Croatia’s commercial Real-Estate Sector Has Stabilised, But The Lookout Remains Extremely Flat At This Time, And As Such Lags Most Property Sectors In European, Which Have Started To show Signs Of Recovery.

Croatia’s commercial real estate sector has stabilised, but the outlook remains extremely flat at this point, and as such lags most property sectors in Eastern European, which have begun to show indicators of recovery. The commercial real estate sector has failed to rebound as the business recovery in Croatia remains extraordinarily muted and essentially export-driven.

The economic sector, which noticeably is affecting demand for commercial sector space, remains weak. Indeed, the business production index in Croatia dropped by 4.1% y-o-y in February, marking the third sequential month of decline. Given that Croatia’s business recovery is only in its nascent stages, it is unsurprising that industry still has to pick up. We are forecasting that the Croatian economy will emerge from 2 years of recession in 2011, but the forecast is for weak real GDP expansion of 1.9%.

The recovery will be principally export-driven, benefiting from a positive eurozone expansion story, as customer demand remains restricted by high unemployment of 19.6% in February and weak credit expansion. One positive aspect for the expansion outlook for Croatia is tourism. Croatia is heavily conditional on tourism for economic expansion and it’s so inspiring to see that tourist arrivals have recently reflected back strongly. The rebound in service exports will, in turn, reduce unemployment, which we see moderating in 2011 as seasonal work picks up. We foretell 2.0% expansion in private consumption in 2011, following a 0.9% drop in 2010.

Rationally, demand for office space and retail space is hardly growing. Industrial space demand has also hardly ticked up. We saw falls of 20-30% in rental costs for office space between the initial half of 2009 and the second 1/2 2010. Retail rents slipped by 30-40%. Economic properties bucked the trend, with rents recovering 20-30% in the same period. Nonetheless economic property rents have now stalled. We see hires and yields remaining essentially flat thru 2011 and 2012. Broadly, we think that rates are rather vulnerable in the Zagreb area, will remain unvaried 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. Therefore you still can buy some Croatia real estate if you interested in life in Croatia.

It is difficult to visualize any voiced recovery within the forecast period. The business recovery will be slow and export-oriented. Unemployment remains stubbornly high. With its economy on a slow expansion course there is no reason to expect a significant recovery for Croatia’s commercial real estate sector at this point.

Some of the key opportunities now in the real estate market are :

- The industrial environment improves more than anticipated, aided by export expansion, tourism expansion and a turnaround in purchaser demand. Unemployment would need to start to fall.

- Extension of credit availability to both developers and residential house purchasers, adding more space and more demand. This could 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 make sure that demand can be met. Some key risks to the existing housing market are :

- If Croatia doesn’t complete ECU advent this can indeed prove a negative for financier sentiment and in investment in Croatia, which would have a negative follow-on effect on the commercial property sector.

- Should ongoing widespread political protests return to violence, as was seen in February, this would probably weigh heavily on Croatia’s appeal as a tourism hotspot, as reported tagza.com.
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