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Romania’s retail rushes to catch up with rest of Europe

By Curt Hazlett

Eastern Europe’s economies are running faster these days, but not all are running at the same pace. Among the laggards has been Romania, a country the size of Oregon that sits at Hungary’s eastern border.

Romania began moving toward a free-market system with the end of the Cold War in 1989, but the country’s communists did not actually fall from power until 1996. The next few years were tough ones, marked by instability and a faltering economy that have kept the country among Europe’s poorest.

But things are finally improving for Romania, and foreign retail developers are taking note. Its gross domestic product has demonstrated strength in recent years, though agricultural losses resulting from flooding cut growth in half last year. With Romania tentatively set to join the European Union next year, the government is focused on fostering economic growth and removing such obstacles to EU membership as a choking bureaucracy and extensive graft.

“Looking at Eastern Europe is almost like looking at Central Europe 10 years ago,” said Jonathan Hallett, managing partner of Cushman & Wakefield in the Czech Republic, who oversees the firm’s retail in Eastern and Central European markets.

In its 2005 global retail development index, consulting firm A.T. Kearney ranked Romania No. 22 among its top 30 emerging markets, a position the country achieved “thanks to a steady GDP growth rate of 5 percent, a 60 percent increase in retail sales over the past two years, and signs of greater political and economic reform in anticipation of possible EU membership,” the firm wrote in a report.

Like its neighbors, Romania is poised for growth if for no other reason than that it has no place to go but up, some say.

“There’s very little development in floor space, and the demand from retailers is increasing rapidly,” said Cushman’s Hallett. “Demand is high, and the growth in investors, developers, hypermarkets and retailers is going to be huge.”

The biggest news in Romanian retail development was the announcement in January that an Israeli company, Aura Investments, is teaming up with a Romanian subsidiary of another Israeli developer, Kardan, to build about 25 shopping centers throughout Romania. These centers will be built in cities of at least 100,000 people and will range from 100,000 to 160,000 square feet, the companies say.

Aura already holds a stake in a Bucharest shopping center that is part of a joint venture with a third Israeli company, Giron Development and Building.

This will no doubt push Romania toward further growth, but already there have been notable changes in people’s lives. In a 2004 report, PriceWaterhouseCoopers noted that “the Romanian retail landscape has been reshaped over the last years by the international chains that have expanded their business there.”

The report concluded: “Purchasing habits change as Romanians’ lifestyles shift. Nowadays it has become a common practice for Romanians to go shopping at the end of the week with the family, in one of the large and modern retail outlets, rather than the small shops and kiosks. The reasons are clear: Better quality and lower prices.”