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Croatia Real Estate Report Q4 2010
Business Monitor International, Aug 2010, Pages: 67
The Croatia Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Croatia's Real Estate industry.
The year 2010 appears to represent something of a nadir in the fortunes of the Croatian Real Estate sector after a difficult year in 2009. In our latest round of interviews with in-country sources, which were conducted in mid-2010, we were told that rents had basically stopped falling and are expected to track sideways through 2011. Further, and in spite of the high vacancy rates in the Zagreb office market, there does not appear to have been a sharp downwards move in capital values.
It appears that commercial property rents fell by 10-15% in each of the three main sub-sectors in Zagreb, and by rather more in Split, during 2009. Rents dropped by around 10% in Zadar, a small city where demand and supply of space have generally been well matched.
Crucially, it is difficult to envisage that there will be a sharp recovery in Croatia’s Real Estate sector. Although the contraction in economic activity, through 2009, has been less than in other countries in Central and Eastern Europe, consumer spending is likely to remain weak for some time – mainly because of persistent unemployment and under-employment. The government has been cutting expenditure. Investment is also likely to remain subdued. Prior to 2008, capital inflows had been running at around 5% of GDP annually. BMI is not expecting inwards investment to return to this level until Croatia joins the European Union, which we expect to happen in 2013.
Given that rents and yields appear already to have stopped falling, we are not looking for meaningful changes in either over the next year or so. To the extent that rents do move from late 2011 onwards, we expect that capital values will change similarly. Rental yields in Split and Zagreb should move sideways through the 2011-2014 forecast period. For the time being, we envisage that the same will be true in Zadar, notwithstanding the fact that yields are significantly lower than they are in the other two cities. The implication of all this is that Croatia is a country where there is unlikely to be substantial supply of new office, retail or industrial space over the coming years. Some of our in-country sources indicated at the beginning of 2010 that projects have already been shelved for lack of interest on the part of investors.
Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. The questions that we seek to answer for each country remain as follows: What are the main issues for actors in and around real estate development in the country concerned, over both the long and the short term? What are the main constraints that they face? What are the key insights to be gleaned by comparing the real estate sector of a country with its regional peers?
In Q3 we introduced a very substantial improvement to our reports. We incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology section of this report.
In Q4, we have incorporated a lot of new data in relation to rents and yields in 2010. We gained this data through a new round of interviews with our in-country sources in mid-2010. In some cases, the latest information from our sources has caused us to make significant revisions to our forecasts for 2011-2014. We asked our sources to indicate what growth in rents is likely for 2011. We explain their answers in the Forecast Scenarios.
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