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Croatia Real Estate Report Q1 2012
Business Monitor International, Dec 2011, Pages: 53
Business Monitor International's 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.
While BMI remains tentatively upbeat with regard moderate growth in Croatia’s commercial real estate sector, exposure to the eurozone debt crisis is very real and downside risks for the sector significantly outweigh the upside. BMI is forecasting real GDP growth of 0.7% in 2011 and 1.1% in 2012, which while minor is still an improvement on 2009-2010’s recession. However, BMI's 2011 and 2012 figures are downward revisions prompted by worrying Q211 data, which confirm the view that the economy will be hindered by several, mainly exogenous, factors. The problems in the eurozone are manifest in Croatia as weakened export demand, prospect of falling tourist numbers in 2012, slowing foreign direct investment and tightened credit streams as domestic banks feel the knock-on effects of EU banking regulations.
With the eurozone not expected to confidently recover until beyond 2012 and subsequently restricting demand on Croatian exports, the dependence of the country’s economic growth on tourism will become even more acute. While tourist arrivals – the vast majority of which are from Europe – in summer 2011 were up year-on-year (August arrivals increased 4.7%), which had a harmonious effect on the retail industry (2.0% up y-o-y in August), BMI is sceptical of this being the case in 2012. On the whole, the domestic consumer segment remains weak, with high unemployment and household debt levels. However, emerging from recession has produced pockets of good news for the retail industry throughout the year and Croats are formidable shoppers, outscoring many of their neighbours, and even developed countries, in spending per capita statistics.
Zagreb, seemingly becoming aware of the risks involved with being too reliant on a traditional investor, is looking to China to help enliven investment in the city. City authorities have been wooing Chinese officials in an effort to secure investment in infrastructure and real estate construction. Will this become a more familiar trend now traditional trade partner the eurozone looks to be wounded for some time to come? We will see, but in the medium-long term, BMI believes there is more opportunity than risk for developers and investors across the board in Croatia’s real estate sector.
The key news in recent times has been the decision by the EU to close negotiations on accession. Croatia is now scheduled to join the EU on July 1 2013. EU membership will have a number of positive impacts on both the economy as a whole and the construction/real estate sector in particular.
Key Opportunities In The Real Estate Market:
- Pre-accession funding from the EU for infrastructure development should become available in the coming months. BMI continues to expect that infrastructure will be a key sector for investment.
- Croatia's business environment has gained exponentially from carrying out reforms required by the EU. As one example, the country has jumped five spots on Transparency International's Corruption Perceptions Index since 2004, from 67th to 62th out of 178 countries.
- Developments for the tourism industry in particular are necessary to support this critical part of the Croatian economy.
- A consumer market which, although currently restrained, is high spending in nature and once the economy finds a more stable and consistent footing, will seek more opportunities and higher value products. This should only be good news for retailers, high street/mall developers and international labels.
- Non-traditional routes may be needed to fuel growth now that investment from Europe is slowing.
Key Risks To The Real Estate Market:
- Economic problems specific to Croatia: Most likely is a delay to (or cancellation of) major public works projects as a result of the government’s rather constrained budget. However, BMI stresses that major projects have been completed over the last two years.
- Economic problems that are general to the eurozone: This could result in a contraction of exports that largely negates the benefits of EU accession. High unemployment and low consumer spending mean economic growth is dependent on an export-led recovery that is narrowly centred on the tourism sector.
-Large amount of office space due to come online in 2012, but the risk rests on whether there will be significant demand to match.
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