Croatia’s Commercial Property Sector Has Stabilized, But The Outlook Remains Very Flat At This Point, And As Such Lags Most Property Sectors In EU, Which Have Started To Show Evidence Of Recovery.
By w2may | June 26th, 2011Croatia’s commercial property sector has stabilized, but the lookout remains extremely flat at this time, and as such lags most property sectors in Eastern EU, which have begun to show evidence of recovery. The commercial property sector has failed to rebound as the commercial recovery in Croatia is still extremely muted and essentially export-driven.
The business sector, which seriously is affecting requirement for commercial sector space, remains feeble. Indeed, the industrial production index in Croatia slid by 4.1% y-o-y in Feb, marking the 3rd consecutive month of decline. Given that Croatia’s commercial recovery is only in its nascent stages, it is unsurprising that industry has yet to pick up. We are forecasting that the Croatian economy will issue from two years of recession in 2011, but the forecast is for weak real GDP expansion of 1.9%.
The recovery will be mostly export-driven, benefiting from a positive eurozone expansion story, as customer demand remains constricted by high unemployment of 19.6% in Feb and weak credit expansion. One positive aspect for the expansion outlook for Croatia is tourism. Croatia is heavily dependent upon tourism for economic expansion and it is so encouraging to see that tourist arrivals have just bounced back strongly. The rebound in service exports will, in turn, reduce unemployment, which we see moderating in 2011 as seasonal work picks up. We forecast 2.0% expansion in private consumption in 2011, following a 0.9% drop in 2010.
Logically, requirement for office space and retail space is hardly growing. Economic space demand has also hardly ticked up. We saw falls of 20-30% in rental prices for office space between the 1st half of 2009 and the second 1/2 2010. Retail leases fell by 30-40%. Industrial properties bucked the trend, with leases recovering 20-30% in the same period. Nonetheless economic property leases have now stalled. We see hires and yields remaining essentially flat thru 2011 and 2012. Broadly, we think that rates are moderately exposed in the Zagreb area, will remain unchanged on low activity in the Zadar area, but have upside potential in the area around Split where some new commercial properties are to be developed by foreign backers. So , you continue to can buy some Croatia real estate if you curious about life in Croatia.
It is hard to envisage any voiced recovery within the prediction period. The commercial recovery will be slow and export-oriented. Unemployment remains stubbornly high. With its economy on a slow expansion trajectory there is not any reason to expect a major recovery for Croatia’s commercial property sector at this time.
Some of the key opportunities now in the real estate market are :
- The economic environment improves more than predicted, helped by export expansion, tourism expansion and an improvement in consumer demand. Unemployment would need to begin to fall.
- Extension of credit availability to both developers and residential house consumers, adding more space and more demand. This can indeed be boosted if Croatia’s advent talks are positive.
- Strength at work sector implies that vacancy rates have dropped but that projects coming online in 2011 will ensure that demand can be met. Some key hazards to the existing housing market are :
- If Croatia does not complete ECU advent this may indeed prove a negative for investor sentiment and in investment in Croatia, which would have a negative follow-on effect on the commercial property sector.
- Should continuing widespread political protests return to violence, as was seen in Feb, this would most probably weigh heavily on Croatia’s appeal as a tourism hotspot, as reported tagza.com.
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