Real Estate Market: In 2023, investment volume grows by 20 percent, but significant investment opportunities are lacking

The year 2023 marks a period of significant investment activity in Croatia, with a total transactional volume of commercial real estate of approximately 500 million euros, representing a 20 percent increase compared to 2022. Investors remain focused on the coastal region with investments in tourism and on Zagreb with investments in the office sector, as revealed in the real estate market overview for 2023 traditionally published by Colliers Croatia, Slovenia, and BiH.

– The investment volume in Croatia in 2023 would be even higher, but there is a lack of significant investment opportunities in Croatia, so large international investors are still only actively observing Croatia as an investment destination for now. The entry of such investors into a new market like Croatia requires investment opportunities in commercial real estate projects with a minimum value of 100 million euros or 100-200 keys if it concerns hotels/resorts. What will certainly characterize the upcoming period is a change in legal regulations that will allow direct investments from pension funds and insurance into real estate. It is expected that almost a billion euros will enter the market from these institutions this year, which will further stimulate market activity and strong domestic capital – stated Vedrana Likan, director and partner at Colliers for Croatia, Slovenia, and BiH, upon the release of the new report.

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Vedrana Likan

photo Ratko Mavar

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In the office space sector in Zagreb, there is a lack of new projects and A-class buildings, so the focus is mainly on renewing existing contracts. ESG standards have become a key part of lease negotiations. Despite a historically low office vacancy rate of only 3 percent, there has not been a significant increase in rental prices due to tenants’ sensitivity to prices. Rents for prime spaces range from 15 to 18 euros per square meter per month, while the average rent for A-class is approximately 13.5 euros per square meter per month.

– With the expected completion of the Matrix D building and phase III of Buzin City Island in the fourth quarter of 2024 by KFK and Supernova Office Towers in 2025, we expect an increase in the availability of office space. It is important to emphasize that the new buildings will offer the market a new standard of offices compliant with ESG standards, which will push the current A-class, which is mostly up to 20 years old in Zagreb, into a new phase of renovation and adaptation to new market standards – stated Nuccia Basanić, head of the commercial real estate department at Colliers.

The retail real estate sector is witnessing the development of shopping centers in smaller towns, with Immofinanz (CPI Property Group) as the most active player in 2023, opening five new Stop Shop retail parks. The entire retail sector is on a positive trend, thanks to rising real wages and a decrease in the inflation rate.

Logistics and industrial real estate are still in a development cycle, with demand exceeding supply and a slight increase in rents. Key new projects in the Zagreb area are concentrated in the zones of Meridian 16, Zdenčina, Lučko, Donja Bistra, Sveta Nedjelja, and Samobor, with the most active players in the market being Log Expert, RC Europe, Geopost Group, and a new player in the market, Accolade.

Tourism remains our recognizable card in the global market. The tourist season of 2023 recorded a record of 19.5 million arrivals and 92.4 million overnight stays, reaching figures from 2019. Investments in hospitality include the opening of Hotel Zonar in Zagreb with an investment of 30 million euros, AC Hotel by Marriott in Split with an investment of 80 million euros, and numerous other projects symbolizing a new era of luxury and quality in Croatian tourism.

Prices in the holiday home segment range from four to seven thousand euros per square meter for villas and from three thousand to 5,500 euros for apartments, reflecting the growing interest in such products on the coast. The opening of Petram Resort, the completion and imminent opening of Lioqa resort in summer 2024 in Ugljan, and the announcement of Lukoran Resort by Sitno Holding indicate a dynamic development of the luxury tourist residence market.

At the same time, the residential market is experiencing a decrease in annual transaction volume of about 30 percent in Croatia and 25 percent in Zagreb, due to buyers facing affordability issues. The average asking prices (combined new and old construction) per square meter for 2023 were 2,900 euros in Zagreb, 4,060 euros in Split, 2,660 euros in Rijeka, and 1,733 euros in Osijek.

– The year 2023 has brought new investment activities and development in all sectors of commercial real estate in Croatia, driven by healthy macroeconomic fundamentals and a growing tourism sector. Despite challenges such as a lack of office space supply and higher prices in the residential sector, the real estate market shows signs of maturity and attractiveness for domestic and international investors, promising further growth and development – commented Likan.