Croatia Real Estate Report Q3 2012

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 Croatia Real Estate report examines the Commercial Office, Retail and Industrial segments throughout the country in the context of a dour outlook for the economy, which will post a full year recession in 2012.

With a focus on the three principal cities of Split, Zagreb and Zadar, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk. Exposure to the eurozone sovereign debt crisis is impacting export demand and will also manifest itself as ever-important tourist figures fall in 2012, while severe austerity measures will squeeze consumer and government spending alike. Foreign direct investment will slow and credit streams will tighten as domestic banks feel the knock-on effects of EU banking regulations.

The property market is inevitably being impacted, last year saw stagnant or falling rents in all cities, while yields fell across the board. Rents were also under pressure from a strong supply pipeline. Retail was a bright spot, with rents increasing in all cities boosted by strong tourist arrivals and consumer confidence picking up slightly as the country emerged from recession.

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 Points:
- Large amount of office space due to come online in 2012, but the risk rests on whether there will be significant demand to match.

- We believe Croatia's Kukuriku coalition government is well placed to maintain its parliamentary majority and push through with necessary fiscal consolidation and economic restructuring.

- Croatia's economy will post a full-year recession in 2012 – we have revised our forecast to a 1.5% real GDP contraction following no growth in 2011 – as flagging external demand weighs on exports and fiscal austerity by the Kukuriku government squeezes domestic demand.

- We revised our upwards forecast for Croatia's average consumer price inflation in 2012 to 3.5%, from 3.0% previously. This was largely predicated on the government's plans to raise the VAT rate to 25% from 23%, effective March 1, and the sustained rise in global energy prices at the start of the year, which will boost imported inflationary pressures.

- We forecast that Croatia's construction sector is poised for a further 0.4% year-on-year (y-o-y) contraction in real terms in 2012 – its fourth consecutive year of decline – as businesses remain cautious about making new investments, and the government postpones existing projects. SHOW LESS READ MORE >

Executive Summary 5

SWOT Analysis 7

Real Estate Market Overview 9

Zagreb 11

Split 11

Zadar 11

Market Analysis – Office 12

Supply And Demand 12

Rents And Yields 12
Table: Historic Rents – 2010-2011 (USD per m2/month) 12
Table: Terms of Rental Contract/ Leases - Mid 2011 13
Table: Net Yield, 2011-2012 (%) 13

Industry Forecast Scenario 14
Table: Forecast Rents - (USD per m2/month) 14
Table: Forecast Net Yield, 2008-2016 (%) 14

Market Analysis – Retail 15

Supply And Demand 15

Rents And Yields 15
Table: Historic Rents – 2010-2011 (USD per m2/month) 15
Table: Terms of Rental Contract/ Leases - Mid 2011 16
Table: Net Yield, 2011-2012 (%) 16

Industry Forecast Scenario 17
Table: Forecast Rents - (USD per m2/month) 17
Table: Forecast Net Yield, 2008-2016 (%) 17
Table: Croatia Retail Sales Indicators 18

Market Analysis – Industrial 19

Supply And Demand 19

Rents And Yields 19
Table: Historic Rents – 2010-2011 (USD per m2/month) 19
Table: Terms of Rental Contract/ Leases - Mid 2011 20
Table: Net Yield, 2011-2012 (%) 20

Industry Forecast Scenario 21
Table: Forecast Rents - (USD per m2/month) 21
Table: Forecast Net Yield, 2008-2016 (%) 21

Forecast Scenarios 22

Infrastructure Report 22
Table: Croatia Construction And Infrastructure Industry Data, 2009-2016 22
Table: Croatia Long Term Construction And Infrastructure Industry Data, 2013-2021 23

Construction And Infrastructure Forecast Scenario 24

Macroeconomic Outlook 25
Table: Croatia - Economic Activity 27

Real Estate Risk/Reward Ratings 28

Real Estate/Construction Risk/Reward Ratings 28
Table: Real Estate/Construction Risk/Reward Ratings 28

Croatia Business Environment 28
Table: BMI Business And Operation Risk Ratings 29

Institutions 30
Table: BMI Legal Framework Rating 31

Infrastructure 32
Table: Labour Force Quality 34

Market Orientation 35
Table: Emerging Europe - Annual FDI Inflows 36
Table: Trade And Investment Ratings 38
Table: Top Exports 39

Operational Risk 40

Competitive Landscape 41

Company Profiles 44

GTC Real Estate 44

Konstruktor-inženjering 46

Landmark Property Management 48

Orco Property Group 49

TriGranit Development Corporation 51

Demographic Data 53
Table: Croatia's Population By Age Group, 1990-2020 ('000) 54
Table: Croatia's Population By Age Group, 1990-2020 (% of total) 55
Table: Croatia's Key Population Ratios, 1990-2020 56
Table: Croatia's Rural And Urban Population, 1990-2020 56

BMI Methodology 57

How We Generate Our Industry Forecasts 57

Construction Industry 58

Bank Lending 59

Real Estate/Construction Business Environment Rating 59
Table: Weighting Of Indicators 60

Sources 62

GTC Real Estate , Konstruktorinženjering , Landmark Property Management , Orco Property Group , TriGranit Development Corporation ,