Croatia Real Estate Report Q1 2012
Includes 3 FREE quarterly updates
While we remain 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. We are 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, our 2011 and 2012 figures are downward revisions prompted by worrying Q211 data, which confirm our 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), we are 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:
While we remain 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. We are 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, our 2011 and 2012 figures are downward revisions prompted by worrying Q211 data, which confirm our 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), we are 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. We continue 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.
- 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, we stress 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.
Contents
Executive SummarySWOT Analysis
Croatia Real Estate/Construction SWOT
Croatia Economic SWOT
Croatia Business Environment SWOT
Real Estate Market Overview
Real Estate Market Analysis
Table: Croatia’s Real Estate Market – Historic Rents, 2010 And 2011 (EUR/m2 per month)
Table: Croatia’s Real Estate Market – Net Yield, 2011 And 2012 (%)
Table: Croatia’s Real Estate Market – Terms Of Rental Contract/Lease, Mid-2011
Industry Forecast Scenario
Real Estate Outlook
Table: Croatia’s Real Estate Market – Rentals, 2011-2012 (EUR/m² per month)
Table: Croatia’s Real Estate Market – Forecast Net Yield, 2008-2016 (%)
Construction And Infrastructure Industry Overview
Table: Croatia Construction And Infrastructure Industry Data, 2008-2016
Table: Croatia Construction And Infrastructure Industry Data, 2013-2021
Macroeconomic Outlook
Business Environment
Table: Croatia Real Estate, Business Environment Ratings
Table: Europe Real Estate/Construction Business Environment Rating
Croatia Business Environment Outlook
Table: BMI Business And Operation Risk Ratings
Institutions
Table: BMI Legal Framework Rating
Infrastructure
Table: Labour Force Quality
Market Orientation
Table: Emerging Europe – Annual FDI Inflows
Table: Trade And Investment Ratings
Table: Top Exports, 2001-2009
Operational Risk
Competitive Landscape
Company Profiles
GTC Real Estate
Konstruktor-inženjering
Landmark Property Management
Orco Property Group
TriGranit Development Corporation
BMI Methodology
Croatia Real Estate Report Q1 2012
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How We Generate Our Industry Forecasts
Construction Industry
Bank Lending
Real Estate/Construction Business Environment Rating
Table: Weighting Of Indicators
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