romania. Romania's economy is however highly dependent on its Western European partners. With a weak recovery in consumer demand, a low level of activity in the construction sector, a large agricultural sector with its inherent unpredictable results, the country's GDP growth is supported heavily by export. The country's 5-year average forecast (013-017), places its economic performance at a level of.9%, which is well above the EU average. Key economic indicators 009 010 011 01 013 014 015 016 017 Real GDP (% change) -7.1-1.3.5 0.7* 1..7 3.5 3. 3.6 Nominal GDP Per Capita (USD) 7,631 7,670 8,519 8,000 8,66 9,8 10,153 11,386 13,081 Consumer Price Index (% change) 5.6 6.1 5.8 3.3 4.8 3.1 3 3.1.9 Policy Interest Rate (%) 8 6.5 6 5.5 5 3.75 3.75 3.75 3.75 Unemployment Rate (%) 6.3 7.6 5.4 5.1 5. 4.6 4.5 4.3 4. Current Account Balance (% of GDP) -4. -4.4-4.7-3.9-3 -3.5-3.6-3.3-3.1 Exchange Rate (LCU/USD, end of period).94 3. 3.34 3.36 3.3 3.35 3.1 3.95 Source: IHS Global Insight, Country Report April 013, 013-017 Forecast, * - INS data

4 Romania. Too large to be ignored Infrastructure Romania benefits from an excellent geographic location in South Eastern Europe. The country is crossed by 3 Pan European Corridors (IV, VII, and IX). Corridors IV and IX are for both road and rail, while Corridor VII is only partially serviced by road and rail. Roads The length of the road infrastructure is estimated at 198,000 km, out of which ca. 16,000 km are represented by national roads. Sections of these national roads are incorporated in the 7 main European Roads and a further 10 secondary European Roads spread throughout the country. The country started its highway construction efforts only relatively recently, but made significant progress in recent years. In December 01, Romania had ca. 530 km of highways (including city ring-roads) out of which, only the Bucharest-Constanta A highway of 03 km is currently fully completed. Other highway sections were delivered between Bucharest Pitesti (109 km), between Bucharest Ploiesti (6 km), between Arad-Timisoara (3 km) and Gilau Campia Turzii (5 km). At the beginning of 013, it was announced that one of the major priorities of the current ruling coalition is the upgrade of infrastructure and mainly of the road infrastructure by attracting partners in undertaking the highway development and exploitation. Rail The rail network has a length of approximately 10,700 km out of which, 4,000 km operates electrified lines. Currently, ca. 3,000 km are part of the TEN-T network, part of the Pan European Corridors IV and IX. (Source: Ministry of Transportation, Romania your Business Partner 01) Freight rail transportation is ensured by the state owned company, The National Freight Railway Company - CFR Marfa S.A. - which was set-up in 1998 from the Romanian National Railway Holding (CFR) following the institutional reform. Today, it remains the biggest rail freight operator in Romania. Airports Romania is well connected by air with all major European cities. The country offers a network of 15 airports out of which 1 are international airports. The busiest airport is Henri Coanda International Airport (Otopeni, 15 km from Bucharest city center). It is worth noting that in November 01 a new terminal was opened (19,600 sqm) with 14 boarding bridges that are in line with the EU regulations to access the Schengen Area, providing a secure flow of Schengen passengers. With these upgrades, the airport's annual capacity increased to 6 million passengers. A Highway, section Cernavoda - Medgidia, cnadnr.ro The three main highways proposed to be completed are as follows: A1 Bucharest Nadlac at the Hungarian Border Pan European Corridor IV, partially completed A Bucharest Constanta fully completed A3 Bucharest Bors/Transylvania Highway partially completed Ports The country has direct access to the Black Sea with the Constanta port (both maritime and river port) being the largest and also the only deep sea port in the Black Sea area. The country offers 3 maritime ports, and over 10 ports along the Danube River. The Constanta Port has a handling capacity of over 100 million tons per year and 156 berths, of which 140 berths are operational. The total quay length is 9.83 km and the depths range between 8 and 19 meters. These characteristics are comparable with those offered by the most important European and international ports, allowing the accommodation of tankers with a capacity of 165,000 dwt and bulk carriers of 0,000 dwt.

5 Romania. Too large to be ignored Pan- European Corridors crossing Romania Source: Jones Lang LaSalle

6 Romania. Too large to be ignored State Aid Schemes with the support of FiNEXPERT II. Investment > 100 million - State aid scheme supporting regional development by means of investment stimulation (under Decision no. 753/008). Beneficiaries are the big enterprises meeting the following three conditions: initial investment > 100 million (RON equivalent); investment eligible costs > 50 million (RON equivalent); minimum of 500 newly created jobs as a result of the initial investment. Duration of the scheme: 008-01 with the possibility of extending this period in 013. CEC Bank, Bucharest The information presented in this section represents a synthesis of III. Investment using new technology and creating new jobs - State aid scheme supporting investment promoting regional development by new technology use and new job creation (under Decision no. 797/01). Application field: manufacturing (exception: beverages and tobacco products) electricity, gas, steam and air conditioning supply software publishing telecommunications computer programming, consultancy and related activities information service activities scientific research and development the most important aspects regulated by the state aid schemes that IV. Investment in research & development and innovation - foreign investors showed interest in. The selected state aid Regional state aid scheme Financing initial investment in R&D schemes will be ending in December 013, with no additional (Order no. 193/008). Beneficiaries are the following: clarification on the potential prolongation of the duration beyond the enterprises with R&D activities mentioned in their statutes, end of this year. implementing initial investments according to operation.3. Development of business R&D infrastructure and creation of I. Investment of more than 5 million (inclusive) - State aid new research jobs; scheme ensuring sustainable development (under Decision no. productive enterprises not having R&D as main activity, 1680/008). Applies to the following 4 investment categories: implementing initial investments according to operation.3.3 initial investment between 5 and 10 million and creating a Promoting innovation in enterprises. minimum of 50 new jobs; st Duration of the scheme: 008-31 December 013 initial investment between 10 and 0 million and creating a minimum of 100 new jobs; initial investment between 0 and 30 million and creating a minimum of 00 new jobs; initial investment > 30 million and creating a minimum of 300 new jobs. Duration of the scheme: 009-013 Duration of the scheme: period of financing agreements issuing: years, 01-013 period for aid payments: 013-018, within the limits of the annual allocated budget

7 Romania. Too large to be ignored Labor Pool with the support of Lugera - The People Republic Romania's human capital is one of the most educated in the CEE & SEE Region due to the country's long university tradition. In the A second foreign language, compulsory for all, is introduced when students are 10. The obligation to learn two languages lasts until academic year 011-01, the student population of 540,000 was students are 18 years old. All schools, for students aged between 6 enrolled in 108 universities with 614 faculties, out of which 57 universities and 410 faculties were state owned higher education institutions. The largest university hubs are Bucharest, Iasi, Cluj Napoca and Timisoara. County City Universities (state&private) Bucharest Bucharest 34 170 Iasi Iasi 11 50 Cluj Cluj-Napoca 10 48 Timis Timisoara 8 41 Source: National Institute of Statistics Faculties (state&private) The most popular fields of education were the following: technical and 18, therefore have some flexibility in designing the school element of the core curriculum. The same report shows that English, French, German, Spanish and Italian are the most common foreign languages learnt in most European Countries, including Romania. We are of the opinion that proficiency in foreign languages in higher education is highly dependent on achievements secured during high school. This represents a major competitive advantage of Romania in attracting larger FDI's in BPO/SSC/ITOs. However, proficiency in a foreign language other than English can bring employees better financial arrangements. Below is a selection of salaries in SSCs/BPOs in Bucharest by spoken foreign language. The same market research shows that on average salaries are (8.3%), teacher training (6.3%), economics (1.%) and law slightly lower in regional cities by 10-0%, compared with (1.5%). Bucharest. Top Universities in Romania The 011 evaluation of universities was based on criteria such as: teaching and learning, scientific research, assessed university relations with the external environment and institutional capacity. The evaluation of universities is conducted every four years and the ranking results are valid until the next institutional assessment. The top Romanian universities were classified in four main categories: Advanced research and education universities 1 universities identified under this category Education and scientific research universities universities identified under this category Education and artistic creation universities 8 universities identified under this category Universities centered on education 53 universities identified under this category Foreign Languages Romania can be considered one of the countries in the CEE & SEE region where language skills are most proficient. The Key Data on Teaching Languages at School in Europe 01 Report, issued by Eurostat, shows that in Romania, all students start learning a foreign language as a compulsory subject from the age of 8. Positions Net Gross Operations Manager 5,000 6,600 Project Manager 3,000 3,900 Team Leader,000,600 Customer Support English (0- years) 41 493 Customer Support French (0 - years) 41 493 Customer Support German (0 - years) 436 5 Customer Support Italian (0 - years) 436 5 Customer Support Spanish (0 - years) 436 5 Customer Support Dutch (0 - years) 799 956 Customer Support English ( - 4 years) 557 666 Customer Support French ( - 4 years) 557 666 Customer Support German ( - 4 years) 587 703 Customer Support Italian ( - 4 years) 587 703 Customer Support Spanish ( - 4 years) 587 703 Customer Support Dutch ( - 4 years) 1,138 1,36 Source: Lugera - The People Republic

8 Romania. Too large to be ignored Business Environment by IHS Global Insight, Country Report April 013 Romania has one of the lowest fiscal burdens in the European Union - a flat tax of 16% for both personal income and corporate profit. Foreign individuals and legal entities can establish a company in Romania. All companies must be registered with the The basic rate for value-added tax (VAT) is 4%. There are preferential rates of 9% for certain basic commodities, such as some food products, books, newspapers, and medicines; and 5% for the supply of buildings. National Trade Register Office, organised by the Romanian Chamber of Commerce and Industry. On average, it takes about 14 Corporate Income Tax: days to establish a business in Romania. The most common types Corporate income tax is levied at 16%. Small businesses with a of businesses in Romania are: turnover of less than 100,000 and fewer than nine employees may opt to pay a much lower tax on revenue earned, instead of profits, Joint Stock Company (SA): The minimum capital requirement for although the rate was raised from 1.5% when the flat tax was establishing an SA is RON90,000. This requires at least two introduced. Resident companies are taxed on their worldwide shareholders (reduced from five in 007), with no maximum. income, whereas non-resident companies are taxed on Romanian- Amendments effective from 007 also reduced quorum and voting- source income only. A company is resident in Romania if it is majority requirements, and lowered the share capital required to incorporated as per the relevant legislation or, if Romania is its call a general meeting from 15% to 10%, in a bid to improve place of effective management. From January 010, residents also shareholder rights. The management system was opened up to include legal entities that have headquarters in Romania but, are allow a choice between unitary and dualist systems (such as the incorporated under EU rules. choice of instituting a supervisory board). Withholding Taxes: Limited Liability Company (SRL): SRLs are the most popular Withholding tax on dividends is levied at a rate of 16%, unless form for investors, requiring a minimum share capital of RON00, otherwise stated by a tax treaty. Dividends paid by a Romanian with share values of at least RON10. SRLs can be formed by one legal entity to an EU resident are subject to a 10% tax, unless shareholder and may include up to 50 (persons or legal entities). otherwise specified. Similar rules also apply for interest and However, one person may be the sole shareholder in only one SRL. royalties. There are restrictions on third-party share transfer. An SRL is managed by one or more foreign or Romanian administrators with Capital Gains: full or limited powers. Capital gains are only charged for gains made from the sale of Romanian securities for individuals, but for companies it is Branch: Foreign companies are allowed to establish a branch deducted as tax on earnings. Profits are taxed at a flat tax rate of office in Romania. Branches can operate in the same activities as 16%. their parent companies, and must have a foreign or Romanian general manager. Branch Tax: The tax treatment of a branch is similar to that of other Romanian Corporate Income Tax business forms. Bulgaria Serbia Romania Czech Republic 16% Hungary Poland Croatia Slovakia 0% 5% 10% 15% 0% 5% Source: IHS Global Insight Country Reports

9 Romania. Too large to be ignored Real Estate Market The Romanian real state market provides plenty of opportunities in all market segments. The opportunities lie mainly on the development side, where to date, the market has attracted only a few institutional developers. In each market sector there is a blend of both local and international developers with the predominance of local developers. A non exclusive overview of international office developers include: GTC, AFI Europe, Portland Trust, Skanska, Nusco Group, Anchor Group and Bluehouse. In the retail sector, Sonae Sierra, GTC and AFI Europe are active. The industrial sector is much more complex but, is still not comparable with other CEE countries. The main industrial developers currently shaping the Romanian industrial market are: Prologis, Portland Trust, WDP, Alinso Group and Graells & Llonch. While industrial developers are placing projects throughout the country, office developers are much more in favour of developing projects in Bucharest or top secondary cities with a long university tradition. Retail developers are present in all cities with a high population density, and a lower modern retail stock. City Gate, Bucharest Following the boom and bust cycle of 005-010, developers have acknowledged the need to deliver high quality developments in accordance with specifications required by international tenants. In addition, developers have started targeting green certification from early stages of design, with very few of them ignoring the need to implement sustainable technical features in newer projects. The trend is relatively new, with the first green building pre-certified in early 008-009. EU legislation and an increased view on importance from developers, means that only a limited number of pipeline office projects, are not targeting green certification. Furthermore, iconic office buildings are retroactively in the process of obtaining green certification for building operations and maintenance. The most common sustainability rating system used is BREEAM followed by LEED. Bucharest Financial Plaza, view from Dambovita River The real estate market however features a number of influential local developers. Their projects range from the small to some of the largest schemes completed in Romania to-date. On the one hand, local developers ensure development continuity but, have lower appetite in exiting/selling their projects. Consequently, this represents an important barrier in the progress of the investment market in Romania. A list of the noteworthy local developers includes, but is not limited to: Genesis Development, Baneasa Development, Primavera Development, Iulius Group and Modatim. The increased interest in sustainability is proven by the variety of certified buildings: administrative, libraries, big box retail units, office buildings, shopping centers and production facilities. Geographically, certified developments are being completed throughout the country.

10 Romania. Too large to be ignored Office Market in Romania Modern Office Stock in CEE & SEE Capitals Warsaw Budapest Prague Bucharest Bratislava Zagreb Belgrade 0 1,000,000 3,000 4,000 5,000 Source: Jones Lang LaSalle SEE or CEE? Bucharest has the lowest office stock in the CEE... '000 m preference of developers due to existing connections to utilities, relatively central locations and good access to public transportation. With the exception of Bucharest, which features an extensive metro network (consisting of 4 main lines, 69.5 km of double track and 51 stops) the rest of Romania's public transportation system is limited to above ground transportation (bus, tram, trolley-bus and shuttle bus). Today, we can only speak about office development clusters or location preferences in Bucharest. In the regional cities, the majority of projects with a high probability of completion, are scattered throughout the central areas. The history of the Romanian office market starts in the early 1990's. In the 0 years of modern, post communist development, only million m of offices were completed in Bucharest. By local market standards, 50% is considered Class A. By international standards (new development, over 5,000 m GLA) we can probably discount the Class A office stock to closer to 30%. The story repeats in major secondary cities, in which only a very limited number of speculative developments can be graded at international standards (except owner occupied buildings, mainly developed as bank headquarters). In the category of major secondary cities, we include cities with a population of over 150,000 inhabitants with a long university tradition, served by an airport connected either directly or, via Bucharest, with Western European capitals. The list of secondary cities comprises: Cluj Napoca, Timisoara, Iasi, Brasov and Targu Mures. The largest modern office stock can be identified in Cluj and Iasi (est. 10-150,000 m ), followed by Timisoara (est. 90-110,000 m ), Brasov (est. 80-90,000 m ) and Targu Mures (est. 50-70,000 m ). Between 004 and 006, the strong presence of multinational companies in Bucharest and our selection of secondary cities, encouraged reputable local and international developers to invest in larger office projects. The increased number of outsourcing operations in Romania, which generate the majority of new demand, shifted the development pattern from business center type developments, to multi-phased business parks. In Bucharest, projects located within close proximity to a metro station and university hubs, drive the development pipeline. In regional cities, former industrial areas (brownfields) take top Liberty Technology Park, Cluj Napoca 013-015: Business parks pipeline in Romania (selection) Project City GLA Source: Jones Lang LaSalle (m ) Green Court Ph I Bucharest 19,000 Yes Hermes Business Campus Bucharest 18,000 Yes Green Gate Bucharest 30,000 Yes AFI Park Bucharest 15,000 Yes Liberty Technology Park Ph I Cluj 5,600 Yes Cluj Business Center Cluj 19,800 N/A United Business Center Cluj 9,800 Yes United Business Center 4 Iasi 6,400 N/A City Business Centre 5 Timisoara 9,000 N/A Coresi Business Park Brasov 15,000 N/A The Science City Tg Mures buildings N/A Green Certification

11 Romania. Too large to be ignored The modern office stock in the capital city is graded in line with location and technical specifications. While location is of high importance in Bucharest, this is less important in the smaller regional cities. For example, in Bucharest the highest vacancy is recorded in the northern peripheral locations poorly served by public transportation, though in these locations, which emerged as office submarkets in the last 5 years, some of the top quality office buildings/business parks have been developed in Romania to date. The modern, Class A developments by technical specifications offer larger and open floor plates (of over 1,000 m /floor), 4-pipe HVAC system, raised floors, glazed façade, minimum.7 m floor to suspended ceiling height, incorporated lighting system (LED's for green certified buildings), CCTV, 4/7 security, BMS, heavy traffic resistant carpeting in the office areas and prestigious main lobby areas. These features are applicable to Class A buildings completed in Bucharest, as well as projects recently completed or, in the pipeline in secondary cities. The trend emerged due to occupiers' interest in selecting good quality office accommodation for their Romanian operations as real estate plays an important role in achieving and maintaining a good attrition rate of the qualified workforce. Recent market assessments show that average rents for non-cbd locations in Bucharest are in the region of 14-16/m /month while decentralized locations for similar Class A accommodation command headline rents of 10-1/m /month with net effective rent decreasing to 1 digit rental price. Secondary city offices are currently marketed at 13-15/m /month, with the net effective rent depending on the leased area, lease length, expansion opportunities and covenant of the occupier. Service charges and parking space rent are additional to the office Given the stock difference between Bucharest and the secondary rent. For the vast majority of modern buildings, leases are triple A, cities, indisputably the real estate offer is more diverse in the capital with all costs included in the service charges, which are reconciled city, both in existing and pipeline offer. However, the cost gap is not annually. that wide considering that the comparison should be made between average rent in Bucharest and the prime rent in secondary cities. America House, Bucharest Market Practice Bucharest Secondary cities Charles de Gaulle Plaza, Bucharest The reason behind this rationality is that occupiers interested in regional cities are also assessing non-cbd locations in Bucharest. Prime Rent 18.5 15 Average Rent Class A 14-16 13-15 Lease Length Indexation Service Charge Incentives Add-on Factor Typically 6-8% Rent Reviews Source: Jones Lang LaSalle 3-5 years Annually, with Euro CPI.5-4/m /month All costs recovered by the Landlord Triple A leases Fit-out contribution Rent free period Free parking Rarely, more common in case of expansion within the same park In case of lease renewals

1 Romania. Too large to be ignored Emerging Outsourcing Location These cities are mainly established manufacturing hubs with sufficient tertiary populations to accommodate outsourcing operations. The gap is also explained by the size of operations. Very few operations outside of Bucharest exceed 1,500 or,000 m. Therefore, an increase in demand is expected in the medium term, due to an increase in larger space enquiries for various cities in Romania. These active searches are encouraging developers to assess potential development sites and enlarge the market beyond Bucharest. The increased presence of international companies with their BPOs/SSCs/ITOs (Outsourcing and Shared Service Centres) has greatly influenced real estate development activity in Romania. In early 005, only a few companies were present in Romania with such operations. Over the following 3-5 years, the number of new openings increased the annual take-up from a level of 119,000 m in 009 to the highest take-up ever recorded in Romania of 70,000 m, in 010. In this time frame, real estate developers, whether established or opportunistic (local and international), have tapped into the Romanian market and secured land for further development. Larger projects were completed between 009 and 010 and increased annual stock by 370,000 m and 75,000 m respectively. As new supply outstripped take up, the market also witnessed an increase in the vacancy level from 1-% in Q4 008 to 15-16% in Q4 009. Vacancy, however, is concentrated in the peripheral areas of Bucharest such as Pipera North and Baneasa. This is reflective of the market activity in Bucharest, however, developers were more cautions in secondary cities, with smaller scale office developments completed speculatively. These developments sufficiently accommodated the real estate demand, due to the smaller scale of operations opened in these cities. Today, secondary cities are competing with Bucharest in attracting existing or newer requirements, by offering highly competitive office accommodation, both financially and technically. Although there is still a gap in demand between Bucharest and the secondary cities, we do expect a further increase in demand for secondary cities as well as interest in other cities than those identified in this report. We expect the rise of cities such as: Craiova, Galati, Oradea, Constanta and Ploiesti, to list just a few. There still remains limited cross county development activity with Iulius Group and Modatim being the two main developers with activity outside of their city of origin.

13 Romania. Too large to be ignored Retail Market The modern retail market began in 1996, which corresponds with the opening of the first cash and carry store of Metro in Bucharest. Soon after, the German retailer was followed by Selgros which opened its first store in Brasov. The next stage of the retail market was marked by the opening of the first shopping center by Turkish Group - Anchor, with Bucuresti Mall. The same group completed the second mall in Bucharest, in 004, Plaza Romania. This also represented an important milestone as Inditex opened its first Romanian Zara store in Plaza Romania and was considered for a few years as the best performing store in the network. In 001, Carrefour opened its first hypermarket in Romania. In floors, with a GLA of between 0-30,000 m in secondary cities, have also been very successful. Bucharest has again a different development path with the largest projects proving to attract the highest traffic and generating the highest turnovers. After a hectic development decade, the market finally settled. Although the pipeline is constantly revised, the market still witnesses a few important openings each year. Though the retail market can be considered as almost saturated, on a nationwide basis, case by case opportunities can be identified, even in Bucharest or in certain larger secondary cities which still lack modern retail supply. For example, Galati, one of the top 5 regional 003, it was shortly followed by the second unit, in an unusual cities by population, still has no modern shopping center. central location in Bucharest. Anecdotal sources, place this centrally located Carrefour Orhideea among the best performing stores in its global network. Anecdotal or not, the need for modern retail was tremendous at that time in both Bucharest and Romania. Any modern retail scheme performed very well and delivered the best financial results. The pattern of modern retail stock varies from region to region: in Shopping Centers Stock Density per Capita in CEE & SEE Serbia Romania Hungary Croatia Romania shows retail development potential In just 10 years, the retail market has witnessed an incredible path of development. Many developers have even secured adjacent lands in secondary cities. The demand for modern retail has increased the pipeline to unsustainable density levels especially in the context of the drop in consumer spending in 009 caused by the economic slowdown. With very few exceptions, most of the pipeline shopping center projects remain on hold in their planning stages. During this decade, a few concepts have emerged as being highly successful in Romania. Retail parks can be considered the most successful retail format in Romania. Shopping centers over 1- Slovakia Poland Czech Republic 0 50 100 150 00 50 Source: Jones Lang LaSalle Total GLA in sq m / 1,000 inhabitants some locations, retail parks are in demand, in other cities retail galleries attached to hyper- or supermarkets are sought after and in several cities, medium sized shopping centers have been completed. Apart from this, the development pattern has changed in the last couple of years, from a strong shopping center pipeline, to a current pipeline consisting of either retail parks or retail agglomerations. Selection of completed shopping centers in Romania Crt Shopping Center GLA Completion City Major Retailers - Selection 1 AFI Palace Cotroceni 80,000 009 Bucharest Real, Inditex Group, H&M, Humanic, Cinema City, Imax, C&A, Deichman Baneasa Shopping City 80,000 007 Bucharest Carrefour, Peek&Cloppenburg, Inditex Group, Sport Couture, Collective, H&M 3 Sun Plaza 80,000 010 Bucharest Cora, H&M, Douglas, Zara 4 Iulius Mall 67,000 005/009 Timisoara Auchan, Zara, World Class Health, Camaieu 5 Polus Center 63,000 007 Cluj Carrefour, C&A, Zara, H&M, Takko, Decathlon 6 Electroputere 55,000 011 Craiova Auchan, Zara, LC Waikiki, H&M, Intersport 7 Ploiesti Shopping City 55,000 01 Ploiesti Carrefour, Zara, H&M, Cinema City 8 Palas Iasi 54,100 01 Iasi Auchan, Zara, H&M, Cinema City 9 Maritimo Shopping City 51,000 011 Constanta Auchan, Peek&Cloppenburg, Domo, Altex, Humanic, H&M, C&A 10 Iulius Mall 49,800 008 Suceava Auchan, Zara, H&M, Cinema City Source: Jones Lang LaSalle

14 Romania. Too large to be ignored High Street Big Box Romania's cities mainly because of historical reasons suffer from a Big Box supply is well represented and diversified throughout the lack of high street retailing. High street retail supply presents country. Relatively recent market entrants IKEA and Leroy Merlin numerous opportunities in any major city of the country, but street are the exceptions with each having only 1 box in Romania, fashion is one of the most under developed market sectors. Pre- respectively in Bucharest. The rest of the major players have at 90's state-owned companies were responsible for managing the least 1 box in each of the larger regional cities. In the last 3-5 years, high street portfolio. Once privatized, the new owners were a number of consolidations were recorded, the latest major one interested in maximizing the rent roll. The results were translated being the purchase of the real hypermarket stores by Auchan (0 into a lack of high street fashion retail, and a high occupancy rate out of 4 stores existing in Romania), while the Bricostore network generated by the banking sector, during the peak of retail banking was acquired by UK-based company, Kingfisher. between 005 and 009, and by the pharmaceutical industry, with numerous privately owned pharmacies generating active demand. List of Major Big Box Occupiers in Romania High street retail is still patchy today with very few success stories recorded in Romania. In Bucharest, the main reason is that high street retailers opted for shopping galleries attached to luxury 5-star hotels instead. In the secondary cities, Sibiu is one of the few exceptions, having an attractive pedestrian retail location, due to intensive refurbishment works of the city center prior to 007 when it was designated as a European Capital of Culture. Selection of luxury retailers and their locations in Bucharest (listed in alphabetical order) Retailer Burberry Boss Hugo Boss Emporio Armani Ermenegildo Zegna Escada Gucci La Perla Louis Vuitton Max Mara Moschino Paul & Shark Roberto Cavalli Valentino Source: Jones Lang LaSalle Location Radisson Hotel Calea Victoriei street unit Calea Victoriei street unit Radisson Hotel JW Marriott Hotel Athenee Hilton Calea Victoriei street unit JW Marriott Hotel Calea Victoriei street unit Calea Dorobantilor street unit Calea Victoriei street unit JW Marriott Hotel JW Marriott Hotel Source:????? Type Big Box Retailer No of Boxes Cash&Carry Metro 3 Source: companies websites Factory Outlet Centers Selgros 19 DIY Praktiker 7 Bricostore 15 Leroy Merlin 1 Hypermarkets Carrefour hypermarkets 4 Auchan+real 10+0 Cora 10 Supermarkets Kaufland 83 Billa 7 Discounters Lidl 158 Penny 136 Profi 151 Furniture Ikea 1 Kika Sportswear Decathlon 10 In 008, the first factory outlet center was opened in Romania. Fashion House Outlet Center Bucharest, is a 16,000 m scheme developed by Belgian company - Liebrecht & wood. Despite the project opening with a high occupancy rate of close to 80%, the decline of the retail market also influenced the performance of the center and placed other outlet projects on hold.

15 Romania. Too large to be ignored Retailers Romania's long history of limited modern retail, helped international retailers, especially fashion retailers, to achieve high turnovers per store, once they entered the market. Mass market fashion retailers opened their first stores in 004 in the Plaza Romania shopping center. Zara, Mango, Promod and Marks & Spencer all opened their first units in Romania almost 10 years ago. The next milestone is set by retailers that committed to the Romanian market in the late 000's, in the so called third generation shopping centers completed in Bucharest: Baneasa Shopping City and AFI Palace Cotroceni. In these centers, the retail market witnessed the opening of the first Peek & Cloppenburg multibrand store, Douglas, Reserved, Max Mara Weekend and Massimo Dutti units. H&M entered the market in March 011 with their flagship store in AFI Palace Cotroceni. Today, the H&M network has stores and plans to open up to 50 further stores throughout Romania, compared with the 106 currently trading in Poland. The vibrant activity of new retailers entering the market slowed down in 01, when only -3 new mass market retailers opened stores in Romania. Among these Subway has already opened 13 units in the country and is targeting a network of 40 stores by 016. Luxury retailers have also opened flagship stores in Bucharest, with Max Mara being one of the first luxury retailers with a constant presence since 1999, while La Perla, Valentino and Escada are some of the latest entrants in Romania. expansion opportunities to those international retailers with a solid financial background, proven results and that have the ability to negotiate excellent, long term financial packages with shopping center owners and developers. These packages may include: discounted rents, step rents, turnover rents, fit-out contributions and for the some of the highly desired retailers, turn-key retail units. In these market conditions, with retailers eager to take advantage of the favorable leasing conditions, we do not forecast an increase of the vacancy rate. Furthermore, rents for shopping centers and street units have stabilized to a sustainable level and no further softening is expected for 013. Prime Rents ( /m /month) Bucharest Regional Cities Shopping centers 55-65 0-35 Prime retail street 55-65 0-40 Source : Jones Lang LaSalle, Q1 013 Prime rent definition: Represents the top open market rent that could be expected for a notional prime position shop situated in a specified shopping centre or for a notional prime position unit in a prime retail location in the market, as at the survey date. Standard unit area: 100 m. With a limited pipeline, both in Bucharest and the regional cities, the active retailers are re-leasing the units either recently vacated or, those that are to become vacant by local retailers due to their weak financial performance. In addition to the local retailers, some international retailers have stepped out of Romania, creating

16 Romania. Too large to be ignored Logistics Compared with other real estate sectors, the industrial and logistics market is the least developed, considering the country's potential. The current modern industrial stock is estimated at almost 1.8 million m, with close to 1 million m located in the surrounding industrial hubs of Bucharest. Other modern industrial hubs have been established in Ploiesti, Timisoara, Arad, Brasov, Oradea, Constanta and Cluj-Napoca. With a country level vacancy rate estimated at between 1-14%, the market is mainly developed on a built-to-suit (BTS) basis, with fewer speculative projects in the pipeline. The most common leasing market drivers are the following: 1. lease of an existing vacant unit, or. secure a BTS unit through a pre- lease in an existing logisti park. Representative BTS units were recently completed in Bucharest West, WDP Oarja and Ploiesti West Park. The main market standards are as follows: Longer lease terms of 5-7 years or longer Longer negotiation periods Handover of the space: between 6-9 months after concluding the lease agreement Selection of the site is subject to the agreed site plan of the park Who are the occupiers? New entrants, looking to establish production facilities in Romania with regional distribution Existing companies looking to upgrade their production facilities or strating up a new project 1. Leasing space in an existing warehouse park It is also possible for occupiers to purchase BTS units in some of This scenario applies to distribution and logistics companies. It is rare that existing units can be easily converted into production facilities. However, some of the existing units, with lower clear height (up to 4m), an inner-city location and access to existing public transportation, could be converted into production facilities. The process is straightforward as in any lease agreement: standard lease length of 3 years use of space in line with existing technical specification fit-out of the space in line with occupiers requirements leasing space in special industrial parks might offer lower occupation costs Who are the occupiers? Companies that need to lease space immediately / relocate Companies which are comfortable with the existing industrial stock Logistics operators, distribution companies, e-commerce Companies requiring smaller light industrial facilities the existing logistics parks. The development process could be undertaken either by the park owner or, by any other third party. The decrease in land prices for logistics development has increased the interest of some industrial occupiers to purchase well located industrial plots and to move into owner occupied premises. This mainly applies to larger production companies such as, Saint Gobain or, major 3PL companies such as: Gebruder Weiss and FM Logistic. Prime Rents ( /m /month) Source: Jones Lang LaSalle Bucharest Regional Cities Distribution centers 3.8-4.0 3.5-3.75 Distribution centers (exceeding 0,000 m ) 3.5-3.7 3.5-3.5 Light industrial 3.5-4.5 3.5-3.75 Other costs Service charges 0.7-1.0 0.7-1.0. Built-to-suit in an existing logistics park Romanian industrial developers that can accommodate such requirements usually own larger plot of lands, often with infrastructure and utilities in place. BTS units can either be leased or, at hand over, they will enter into the possession (freehold) of the occupier.

17 Romania. Too large to be ignored Manufacturing The manufacturing sector is well diversified but, with fewer companies under each category when compared with Poland for example (see report - Made in Poland). As in other CEE countries, with former centralized economies and industry driven by the state, we identified a mix of greenfield and brownfield investments (production units formerly owned by the Romanian state). Automotive Industry With over 50 years of automotive tradition, Romania is an important automotive hub in the CEE and SEE region. Through privatization, major car producers are present in Romania. Renault has a 10 year presence in Romania through the successful privatization of the former Dacia plant. The second car producer is Ford, who took over the Daewoo factory in 007. Initially Daewoo took over through privatization the former Romanian car production plant of Oltcit, a joint venture of the Romanian state and French car producer Citroen. Car Manufacturer Renault FORD Source: Romania Your Business Partner 01 Romania's long tradition in car manufacturing played a major role in establishing various automotive related industries. The majority of these automotive related production facilities are located in the western half of Romania where larger manufacturing plants of tires, car seating, steering wheels, electrics and electronic systems, plastic components and exhaust systems can be found for example. Main Figures Present since 1999 18,000 employees 4 million cars 80% of the cars exported R&D Center in Titu, investment value est. at 450 million Car production capacity: max 330,000 units / year Presence since 007 3,500 employees 90% of the cars exported Romanian made Ford BMax since 01 Car production capacity: max 350,000 units / year In particular, the spare parts and car system production facilities have developed around the main car production locations. Another criteria that was considered in establishing such facilities, was the ease of access to Western Europe, due to the more developed highway infrastructure and shorter commuting time from Romania to Western Europe. Spare parts and car systems are high up the value chain of car brands and the country is currently producing components for: Volkswagen, Audi, BMW, Porsche, Mercedes-Benz, Ford, Renault and Nissan, amongst others. Selection of automotive components producers Type of components Companies Electric & Electronic Systems Lisa Draxlmayer Delphi Packard Alcatel Lear Corporation Leoni Wiring System Yazaki Corporation Siemens Automotive HVAC Systems Continental Valeo Exhaust Systems Borla Honeywell Garett Seating Johnson Controls Faurecia Plastic & Rubber Components Dow Automotives AD Plastik BOS Automotive Hutchinson Gear Boxes Renault Daimler Chrysler DCI Wallbridge Star Transmission Tires Continental Michelin Pirelli Steering Wheels Takata Corporation Magneto Wheel Ina Schaffers Thyssen Krupp Koyo Seiko Auto Chassis International Dura Automotive System Source: Romania Your Business Partner 01

18 Romania. Too large to be ignored Other manufacturing industries such as petrochemical, pharmaceutical, heavy industry and machinery are also present in Romania due to the countries long tradition over the last 30-40 years in the afore-listed manufacturing industries. FMCG companies A number of large multinationals have opened brand new production facilities in Romania or, have converted existing brownfield sites into modern production units. These companies entered Romania in the early 1990s and through privatization, entered via the possession of former state owned production sites related to their businesses. Representative examples are Pepsi, Coca Cola, P&G, Kraft Jacobs Suchard and Colgate Palmolive. Today, some FMCG companies are controlling their SEE and Republic of Moldova operations from Romania, while a few of them have even relocated their production facilities from Romania in the past 3-5 years, into countries with cheaper labour costs, such as Moldova and Bulgaria. As 35-50% of Romanian's household expenditures go towards food and beverages, this industry has a wide presence in Romania. A balanced mix of local and international companies cover milk and meat processing, fruits and vegetables, sugar and oil production. The beverage industry is well represented by local and international companies for both non-alcoholic and alcoholic beverages. Furthermore, international tobacco brands have opened production facilities, mainly in Bucharest and surrounding industrial hubs of the capital city. The industry is well organized and represented in relation to the local authorities. The industry was subject to major tax increases over the past 10 years as Romania was producing the cheapest cigarettes when compared with Western European countries. The producers present in Romania include: Japanese Tobacco International (JTI), British American Tobacco (BAT) and Philip Morris. Selection of FMCG Manufacturing Companies FMCG Producers Food Danone LaDorna Napolact Albalact Hochland Bunge Cargill Dr Oetker Agrana Nestle Supreme Chocolat Boromir Hutton Orkla Foods Non -alcoholic Beverages PepsiCo Coca Cola HBC RioBucovina European Drinks Romaqua Alcoholic Domeniile Halewood Beverages Ursus Breweries / SABMiller Heineken Romania URBB (Tuborg, Carlsberg) Bergenbier / StarBev Romaqua Detergents Unilever P&G Henkel Tobacco JTI BAT Philip Morris Source: Jones Lang LaSalle Domestic Appliances & Electronics Sectors Electrolux privatization of a former state owned production unit, Very few domestic appliances and electronics companies have privatized in 1995. established production facilities in Romania. Philips started the production of coffee machines in 011, in the Those that are present in Romania include the following production unit previously owned by Saeco. companies: DeLonghi undertook the former Nokia plant in Jucu, near Cluj Arctic former state owned production unit, now owned by Turkish Napoca. Production started in early 013. group Arcelik, since 00.

19 Romania. Too large to be ignored Major Automotive Companies in Romania Bihor Autoflex SRL (Bosal) Ficamt (JV Ficosa) Arad Takata-Petri Romania SRL Leoni Wiring Systems Arad SRL EKR-Elektrokontakt Romania SRL Bos Automotive Products Romania Nexans Romania SRL Yazaki Component Technology SRL Valvetek SRL Coindu Romania SRL ERT Group Automotive SRL Timis Continental Automotive Products SRL Delphi Packard Romania SRL Kromberg & Schubert Romania SRL Eybl Automotive Romania SRL Siemens Vdo Automotive Romania SRL DPR Draxlmaier Procese de Productie Romania SRL Eybl-Automotive-Components SRL DSR Draxlmaier Serviceleistungen Romania SRL Hella Lighting Romania SRL Dura Automotive Romania SRL Hella Electronics Romania SRL Mahle Componente de Motor SRL Hunedoara Sews Romania SRL Key Safety Systems SRL Source: Central Europe Trust Company Satu Mare DRM Draxlmaier Romania Sisteme Electrice SRL Phoenix Romania SRL [Phoenix Automotive AG] Schlemmer Romania SRL ARAD TIMIÞOARA ORADEA REÞIÞA DEVA SATU MARE TÎRGU-JIU DROBETA TURNU SEVERIN ZALÃU Alba Star Transmission Cugir SRL CLUJ-NAPOCA ALBA-IULIA CRAIOVA Valcea Magnetto Wheels Romania SA Cord Romania SA Pirelli Tires Romania SRL BAIA-MARE RÂMNICU VÂLCEA BISTRIÞA TÎRGU-MUREÞ SIBIU SLATINA Salaj Silvania [Michelin] SA Michelin Romsteel Cord SA Cluj Automobile Componente Electrice SRL Eckerle Romania SRL Trelleborg Romania SA PITEÞTI ALEXANDRIA MIERCUREA CIUC BRAÞOV TÎRGOVIÞTE Turnu Mãgurele Zimnicea SUCEAVA BOTOÞANI PIATRA NEAMÞ SFÎNTU GHEORGHE GIURGIU PLOIEÞTI BUCUREÞTI BUZÃU Urziceni BACÃU FOCÞANI SLOBOZIA CÃLÃRAÞI IAÞI VASLUI GALAÞI BRÃILA TULCEA CONSTANÞA Sibiu Thyssenkrupp Bilstein Compa SA Thyssenkrupp Compa Arcuri SA Kuhnke Production Romania SRL Faurecia Seating Talmaciu SRL Brandl Ro SRL SNR Rulmenti SRL Takata Petri Sibiu SRL Continental Automotive Systems SRL Marquardt Schaltsysteme SCS Caucho Metal Productos SRL Kromberg & Schubert Romania Me SRL Bistrita-Nasaud Leoni Wiring Systems Ro SRL Mures Parat Ro SRL Brasov Autoliv Romania SA Ina Schaeffler Brasov SRL Rolem SRL Stabilus Romania SA Prahova SC Victoria [Michelin] SA Yazaki Romania SRL Freudenberg Flexibile de Frana SRL Calsonic Kansey Romania SRL Bucharest Honeywell Garrett SRL Arges Lisa Draxlmaier Autopart Romania SRL Johnson Controls Romania SRL Lear Corporation Romania SRL Auto Chassis International Romania SRL Valeo Cablaje SRL Euro Auto Plastic Systems SRL Borla Romcat SA Ronera Rubber Dow Automotive SA Automotive Complete Systems SA Valeo Electrical Connective Systems SRL Competitive Wages in the Manufacturing Sector in Romania (except Bucharest) Position Monthly Costs ( ) Annual Net Salary Gross Salary Company Taxes Total Costs Gross Salary Production Manager,619 3,734 1,049 4,783 57,39 Quality Manager,04,885 811 3,696 44,356 Technical Manager 1,667,376 668 3,044 36,53 Finance Manager,381 3,395 953 4,348 5,176 HR Manager 1,667,376 668 3,044 36,53 Logistic Manager 810 1,154 36 1,480 17,757 Quality Manager 1,071 1.58 430 1,958 3,496 Buyer 905 1,90 364 1,654 19,846 HR Officer 619 883 50 1,13 13,588 Payroll Specialist 619 883 50 1,13 13,588 Receptionist 476 678 19 870 10,44 Operator - Skilled 333 468 134 60 7,3 Forklift Operator 310 433 14 557 6,686 Operator - Unskilled 14 94 85 378 4,538 Source: Lugera - The People Republic, Bucharest commands salaries with 10-0% higher compared with the country level

Jones Lang LaSalle Content Partners Victoria Center 145 Calea Victoriei, 10th Floor Bucharest 1, 01007 Romania Gijs Klomp Managing Director Romania + 40 1 30 3400 gijs.klomp@eu.jll.com www.jll.ro Kevin Turpin Head of Research CEE + 40 4 34 809 kevin.turpin@eu.jll.com www.joneslanglasalle.cz Manuela Furdui Managing Partner FiNEXPERT 145 Calea Plevnei Bucharest, Romania +40 1 311 44 65 manuela.furdui@fin-expert.ro www.fin-expert.ro Marius Dobrescu Business Development Manager Lugera - The People Republic 98 Vulturilor Street Bucharest, Romania + 40 1 318 71 0 marius.dobrescu@lugera.ro www.lugerarepublic.ro Levis Vlad Head of Research Romania + 40 1 30 3400 levis.vlad@eu.jll.com www.jll.ro May 013 Advance publications are topic-driven white papers from Jones Lang LaSalle that focus on key real estate and business issues. www.jll.ro Front page photo by Diana Iorgulescu COPYRIGHT JONES LANG LASALLE IP, INC. 013. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them