Demand for Commercial Real Estate in Zagreb Continues to Exceed Supply

Approximately half of large multinational companies plan to reduce office space in the next three years as they adjust to the increase in remote work since the pandemic.

A Knight Frank survey among real estate executives in 350 companies worldwide, employing a total of ten million people, revealed that among the main groups reducing their footprint, the largest number aims to decrease space by ten to twenty percent.

– Working from home is not a new phenomenon – it became prevalent both globally and in Croatia during the pandemic, and we see that it has persisted to some extent today, despite the declaration of the end of the pandemic. Although many well-known IT tech giants announced that they would never return to offices and have fully embraced remote work, this has not happened, and most companies have adopted a hybrid working model.

Executives have realized the importance of shared office space, employee interaction, and the benefits that an office brings for efficiency and creativity in business processes. We see confirmation of this through employers’ care for office arrangements, where a significant focus in recent years has been placed on common areas to further stimulate the exchange of knowledge and experience within the company. Brainstorming spaces, lounge areas for informal meetings and gatherings, large conference rooms, terraces – these are all spaces that today adorn modern offices – said Nuccia Basanić, head of the commercial real estate brokerage and consulting department at Colliers.

As for Croatia, Basanić explains, Zagreb has a total office space of 1.5 million square meters, which does not meet the existing demand, and similar trends are observed in Split, where demand also significantly exceeds supply. Only spaces in the segment of ‘older properties’ are available.

– We must emphasize that this is not a new trend in the market. On the contrary, we have been witnessing an uneven supply and demand in the commercial real estate market for years, and the latest factor further influencing this relationship is certainly the significant increase in construction costs over the past two years. To make the construction of new modern office buildings financially viable at current construction costs, the average monthly rent should be 15 euros per square meter.

All of this points to the need for creating new supply, so in the upcoming medium-term period, we expect the arrival of premium office space offerings on the market, in line with the highest standards – commented Basanić.

A lot of factors must align for a major crisis like the one we experienced in the 2000s to repeat itself, she added. Because of that (relatively recent) experience, people are much more cautious, but we are also witnessing a much healthier market that is more prepared than ever for potential crises.

– However, when we talk about caution, we must emphasize that certain steps are already being taken abroad to protect countries from potential crises. Trends from abroad always arrive here with a delay, so we can expect that all these external events will have some impact on our market, but it will manifest a little later – said Basanić.