Colliers International: Barriers to Investment Must Be Removed as Money Awaits Entry into Croatia

In Croatia, a total of 320 million euros was invested in 22 commercial real estate projects in 2017; a similar amount is expected this year, but more effort will be needed to remove barriers to investment, which should finally be addressed as ‘money is waiting to enter Croatia,’ representatives of the Croatian office of the consulting firm Colliers International stated on Tuesday.

– Although it is still early to say how much this year’s investments in commercial real estate could amount to, we believe there will be some, as investor interest in investing in Croatia is extremely high from all over the world, driven by the great availability of capital and economic growth in Croatia, especially in retail and tourism, said Vedrana Likan, director of Colliers, emphasizing that new investments in logistics, specifically in warehouses and logistics spaces, are also expected this year after a long time.

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According to Colliers data, of the total investments in commercial real estate in Croatia last year, the majority, or 53 percent, flowed into retail, including shopping centers, retail parks, ‘high street’ or street shops, and others, while nearly 40 percent went into the hospitality and tourism sector. About 18 percent of total investments were related to offices, while there were almost no investments in logistics properties.

– This is not surprising, as there is no industrial development, and the brakes on investment in logistics properties are high construction costs, utility contributions, and expensive land. However, investments of around 50 million euros could be realized this year in two to three logistics projects, mostly around Zagreb, but also in Rijeka and Split, revealed Filip Vučagić, director at Colliers.

Both he and Likan emphasized that both demand and investments in office spaces in Croatia, especially in Class A offices, are on the rise, and that there is currently record-low availability or even a shortage of office spaces. They noted that this is a consequence of Croatia’s entry into the EU, which has led to an increasing number of companies and businessmen coming to Zagreb, but also to other parts of Croatia.

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– There is a shortage of office spaces, but interestingly, their prices are not rising; the monthly rent per square meter is similar to the previous year – for Class A offices from 14 to 16 euros, and for Class B slightly below 10 euros. We do not expect prices to rise significantly, but we expect that by the end of this year there will be slightly more than 50,000 square meters of new offices in Croatia, particularly on Radnička Street and Slavonska Avenue, said Likan.

Retail and tourism in focus

Emphasizing that retail and tourism were also the main focus for real estate investors last year, Likan stated that the largest activities in tourism are from existing and domestic investors, especially Adrisa and Valamara, and that they do not expect any major changes there.

According to her, retail also has a record-low availability of free space, with only about 4 percent in leading shopping centers and 14 percent overall in all those centers. Monthly rental prices are on average similar to those in 2016, around 19 euros per square meter, or from 30 to 120 euros per square meter monthly in so-called high street spaces or street shops in city centers.

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She also provided data that there are currently more than 50 different real estate projects on the Croatian coast, of which about 10 are ready, mostly in Istria, central Dalmatia, and Dubrovnik, but it is difficult to say whether and when they will be realized.

Regarding Istria, she added that it is now less attractive in this sense, as it has mostly positioned itself at a three to four-star level, and has started with an ‘all-inclusive’ offer in tourism, is mostly accessible by car, and does not actually have enough ‘premium’ content to drive large investments in five-star properties. In contrast, Dubrovnik is building its offer on this, and recently Split and the islands of Hvar and somewhat Brač are increasingly striving for this.

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– About ten ready properties for investment are mostly existing ones, seeking new owners through sales, some are ‘brownfield’ state projects, but unfortunately, there are no ‘greenfield’ projects, which in Croatia, similar to public-private partnerships and management of state property, are a ‘cancer’ in the investment-real estate sense and have hardly succeeded, although this could stimulate economic growth. No investor wants to invest in ‘greenfield’ if they cannot get a return in three to five years, and it takes that long in Croatia just to prepare such a project, warned Likan.

In the next three years, the potential for investments is around 3 billion euros

She also believes that Croatia’s shortcomings include poor implementation of tourism and state property management strategies, as well as issues surrounding non-transparency, corruption, (ir)responsibility, inability to reach agreements at the state and local levels, and especially the inconsistency between land registries and cadastres, which are problems that have persisted for years.

– Countries like Hungary, Poland, the Czech Republic, Montenegro, and Serbia, as well as emerging ‘boom’ destinations for real estate investments like Albania, attract many more investors than Croatia with various measures and a more favorable investment climate. Investors want to leave money in Croatia, but when they see that the main players here are domestic or existing investors and that there is a certain animosity towards foreign investors and general success, after initial willingness and a few unsuccessful talks, they give up and leave or eventually wait for a more favorable time, emphasized Likan.

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She also pointed out that now, alongside German and Austrian investors, there are increasingly investors from Canada, the USA, China, the UAE, and others appearing in Croatia, who have announced through discussions with representatives of Colliers that they would like to direct a total of around 3 billion euros in investments into real estate in Croatia from now until 2021.

– Croatia is a very interesting investment country, everyone tells us that, but to realize the investment potential, someone in the country must operationally implement it, and investors often do not even know where to turn and to whom, which they certainly know in some neighboring countries, concluded Likan.