real estate market outlook (belgrade)_3q 2013

Market & Trends

Outlook

Belgrade | 1H 2010

Belgrade | 2H 2010

Real Estate

Belgrade | 3Q 2013

Real Estate

Market & Trends

Outlook

Belgrade | 3Q 2013

For further market information, please contact

Zana Sipovac

Head of Valuation and Investment Advisory

[email protected]

Srdjan Runjevac, MSc

Senior Valuation Consultant

[email protected]

T + 381 11 26 32 300

F + 381 11 32 84 647

17, Cara Urosa Street - Belgrade

[email protected]

www.leroy.rs

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information contained in this report and we cannot accept any liability for consequences that may arise in reliance on the information presented in this

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COPYRIGHT © LEROY REALTY CONSULTANTS 2013. All rights reserved. No part of this report must not be copied or transmitted without written

permission of LeRoy.

Real Estate Market & Trends Outlook | 1

ECONOMY OUTLOOK 2

OFFICE MARKET & TRENDS 4

Supply

Demand 5

Vacancy 6

Rents 6

Pipeline 7

Forecast 7

RETAIL MARKET & TRENDS 9

Supply 9

Demand 9

Vacancy 10

Rents 10

Pipeline & Announced 11

Forecast 11

INDUSTRIAL MARKET & TRENDS 13

Supply 13

Demand 14

Rents & Yields 14

Pipeline & Forecast

Sustainability & “Green” building market trends 15

RESIDENTIAL MARKET & TRENDS 18

Supply 18

Demand 19

Pricing 19

Developed & Under construction 19

Forecast 19

Table 1 – Economy indicators

Chart 1 – Belgrade office stock

Chart 2 – Belgrade office delivery, semiannual

Chart 3 – Belgrade office vacancy rates

Chart 4 – Average rent levels

Chart 5 – Office yields

Chart 6 – Structure of retail sale in Serbia

Chart 7 – Shopping center stock in Belgrade

Chart 8 – Big-box stock in Serbia & Belgrade

Table 2 – New retail deliveries

Chart 9 – Prime & secondary rents in Belgrade

Chart 10 – Indicative retail yields

Table 3 – Projects under construction & announced

Chart 11 – New industrial & logistics developments in

Serbia

Chart 12 – Industrial & logistics construction permits

issued in Serbia

Chart 13 – Industrial & logistics construction permits

issued in Belgrade

Chart 14 – Modern warehouse rents in Belgrade &

wider area

Table 4 – Announced developments & pipeline

Chart 15 – Number of constructed apartments in Serbia

& Belgrade

Chart 16 – Number of constructed apartments in

Belgrade municipalities

Chart 17 – Structure of new apartments in Serbia

Chart 18 – Residential construction permits issued in

Serbia & Belgrade

Chart 19 – Residential construction permits issued in

Belgrade municipalities

Chart 20 – No of sold apartments in central Belgrade

municipalities

Chart 21 – No of sold apartments in Belgrade & Serbia

Chart 22 – Average asking prices in Belgrade municipal.

Chart 23 – Average asking rents in Belgrade municipal.

Table 5 – New residential deliveries & announced

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In the first three quarters of 2013, Serbia recorded a

modest economic recovery after it slipped into the

recession in 2012 when a downfall in GDP rate of -

1.7% was recorded. The main Serbian economic

issues, that influenced the latest Fitch rating as BB-

with negative outlook, represents a continuous

increase in budget deficit, increasing public debt,

fragile economic recovery mostly depending on the

automobile industry and high dependence on the

international credit arrangements.

The economy slowdown was also driven by a

decrease in loan instruments that became more

expensive due to high interest rates, as a consequence

of more cautious and restrictive measures instructed

from the banks. Therefore, vast majority of public

and private entities are facing a high level of

illiquidity issues and credit repayment inabilities.

The restructured Serbian government has announced the adoption of

several austerity measures in October 2013 in order to reduce budget

deficits and improve the conditions for economic growth in 2014.

Without implementation of strict and unpopular measures, including

layoffs in the public sector and ending the long term process of

restructuring companies, expected improvements will not be

possible in the short term.

According to the official data, after the negative GDP growth rate of -

1.7% in 2012, Serbian economy recorded a modest GDP growth of

0.2% in 2Q 2013, mostly affected by growth in information and

communication sector (9.6%), electricity, gas and steam supply

(3.2%), and mining and quarrying (2.8%). The most significant

decline was recorded in the construction sector (-42.5%) as the most

severely affected by the global crisis.

According to the preliminary data, GDP growth was strengthened in

3Q 2013 to 3.2%.

Industrial production recorded strong growth by 13.4% in September

2013 compared to September 2012, with growth in electricity, gas,

steam and air conditioning supply sector by 19.8%, followed by

manufacturing (12.2%) and mining (10.4%). During the period

January – September 2013 it recorded an increase of 6.4% comparing

to the same period last year.

In the 1H 2013, construction sector in Serbia was faced with

continuous slump that started as a consequence of the global

financial crisis in 2008. The value of construction works in the period

January - June 2013 decreased by 34.9% compared to the same period

2012, also followed by the decrease in total number of issued

building permits by 4.4%.

Serbia’s FDI inflow reached its lowest level in relation to all the years

of crisis. According to the National Bank of Serbia, net FDI inflow in

the first three quarters of 2013 amounted to EUR 584 million, while

expected inflow of EUR 800 million is 20% less than the year before.

In March 2013, Serbia started negotiations with the companies from

UAE. The Al Dahra Company signed a preparatory agreement with

the Serbian government that implies investing USD 400 million in

Serbian agriculture sector. The Serbian government signed a strategic

partnership agreement with the Etihad Company in August 2013, by

which former air-transportation company “Jat Airways” will be

restructured into a new company entitled “Air Serbia”.

Total exports of goods in the period of January - August 2013

amounted to USD 9.237 billion, as a 28.1% increase comparing to the

same period last year.

In 2012, Serbia recorded the highest level of annual inflation rate of

12.2%, while 1Q and 2Q 2013 reflected a gradual decrease in

inflationary pressure. However, consumer prices in September 2013,

compared to September 2012, increased by 4.9%, while compared

with the previous month an increase of prices was noted in

communication sector (0.7%), housing, water, electricity, gas and

other fuels (0.5%), transport (0.4%), restaurants and hotels (0.3%),

and food and non-alcoholic beverages (0.2%). The highest price

decrease was noted in the group recreation and culture (-5.4%).

Economy

Outlook 3Q

2013


Serbian unemployment rate recorded a modest decrease from 1Q’s

25% to 2Q’s 24.1% in 2013. However, according to the latest

predictions, 2013 will end with the highest rate of 26.5%. The

announced reforms in 2014 will increase this rate, placing this issue

as a top priority of any economic strategy.

The average net salary in September 2013 was RSD 42,866, which

represents an increase of 1.5% in real terms, and an increase of 6.5%

in nominal terms when compared to September 2012.

According to the IMF (International Monetary Fund) forecast,

estimated GDP growth in 2013 has been revised to 2%. Due to a

number of structural problems waiting to be solved, it is difficult to

expect positive changes in the real estate and construction sector in

2014.

Forecast

It is expected that GDP growth during the 2013 will keep the positive

rate. However, the latest predictions for the year-end results are

below those initially forecasted, with a modest GDP growth of 1.8%

y-o-y. This gradual recovery of Serbian economy mostly depends on

external exports that recorded a strong increase of 26.4% in 1H 2013

compared to the same period last year, mostly due to higher exports

of FIAT cars and good agricultural season.

Inflation continues to represent one of the biggest challenges with an

estimated double digit rate of 10% y-o-y in 2013. The main goal of the

National Bank of Serbia is to succeed in bringing the rate to the level

of 4.1% by 2015.

The announced austerity measures will also contribute to the

economy slowdown, since it will influence the further decline in

domestic demand and a possible increase in the unemployment rate.

In 2013, the European Commission recommended that Serbia should

be granted a date for the start of negotiation for accession to the EU,

which should improve business climate in the country, attract new

investments and enable access to the EU funds. However, the exact

date will be provided at the beginning of 2014, as it was previously

conditioned by progress in the Belgrade – Pristine negotiations.

A new privatization and restructuring cycle of the remaining large

state owned companies is expected in the following period, as well as

a new credit arrangement with the IMF.

Table 1

Macroeconomic indicators2008 2009 2010 2011 2012 1Q 2013 2Q 2013 2013f* 2014f*

GDP (EUR bn) 32.6 28.9 28.0 31.4 29.9 7.4 8.1 32.3 33.5

GDP per capita (EUR) 4,456 3,945 3,981 4,288 4,800 n.a. n.a. 4,537 4,708

GDP (constant prices y-o-y, %) 3.8 -3.5 1.0 1.6 -1.7 2.1 0.2 1.8 2.1

CPI (average y-o-y, %) 8.6 6.6 10.3 7.0 12.2 11.2 9.8 10.0 7.0

Central Bank reference rate 17.8 9.5 11.5 10.5 10.3 11.7 n.a 10 9.5

Monthly wage, nominal (EUR) 402.4 337.9 330.1 372.5 364.5 370.8 394.8 n.a. n.a.

Unemployment rate, in % 13.6 16.1 19.2 23.0 23.9 25.0 24.1 26.5 25.7

Budget balance / GDP (%) -1.7 -3.4 -3.7 -4.2 -5.7 -6.0 -5.2 -5.8 -4.5

Public debt (in % of GDP) 29.2 34.7 44.5 48.2 59.3 62.5 60.6 65.8 65.9

Current account balance (EUR mil) -7,054 -1,910 -1,887 -2,870 -3,155 -622 -268 -2,754 -2,527

Current account balance (% of GDP) -21.6 -6.6 -6.7 -9.1 -10.5 -8.4 -3,3 -8.5 -7.5

Net FDI (EUR mil) 1,824 1,373 860 1,827 1,006 155.3 n.a. 800 800

FDI (% of GDP) 5.5 4.8 3.1 5.6 3.4 4.4 n.a. 2.5 2.4

Gross foreign debt (EUR mil) 21,088 22,487 23,786 24,125 25,721 26,722 26,072 27,814 28,219

Exchange rate to EUR (avg) 81.4 94.0 103.0 102.0 113.1 111.7 112.2 116.0 120.0

Credit rating (Fitch)BB-

/negative

BB-

/negative

BB-

/stable

BB-

/stable

BB-

/negative

BB-

/negative

BB-

/negative

BB-

/negativen.a.

Source: National Bank of Serbia

Ministry of Finance and Economy

* Unicredit Bank; Hypo-Alpe-Adria Group


Following the economic downturn in 2012, Belgrade

office market witnessed an improvement of occupier

demand in 2013. The continued lack of new

speculative office developments contributes to

stabilization of the market rent levels, bringing

vacancy to its lowest level since 2009.

The total volume of demand increased in the first 9

months of 2013, but lease renewals had a

considerable share in total leasing activity. With a

few deliveries announced for 2013/2014 and taking

into account the current market absorption, we can

expect a relatively stable decrease in vacancy in the

coming quarters.

Supply

The Belgrade office market starts to witness an increase in supply

with 25,000 sq m of gross leasable area (GLA) being introduced to the

market over the last 12 months. This marginal addition to supply is a

step forward after a long period of almost zero delivery, recorded

during 21 consecutive months. However, 79% of the newly

constructed office space is owner occupied, indicating very slow

recovery of confidence among investors. Two largest deliveries in 2H

2012 were the headquarter building of Raiffeisen Bank (18,400 sq m

of GLA) and Danube Business Center (5,300 sq m of GLA) located in

New Belgrade.

A few larger office deliveries scheduled for the second half of 2010

have been postponed and none of these projects have been activated

yet. The postponed projects such as “Tri Lista Duvana” (8,500 sq m),

“B-23” (35,000 sq m) and “Atlas office building” (3,600 sq m) will

bring the additional 47,000 sq m of GLA of speculative space.

However, it is still uncertain when these buildings will be introduced

to the market.

A couple of small-scale projects that will bring new 15,000 sq m of

GLA, are currently under construction and their completion is

expected during 2013/2014 period.

Despite strong pipeline, supply has responded with net additions to

stock falling well below pre-recession averages, while development

completions are expected to be low over the next 12 months. With

limited new supply and moderate demand we will see slow but

steady absorption of the vacant space in the coming period.

Chart 1

Belgrade office stock

Source: LeRoy Research

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2006 2007 2008 2009 2010 2011 2012 3Q 2013

Sq

m o

f G

LA

Total Class A Class B


Chart 2

Belgrade office delivery, semiannual

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1H

2008

2H

2008

1H

2009

2H

2009

1H

2010

2H

2010

1H

2011

2H

2011

1H

2012

2H

2012

1H

2013

Sq

m o

f G

LA

Total Class A Class B

Office

Market & Trends 3Q

2013


Demand

Belgrade office market witnessed improvement of occupier demand

in 2013, after last year’s contraction caused by a new wave of

recession. Serbia’s economy recorded a growth in the first three

quarters of 2013, but growing uncertainty about short term economic

outlook prevented sustained upturn in demand, further delaying any

substantial market recovery. The IMF (International Monetary Fund)

has downgraded Serbia’s mid-term growth forecast which is a

warning sign of potential economic turbulence in the country. The

fundamentals in the occupier market are weak, particularly because

of the high unemployment rate and growing state debt.

The market activity in previous years was mainly supported by small

to medium size transactions but unlike 2012, when recorded take-up

decreased cca 15%, in 2013 we noticed a slight increase in

expansionary led requirements. Relocation requirements and lease

renegotiations are still the most active segment of demand,

comprising almost 40% of total leasing activity in 2013, due to the

fact that five-year lease agreements, concluded during the expansion

period (2008), expire this year. New leases in three quarters of 2013

comprise app. 30,000 sq m which is an increase of 31% compared

with the same period last year.

Since the most of contemporary office space is located in New

Belgrade area, the highest number of office leases relate to New

Belgrade office space, while only 25% of lease transactions are in the

downtown area. Occupier activity was predominantly focused on

grade A space. The structure of demand is similar and among most

active occupiers in 2013 are IT companies, banking/insurance sector,

professional services firms, etc.

The recovery in demand will be slow, and rising economy

uncertainty does not contribute to strengthening business

environment. At the local level, expectations for annual take-up in

2013 showing better prospects compared with last year and demand

slowly shifting toward new leases, causing positive upturn in

absorption of available space.

Vacancy

After a peak, vacancy of speculative stock has started to drop in 2011,

but remain in double digits due to still a large amount of surplus

space that needs to be absorbed. In 2013 office vacancy rate

decreased below 20%, first time since 2009.

Low level of net absorption is mainly a result of number of

relocations taking place despite growing element of take-up

generated by new tenants. The majority of vacant space remains

within new developments and the increased vacancy is recorded also

within lower quality class B and C buildings and secondary

locations.

Despite new deliveries in 2012, better absorption of the available

office space in 2013 influenced the further decline in vacancy rates to

average 18% in Q3 2013 (16% class A and 22% class B).

With a few deliveries announced for 2013/2014 and taking into

account current market absorption, we can expect relatively stable

decrease in vacancy in the coming quarters.

Chart 3

Office vacancy rates


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2005 2006 2007 2008 2009 2010 2011 2012 Q3

2013

Class A Class B average

Rents

Moderate supply of new office space has kept prime rents stable

since 2011. The prime class A rents are stabilized to EUR 14 - 15.5 per

sq m/month, while the prime class B rents are EUR 11 - 12 per sq

m/month. The rental levels in CBD area for the class A space is EUR

13 - 14 per sq m/month on average, while for the class B premises it is

EUR 10.5 - 11 per sq m/month. The rents in the Wide Center area for

the class A ranges from EUR 12 - 13 per sq/month, and for the class B

from EUR 8 - 10 per sq m/month. Tenant incentives remain a feature

of the market and can include fit-out contributions and rent free

periods, particularly for existing class B buildings while landlords in

prime locations can afford to be less flexible.

Office yields seem to have bottomed out in 2010, and we noticed

stabilization since 2011 onwards. With few speculative developments

that will not significantly affect the existing stock, average rents are

not expected to decline further, especially in the prime office

segment.


Chart 4

Average rent levels


5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

1H

2008

2H

2008

1H

2009

2H

2009

1H

2010

2H

2010

1H

2011

2H

2011

1H

2012

2H

2012

1H

2013

EU

R/s

q m

/mo

nth

Class A Class B

Chart 5

Office yields


4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 3Q

2013

Class A Class B

Pipeline

After a period of stagnation, a few small-scale projects should be

delivered during 2013/2014 that will bring new 15,000 sq m of GLA.

Large-scale developments (the office projects “Tri lista duvana”,

“Atlas building” and “B-23”) are still on hold and their completion

will bring new 47,000 sq m of speculative space to the market.

In terms of speculative developments, the project “Swiss build”

(1,220 sq m of GLA) in Kralja Aleksandra Boulevard should be

delivered by the end of 2013. By the end of 2014, the Austrian

developer Soravia Group announced completion of construction of

mixed-use complex “Old Mill” that will comprise 4* hotel and office

building (3,200 sq m). The construction company Deneza announced

delivery of a new office building in Tosin bunar Street (4,000 sq m)

by the end of 2014.

The announced construction of Banca Intesa headquarter building

(24,000 sq m) at the corner of Mihajla Pupina Boulevard and

Tresnjinog cveta Street in New Belgrade (block 11a) is currently on

hold.

Forecast

New speculative developments are rare and it will remain so until a

sustained upturn in demand. Economic recovery has lost its

momentum, compounded by very low level of foreign direct

investments (FDI) and expected growth of unemployment in the

coming year, which will possibly prevent a required level of

expansionary demand.

The lack of new supply and modest short-term pipeline, together

with slow demand recovery, influence the pace of office market

activity through slow but steady absorption of available space.

Headline rents are expected to remain stable in 2013. With the

expected level of new completions, vacancy rate will decrease further

in next 12 months, setting the scene for slight rental growth of class A

office space. The overall impression is that Belgrade office market

shows a good outlook in the medium run.


Development of new shopping centers and other

retail schemes has been reactivated in 2012, bringing

a change after a long period dominated by expansion

of supermarket chains. Occupier activity increased

with the entrance of a few new brands that began an

active market expansion.

High-street vacancy moved upward in 2013, since

shopping centers are the focus of many international

retailers. Development activity is driven by strong

occupancy levels of modern retail concepts, while

sustained reductions in consumer spending and

unstable GDP growth continues to slow

implementation of announced projects.

During the last 12 months, retail market was mostly characterized by

increased occupier activities at the prime shopping mall locations,

reconstruction and reorganization of the existing retail concepts and

its tenant mix, new shopping mall developments, as well as entrance

of new brands to the Serbian market.

Shopping malls and modern retail parks represent the most

prosperous retail concepts, with stable demand and rather low

vacancy rate, while high streets units are facing an increase in the

vacancy, more frequent tenant changes and sharp rent decrease.

In April 2013, online payment system PayPal established its

operations in Serbia, which will provide new shopping experience as

well as certain changes in shopping perception in the period to come.

As the growth of on-line sales increases rapidly internationally, it is

also expected that Serbian retailers will soon adjust the access to the

on-line purchase system.

Overall retail trade turnover in the period January – September 2013,

compared to the same period 2012, increased by 0.1% in current

prices and decreased by 7.3% in constant prices. The average Serbian

household consumption decreased and recorded a negative rate of –

1.2% compared to the same quarter last year, with no major

deviation in the level of participation of goods and services.

Source: Statistical Office of the Republic of Serbia

Chart 6

Structure of retail sales in Serbia, 2Q 2013

43.2%

4.5%4.7%

15.0%

4.4%

4.4%

7.4%

4.7%4.0%

0.7% 2.4% 4.6%Food and non-alcoholic beverages

Alcohol beverages and tobacco

Clothing & footwear

Residence, water, electricity, gas and fuel

Furniture & household equipment

Health care

Transport

Communication

Recreation and culture

Education

Hotels & Restaurants

Other

Household purchasing power is expected to remain fragile, as salary

cuts in the public sector and other structural reforms have been

announced and should be implemented by the government during

2014, which will further weaken the demand.

Supply

Expansion of supermarket chains was a dominant segment of the

new supply throughout the periods of 2010-2011. After three years of

delay, 2012 witnessed more vibrant activity in retail sector and the

emergence of new retail deliveries throughout Serbia, such as retail

parks and new shopping centers. The overall new supply in Serbia

during 2012 was 76,000 sq m of GLA, which is a significant increase

compared to 23,000 sq m delivered in 2011. During the first three

quarters of 2013, shopping centers stock in Serbia increased by new

43,000 sq m of GLA with opening of the new shopping center

“Stadion” in Vozdovac, re-opening of the shopping center “Merkur”

in Karaburma and opening of a new stage of retail park “Aviv” in

Pancevo.

Food retailers have changed their development strategy, putting

more focus on smaller, neighborhood shops while larger

supermarkets are usually opened within shopping centers and retail

parks. New supermarket growth slowed down in 2012 and the trend

continued during the first 3 quarters of 2013, recording an increase of

app. 22,000 sq m.

Retail

Market & Trends 3Q

2013


Chart 7

Shopping center stock in Belgrade


0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

240,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Sq

m o

f G

LA

*without Belgrade

Chart 8

Big-box stock in Serbia & Belgrade


0

100,000

200,000

300,000

400,000

500,000

600,000

2006 2007 2008 2009 2010 2011 2012 3Q

2013

Sq

m o

f G

BA

Serbia* Belgrade

Croatian chain “IDEA” announced a takeover of 53% shares of

Slovenian retailer “Mercator” in the following period, which would

make it the regional leader.

The Belgian retailer “Delhaize” continued the renovation process of

its units across Serbia after the takeover of “Delta Maxi” chain in

2011, which resulted in certain stagnation in the expansion. The

Group’s main activities in 1H 2013 were focused on the

reorganization of its operations in the region by selling their retail

chain in Albania and Montenegro as well as on introduction of a new

retail concept called “Shop&Go” that will replace “Mini Maxi” shops

in Serbia.

The German discount retailer “Lidl” continued its activities

regarding land purchase for its future network development in

Serbia. They secured locations in Valjevo, Subotica, Novi Sad,

Zrenjanin, Nis and Smederevo for their supermarkets (average size

of 800 – 1,300 sq m), while they confirmed the acquisition of land plot

in Belgrade in August 2013.

In Belgrade, only the best locations and retail formats with strong

tenant mix maintained rental rates and operational performance.

Also, a group of international retailers strategically increase their

market presence through active expansion within new retail

schemes, probably anticipating growth rates above average to follow

the pace of the market recovery.

In the 1H 2013, Serbia witnessed the entrance of the long announced

and anticipated international renowned Swedish brand “H&M”,

which opened its first store within “Delta City” shopping center in

August and the second in “Stadion” shopping center in September.

Another well-known clothing brand “Desigual” opened its first store

in Belgrade’s “Usce” shopping center in May, while the famous

watch brand “Rolex” opened its representative store in Belgrade’s

downtown in August.

Belgrade

The shopping center supply pipeline shrank rapidly during last 4

years, as many schemes were delayed or cancelled altogether.

However, the best quality retail concepts, such as prime Belgrade

shopping centers, continue to display strong performance, while the

secondary shopping centers remain less popular and still struggling

to attract demand. Despite the challenging business environment and

low consumer confidence, only 136 sq m of modern retail space per

1,000 inhabitants in Belgrade is the key motivation factor for

potential investors and the Belgrade retail market is showing signs of

recovery as projects put on the sidelines during the recession attract

renewed interest from developers.

Belgrade saw delivery of two shopping centers during the 1H 2013

that boosted stock for additional 39,000 sq m of GLA, and introduced

to the market the first new community shopping center after 2009.

The shopping center “Stadion” was opened in Vozdovac

municipality in April and covers an area of 28,000 sq m of GLA.

Anchor tenants are “Roda” supermarket and fashion retailers

“H&M”, “C&A” and “New Yorker”, while other retailers are

“Deichman”, “Koton”, “Tally Weijl”, “Takko Fashion”, “Planeta

sport”, “Lilly drogerie”, “Julia & More”, etc. This shopping center

diversified itself by positioning a football field on its roof, hosting

Football Club Vozdovac. The investor of this project is the Austrian

company Daun & Cie.

The Slovenian DIY retailer “Merkur” redeveloped its previous retail

space in Karaburma district into a neighborhood shopping center

with an area of 11,000 sq m of GLA in March 2013. The shopping

center hosted brands such as “Takko Fashion”, “JYSK”, “C&A”,

“Deichmann”, “Roda” supermarket etc., while reorganizing and

reducing space of its DIY store on the ground floor.

The Danish “everything for the home” retail concept “JYSK”

continued to strengthen its market presence by opening four new

stores in Belgrade. It opened the store in Kaludjerica’s neighborhood

shopping center “Point” in March, followed by opening the stores


within “Stadion” shopping center and “BN BOS” outlet center in

June. Their latest opening was a store within the department store

“RK Beograd” in Miljakovac municipality in September.

Supermarket chains continue with expansion, now focusing on small

neighbor stores. In this segment, the Croatian retailer “Agrokor”

dominated, with the opening of “IDEA” supermarkets. They

enriched the Serbian capital city by eight smaller markets with areas

between 60 – 300 sq m, with the latest opened supermarket of 900 sq

m in Juzni Bulevar Street in September.

The Slovenian retailer “Mercator” also keeps pace with expansion

through opening the new hypermarket “Roda” (4,000 sq m) within

the “Stadion Shopping Center” in Belgrade.

Serbia

Expansion of new retail schemes in Serbia dominated through 2012,

after a long period of standstill, bringing new 76,000 sq m of retail

space. Developers agree that Serbia’s retail market has not reached

its potential, but unsecured market fundamentals prevent better

development dynamics.

Among the largest new projects delivered during 2012 are the retail

park “Fashion Outlet Park” (15,000 sq m of GLA) in Indjija and the

“BIG CEE” (10,000 sq m of GLA) retail park in Novi Sad, as well as

the shopping center “Plaza” (22,000 sq m of GLA) in Kragujevac and

the shopping center “Roda” (15,000 sq m of GLA) in Krusevac. The

third phase of the retail park “Aviv” (8,000 sq m of GLA) in Pancevo

was delivered in May 2012.

Another phase of the retail park “Aviv” in Pancevo was delivered in

June 2013, bringing new 4,000 sq m of GLA.

In Q4 2013, the second stage of the retail scheme ”BIG” is expected to

be opened in Novi Sad. The second stage will contain a shopping

center (34,000 sq m of GLA) that will be a part of a complex

consisting of a retail park and a shopping center, totaling 44,000 sq m

of GLA.

Food chains have changed their expansion strategy, putting more

focus on development of small neighborhood stores, as a response to

the constant decrease in the purchasing power of the population.

Only few larger supermarkets were delivered during 2013.

The Serbian retailer “DIS” continued with their strong expansion

during 2013 by opening a hypermarket (4,000 sq m) in Pozarevac,

also taking over the space of the French DIY retailer “Mr. Bricolage”

(5,500 sq m) in Nis and reopening it as a hypermarket (4,000 sq m)

including few smaller tenants such as: DIY store “Woby Haus”, a

bank, a pharmacy, etc. New hypermarkets in Kraljevo (4,000 sq m)

and Vrsac (4,000 sq m) should be opened in October.

The Croatian “IDEA” supermarket chain opened four supermarkets

in Novi Sad and one in Cacak, Trstenik and Krusevac. In August,

they opened their first store in Sid with an area of 800 sq m.

The Slovenian retailer “Mercator” opened the “Roda” supermarket

in Pozarevac (2,500 sq m) in January, while the local chain

“Univerexport” continued with expansion in Novi Sad and re-

opened a renovated and expanded supermarket in March (4,000 sq

m) and a new supermarket (1,500 sq m) in the sport center “Spens” in

September.

Demand

International retailers that entered the market in the period after 2011

and their expansion strategy create a demand for quality retail space

within modern shopping centers and retail parks. Retailer interest

appears to have re-emerged in the last 12 months, especially amongst

mid-range and value retailer brands, which can be confirmed by the

entrance of the renowned Swedish brand “H&M”, which opened its

first store (2,500 sq m) within “Delta City” shopping center in August

2013, and the second store in the “Stadion” shopping center in

September, announcing further market expansion.

Annual footfall remains strong in the prime shopping centers in

Belgrade which is the basis of a stable demand, despite frequent

changes of tenants. Secondary shopping centers do not match similar

performance, which can be explained by lower quality tenant mix

and absence of ‘high profile’ retailers.

Project Location TypeSize (Sqm

of GLA)

Delivery

date

Roda Smederevo Supermarket 2,500 Jan-13

Univerexport Novi Sad Supermarket 4,000 Mar-13

Stadion Vozdovac Shopping center 28,000 Mar-13

Merkur Zvezdara Shopping center 11,000 Mar-13

JYSK Kaludjerica Everything for the home 800-1200 Mar-13

JYSK Novi Sad Everything for the home 800-1200 May-13

JYSK Zemun Everything for the home 800-1200 Jun-13

JYSK Vozdovac Everything for the home 800-1200 Jun-13

JYSK Miljakovac Everything for the home 800-1200 Sep-13

Roda Vozdovac Supermarket 4,000 Apr-13

DIS Nis Shopping center 5,500 Apr-13

AVIV retail park* Pancevo Retail park 3,800 Jun-13

DIS Pozarevac Supermarket 4,000 Aug-13

Univerexport Novi Sad Supermarket 1,500 Sep-13

Idea Vracar Supermarket 900 Sep-13

JYSK Leskovac Everything for the home 800-1200 Sep-13

BIG CEE Novi Sad Shopping center 34,000 End of 2013

DIS Kraljevo Supermarket 4,000 End of 2013

DIS Vrsac Supermarket 4,000 End of 2013


*stage

Table 2

New retail deliveries in 2013


Development of new retail schemes, such as retail parks, appeared as

a winning strategy for many retailers looking for expansion, due to

more efficient cost structure including lower rents and operating

costs. The best locations and shopping centers will continue to

benefit from domestic and cross border retailers keen to capitalize on

the counter-cyclical opportunity to expand into high quality space at

a lower cost.

Spending patterns of the population are still negative, which

prevents stabilization of this market segment. In this environment,

retailers will remain cautious, with further rationalization of

underperforming stores especially in high street locations. The

demand for high street locations is slowed down influencing the

increase of vacant units that had been unoccupied for more than 4

months. Secondary locations have seen the highest vacancy so far

and absorption of these units will require time and improvement of

the economy conditions. The structure of tenants is changing at these

locations as well, with a considerable increase in the number of

newly opened coffee bars and fast food restaurants in the prime

zone.

The demand in the retail warehousing segment is also reduced

compared to 2010 – 2011 period, characterized by aggressive

expansion of food chains. Today, these activities are mainly slowed

and the market is expecting the opening of supermarkets of the

German discount retailer “Lidl”. The French chain “Carrefour” has

announced its market entry, as well as the Swedish “Ikea”.

Despite challenging business environment in Serbia, we can expect

moderate demand and strengthening of market position of

international tenants through their strategic expansion in the local

market, primarily within new retail schemes. In 2014, the Serbian

economy will be confronted by similar themes and challenges as in

2013; the consumption will be a volatile category again, and the

retailing environment is set to remain difficult over the next two

years.

Vacancy

The average high street vacancy rate of app. 10-12% in the capital

(prime and secondary locations), reached its highest level since the

beginning of the recession. One of the reasons for the increased

vacancy rates lies in the process of restitution, which is nearing

completion in the case of a part of the disputed properties. On the

other side, changes in the consumption habits and customer

preferences, together with rather high rents and inadequate space

structure of downtown shops, focus a number of brands toward

modern shopping centers and retail parks.

The announced closure of the “GAP” store along with a number of

short term lettings coming to an end, will further affect slower

absorption of vacant units. The trend of rising vacancy on secondary

locations continued and these locations will continue to suffer

demand shortage in the following period, as well.

Prime shopping centers in Belgrade keep the vacancy rate at very

low to zero level, while secondary and neighborhood shopping

centers achieved the highest average vacancy of app. 12%. The

shopping centers “Usce” and “Delta City”, which succeeded in

keeping its vacancy rate close to zero over time, continued with the

trend of changing tenants, regardless of rents decrease and more

flexible landlord’s approach.

Average vacancy rates in modern retail schemes are still low despite

the challenges that the market is facing, primarily due to delays in

the development. Every new retail project will increase city-wide

vacancies over the next 12 months.

Rents

Difficult retail climate is still putting pressure on rents, but the prime

shopping centers appeared to be most resilient, recording only slight

decrease. Average high street rents decreased by 9% in the last 12

months, but when we consider the upper rent levels, the market

indicates even higher rent decrease.

Shopping centers rents maintained mostly the similar levels from

EUR 30 to EUR 60 per sq m, while rents in retail parks range between

EUR 6 – 15 per sq m depending on retail category. Downtown prime

street rents (Terazije, Kralja Milana and Knez Mihajlova Street) have

dropped to average EUR 35 to EUR 80 per sq m, depending mainly

on the size and position of the unit (smaller units maintain higher

range of average rents). Secondary locations rents move between

EUR 15 to EUR 35 per sq m on average.

Chart 9

Prime & Secondary rents in Belgrade


70.0

42.535.0

25.0

0

50

100

150

Knez Mihajlova

St.

Terazije & Kralja

Milana St.

Kralja Aleksandra

Blvd.

Secondary streets

EU

R/s

q m

/mo

nth

min max average


Downward pressure on high street lease rates will remain until

consumer spending picks up, while the lack of competition in the

prime retail segment in next 12 months will be a guarantee of

maintaining similar rental performances. Increase in spending power

is not foreseen in 2014 and the rental growth is unlikely.

Chart 10

Indicative retail yields, 3Q 2013


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

High street Shopping center Retail warehouse

8.00%9.00%

9.75%

Pipeline & Announced

Retail market in 2013 will achieve similar performances, with total

delivery of 77,000 sq m of GLA of new retail space during 2013 and

25,000 sq m of GLA currently under construction.

Belgrade is facing the growing interest of investors in different retail

schemes, but the majority of previously announced large scale

projects are postponed, since the projects are frequently delayed by

the search for financing and tenants, as well as all types of appeals.

The final phase of the “BIG CEE” retail scheme in Novi Sad,

consisting of a shopping center, is scheduled for delivery in

November 2013. The development will comprise 24,000 sq m of GLA

and the entire complex will contain 34,000 sq m of new retail space.

Being recognized as the most feasible retail concept at the moment, a

few retail park projects are under construction across Serbia and

Belgrade’s surroundings. The Israeli investors “Jerusalem Economy

Ltd” and “Industrial Building Corporation Ltd” commenced the

construction of the “IBC Power Center” retail park with 15,000 sq m

of GLA in Zemun municipality, with the announced completion date

during the 2H of 2014.

The retail park “Capitol Park” is currently under development on the

outskirts of the city of Sabac as a joint investment of the Slovenian

“YU Kapital Holding” Company and the English “Poseidon” Group.

Upon completion which is expected in 1Q 2014, the park will

comprise 9,850 sq m of GLA.

Forecast

In correlation with wider economy, the retailing environment is set

to remain difficult over the next two years, while the number of

projects currently under construction indicates a slowdown in

delivery in the next 12 months. Relatively undeveloped market in

terms of new supply and lack of competition are the main reasons for

the increased investor’s interest and the entry of new brands on the

market. However, there are several barriers to the development and

completion of new supply, such as limited scope of retailers

currently present in the market and their expansion potential, as well

as limited sources of capital available for such developments.

After targeting the capital city, retail operators are gradually

changing their focus to other major Serbian cities. Retail parks will be

a dominant concept in these cities in the following years, enabling

lower rents and additional costs for occupiers.

Despite the increased activity and development of modern retail

schemes, the retail market in Serbia is still volatile and the future

market prospects will be dependent upon the project type, area and

location. Prime projects are expected to continue to successfully cope

with changes, both in terms of occupancy and rents, while new

developments in emerging locations may struggle with increased

vacancy.

Being faced with a decreased tenant demand, high street locations

will continue to struggle with rising vacancies.

The market will continue to suffer the lack of confidence among

retailers, influencing further suppression of their expansion in the

short term.

Table 3

Project Investor Location TypeSize (sq m

of GLA)

Delivery

date

Big Center Big CEE Serbia Novi SadShopping

center24,000 4Q 2013

IBC Power Center

EBRD / Jerusalem

Economy Ltd / Industrial

Building Corporation Ltd

Zemun Retail Park 15,000* 2H 2014

Capitol ParkYU Kapital / Poseidon

GroupSabac Retail Park 9,850 1Q 2014

Visnjicka Plaza Plaza CentersBelgrade /

Palilula

Shopping

Center48,000 N/A

Delta Planet Delta Real EstateBelgrade /

Vozdovac

Shopping

Center75,000 N/A

Vivo retail park Vivo shopping park Jagodina Retail park 10,000 N/A

Blok 41a NapredBelgarde / New

Belgrade

Shopping

Center40,000 N/A

Rajiceva Avital / Ashrom GroupBelgarde / Old

Town

Shopping

Center15,000 N/A

Ada Mall GTC BelgradeShopping

Center30,000 N/A


ANNOUNCED

UNDER CONSTRUCTION


Industrial and logistics real estate segment remains

weak. Positive results translated into industrial

production growth in 2013, did not suppress the

speed up of yield expansion, thus making property

values attractive relative to replacement costs.

During the first nine months of 2013, the

industrial/logistics market in Serbia has seen a

somewhat improved pace of new developments, but

build-to-suit deals mainly constitute the dominant

part of new supply, while the offer of brownfield

properties is expanding.

The industrial production in Serbia marked a positive development

during the first three quarters of 2013. The industrial production

recorded the 13.4% increase in September 2013 compared to the same

period last year. Compared to the period January-September

2012/2013, the industrial production increased by 6.4%.

Significant infrastructural projects, initiated by the government in the

recent period, are aimed at achieving competitive advantage of

Serbia’s industrial/logistic position in the region. Completion of

Corridor 10 and other initiated projects will enable new positioning

of the country on the European logistic map.

In order to create an attractive investment environment that will

enable better inflow of foreign investments, Serbian government

along with local authorities has introduced the concept of industrial

and free business zones, providing investors set of incentives such as:

exemption from taxes and infrastructure development fees,

employment subsidies ranging from EUR 4,700 to EUR 10,000 per

new working place and even free allocation of construction land. All

these incentives are set to attract investors and boost the economy

growth.

Belgrade’s wider area close to the “Nikola Tesla” Airport and areas

along the E-70 and E-75 highways that include settlements such as

Stara and Nova Pazova, Indjija, Krnjesevci, Pecinci, Dobanovci,

Simanovci and Ugrinovci, remain the most attractive in terms of new

developments, holding the majority of newly developed stock.

As for the inner Belgrade area, at the end of 2012 Belgrade’s local

authorities introduced new business zones planned to be

redeveloped in the next five years at the land total area of 5,691 Ha

geographically divided into the North, West, East and South zone.

After establishing free industrial zones at the outskirts of other major

cities in Serbia, such as Subotica, Novi Sad, Sabac, Zrenjanin,

Kragujevac, Krusevac and Nis, new developments gradually started

to emerge in these regions as well.

Supply

The previous year (2012) witnessed a revival of investment activities

within the sector, with an increase of the number of issued

construction permits by 25%. Two of the market’s underlying

drivers, consumer spending and industrial production, are still

vulnerable, which continues to hamper the construction of

speculative projects.

In the period January - June 2013, the number of issued construction

permits for new industrial and logistics buildings in Serbia recorded

a significant downfall by 15% in comparison to the same period last

year.

Belgrade area also witnessed a 33% decrease in the number of issued

construction permits during the first half of 2013, implying a

slowdown in the future developments. Only four permits were

issued in regard to new logistic projects, with no permits issued for

new industrial developments.

During 2012, total area of 327,000 sq m of new industrial and logistic

space was delivered to the Serbian market, which is a 33% increase

compared to the previous year, boosting the overall new stock (since

2000s) to app. 3,000,000 sq m.

The availability of prime distribution & industrial facilities

decreased, as the existing supply and the amount of new, speculative

developments continue to fall. In the next period supply will remain

tight and focused on pre-lets and build-to-suit transactions.

Industrial

Market & Trends 3Q

2013


Chart 11

New industrial and logistics developments in Serbia


0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

2008 2009 2010 2011 2012

New

dev

elo

pm

ent,

in

sq

m

Total Industrial Logistics

Chart 12

Industrial and logistics construction permits issued in Serbia


0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 1H 2013

Nu

mb

er o

f p

erm

its


After construction of logistic space area of 3,690 sq m by Austrian

investor “Lagermax AED” in Simanovci at the end of 2012, Serbian

industrial/logistics market continued with a rather high level of new

deliveries during the 1H 2013.

The majority of new construction activities during the 1H 2013 were

focused on development of industrial facilities. During that period,

the Danish industrial pumps manufacturer “Grundfos” opened a

EUR 50 mil. worth factory in May, with an area of 25,000 sq m in

Indjija. The city of Jagodina saw the opening of a factory of 8,000 sq

m by the Italian company “Andrea Confezioni” in March.

The German company “Henkel” opened its new facility in Krusevac

with area of 7,000 sq m in June, while another German car supplies

company “ConTech Fluid” opened its facilities of 6,000 sq m in

Subotica, also in June.

The Slovenian manufacturer of refrigerators “Gorenje” opened its

EUR 21 mil. worth factory in Valjevo with an area of 20,000 sq m in

July, while the latest announced delivery will be opening of a factory

with an area of 4,300 sq m by the Canadian car seat manufacturer

“Magna Seating” in Odzaci in October.

Three logistics projects were completed during the 3Q 2013. The

German retailer “Metro Cash & Carry” opened its logistic center of

2,500 sq m in Subotica in August. In September, a large logistics

center with an area of 17,000 sq m in Krnjesevci was opened by the

Serbian company “Milsped”, while a logistics center of 4,200 sq m

was opened in Novi Sad by the Serbian national post carrier “Poste

Srbije”, also during September.

Demand

A set of incentives supported by the government, aimed to attract

investors within industrial / logistics segment, contributed to a

slightly improved investment activity within the sector. Small and

medium sized production companies have begun expanding their

activities, resulting in an increased pace of construction of new

manufacturing and warehouse facilities throughout Serbia in the last

18 months.

The demand is mostly focused on a modern industrial / logistic

space, with a flexible layout, developed infrastructure and good road

connection. The offer of this type of modern facilities is very scarce,

whether for sale or for rent, which is one of the main reasons for the

construction.

Despite the large offer of brownfield properties throughout Serbia,

the demand for these facilities is limited since many of them do not

meet required standards, which is the main reason of their limited

marketability.

The demand is mainly generated by the companies from automotive

industry, distribution, pharmacy and FMCG, with requirements for

space ranging from 1,000 – 4,000 sq m.

Chart 13

Industrial and logistics construction permits issued in Belgrade


0

5

10

15

20

25

30

2008 2009 2010 2011 2012 1H 2013

Nu

mb

er o

f p

erm

its



The highest demand, apart from the Belgrade’s wider area along the

E-70 and E-75 highways, is also notable in the Vojvodina region, as

well as within the industrial districts of major central and southern

Serbian cities, such as Nis, Jagodina and Kragujevac.

GDP, private consumption and trade are the leading macroeconomic

drivers of industrial demand, and while we expect these indicators to

remain volatile in the short term, the medium and longer – term

forecasts bode well for the sector.

Rents & Yields

Rental levels for industrial and logistics space mainly remain stable

during 2013 and are still well below the market’s previous peak

(2008). The highest downward correction of app. 10% was recorded

for warehouses in Zemun and New Belgrade area, during the last 12

months.

The outlook is relatively a stable rent performance in Belgrade in

near term, with some notable differentiation across regional markets.

Rents seem to get to the bottom, since in many cases are well below

replacement cost rents.


Chart 14

Modern warehouse rents in Belgrade & wider area

3.5

2.92.5 2.5

2.9 2.93.1

0.00

1.00

2.00

3.00

4.00

5.00

Zemun Dobanovci Simanovci St. Pazova Krnjaca Lestane Downtown

EU

R/s

q m

/mo

nth

min max average

The rental levels for newly constructed and contemporary equipped

warehouses mostly depend on their location and road connectivity.

The highest rents are recorded in New Belgrade and Zemun area

ranging from EUR 3.0 to EUR 4.0 per sq m per month. Belgrade

wider area along E-75 and E-70 highways, within settlements of

Simanovci, Dobanovci, Pecinci, Stara and Nova Pazova, has

witnessed asking rents between EUR 2.0 and EUR 3.25 per sq m per

month, while warehouses in Krnjaca area recorded rents from EUR

2.5 to EUR 3.25 per sq m per month.

Poorly maintained and equipped older warehouse facilities in

Belgrade, in dependence on their location, generally ranges in rental

values from EUR 1.5 to EUR 2.25 per sq m per month. The

warehouse space within older industrial complexes in Belgrade’s

downtown area kept the highest rents, on average between EUR 2.5

and EUR 3.5 per sq m per month.

Prime yields have stabilized between 10-11%, which is the highest

recorded level, indicating more potential for inward yield

movement, once market starts to improve again. Yields for non

prime assets are between 12 – 13%. The subdued economic outlook

combined with an increasing offer of distressed properties will

continue to put upward pressure on non prime yields, therefore 2014

is set to be another challenging year for the sector.

Pipeline & Forecast

At the beginning of 2012, Belgrade saw the completion of the new

“Ada” Bridge over the Sava River, as a part of the larger

infrastructural project regarding the development of Belgrade’s new

inner main ring-road.

Along with other large infrastructure projects, currently under

construction across the country, Serbia will undoubtedly improve its

potentials on the European logistics market.

Gradual improving macroeconomic conditions in the country

compared to 2012’s recession year, with growing industrial

production and encouraging export activities of mostly automotive

and agricultural goods, will also support the occupier demand in the

medium term.

During the next year, several undergoing projects are due to

completion, contributing to the overall supply of mostly new

industrial space. The largest logistics facility planned to be delivered

at the market in 2014 represents the EUR 50 mil. worth distribution

center with an area of 70,000 sq m, being under construction by the

Belgian “Delhaize” Company, in Stara Pazova.

The international renewed jewel and accessories manufacturer, the

Austrian company “Swarovski”, is expected to complete the

construction of its facilities of 15,000 sq m in 2Q 2014 in Subotica.

The German company “Robert Bosch” Company is expected to

complete the first phase of its manufactory facilities with an area of

22,000 sq m in Pecinci during the 1Q 2014. Total investment value is

projected at EUR 70 mil., upon the completion of the entire project in

2016.

Another German company “Leoni Wiring Systems Southeast” is

expected to finish the construction of its facilities of 25,000 sq m in

Doljevac, during the 1H 2014, investing EUR 21 mil. in the project.


The largest undergoing industrial project represents an expansion of

facilities of the French tire manufacturer “Michelin”, which is

developing new facilities with an area of 71,000 sq m in Pirot. Total

investment value is projected at EUR 45 mil., upon completion in 4Q

2014.

Several other projects, again mostly related to industrial facilities,

announced the start of construction in the future period. The German

“Robert Bosch” announced completion of the factory in Pecinci, as

the second phase of construction is planned to end by 2016,

delivering 18,000 sq m of space to the market.

The Austrian air-condition manufacturer “Vossloh Kiepe” is

planning to develop its factory area of 25,000 sq m in Novi Sad, while

the Indonesian food manufacturer “Indofood” acquired 5 ha of land

in Indjija as it plans to invest EUR 10 mil. in developing its facilities

area of 25,000 sq m.

The southern parts of Serbia also witnessed announcements of

several new projects. The Hong Kong based company “Johnson

Eletric” plans to invest EUR 15 mil. in developing their facilities of

10,000 sq m in Nis by 1H 2014, while the Italian shoes manufacturer

“Goex” announced the investment of EUR 15.8 mil. in development

of a new factory with an area of 20,000 sq m in Vranje.

New investments in the manufacturing sector will keep the similar

path of new developments, but are still insufficient to draw

noticeable employment growth. Build-to-suit developments will

continue to constitute the highest percentage of new supply in

Serbia, keeping the demand for non prime assets and brownfield

properties low.

With gradual economic recovery in the period to come, along with a

moderate supply of new industrial/logistic space and increasing

demand, a further rent adjustments are expected for the prime

locations and modern space.

Table 4

InvestorCountry of

originLocation Size (sq m)

Investment

value, in

EUR

Delivery

date

Swarovski Austria Subotica 15,000 21 mil. 2Q 2014

Robert Bosch Germany Pecinci 22,000 (I Phase) 70 mil.* 1Q 2014

Delhaize Belgium Stara Pazova 70,000 50 mil. 2014

Michelin France Pirot 71,000** 45 mil. 4Q 2014

Leoni Wiring

Systems SoutheastGermany Doljevac 25,000 21 mil. 1H 2014

InvestorCountry of

originLocation Size (sq m)

Investment

vlaue, in

EUR

Delivery

date

Robert Bosch Germany Pecinci 18,000 (II Phase) 70 mil.* 2016

EyeMaxx Austria Nis 136,000 61 mil. n.a.

EyeMaxx Austria Novi Banovci 240,000 n.a. n.a.

Vossloh Kiepe Austria Novi Sad 25,000 n.a. n.a.

Indofood Indonesia Indjija 25,000 10 mil. n.a.

Johnson Electric Hong Kong Nis 10,000 15 mil. 1H 2014

Geox Italy Vranje 20,000 15.8 mil. n.a.


* Total investment until 2016

** First phase

PIPELINE

ANNOUNCED

PIPELINE

ANNOUNCED


Sustainability & “Green” building market trends

As an integral part of the internationally adopted concept of

sustainable development, so called green buildings, represents a

widely recognized initiative regarding implementation of innovative

design and (re)construction policies and standards, which supports

all three complementary aspects of sustainability – people, planet

and profit.

Regardless of indubitable social, environmental and economical

benefits of green buildings, supported by the latest best practice

evidences worldwide, Serbia seriously lacks in new green

(re)developments, showing extremely immature awareness towards

this issue with inadequate actions from behalf of all involved parties

on the market.

Stagnation regarding green building’s development at the Serbian

real estate market has also been affected by avoiding the interrelated

responsibility among occupiers, constructors, developers, and

investors for making initial steps towards acting supportively on this

issue. It could be noted that the Serbian market stands at its earliest

phases regarding green developments.

Governmental actions, mainly characterized in terms of obligated

construction standards for newly developed buildings, still lacks in

supportive incentives towards intensification of green development

in forms of subventions and/or tax reductions/exemptions.

The latest governmental directive adopted in the late 2012, known as

an “energy passport” initiative, implies obligated minimum “C”

categorization in terms of building’s energy consumption and is

applicable to all (re)construction projects, as well as real estate

sale/acquisition processes in the future. In practice it means that the

maximum building’s energy consumption must not exceed 65kw/h

per sq m per year.

Serbia’s Green Building Council also started with its operations in

2010, as a part of a broader international incentive aiming to improve

local regulations towards the issues of sustainability, as well as to

increase the awareness and a dialog among market’s players.

However, governmental and NGO’s initiatives recently introduced

have still to translate into new green developments in the period to

come.

Recent period was also active in educating the market regarding

building’s certification procedures and its benefits mainly in regard

to BREEAM and LEED certification and rating systems. However,

there is few officially certified building on the Serbian real estate

market at the moment. The “Bluecenter” office building area of

50,000 sq m of GBA, developed at New Belgrade’s CBD by the Greek

investment fund Bluehouse Capital in 2010, received its BREEAM

certification in 2013. This is the largest office development in Serbia

built in accordance with the standards listed.

There are a few more projects announced to become officially

certified in the period to come. The U.S. Embassy’s building, area of

14,000 sq m constructed in mid 2013, awaits for its certification. The

Indian company “Embassy Group” started the construction of the

office park with total area of 25,000 sq m in Indjija, with its first phase

completed during 1H 2013 area of 10,000 sq m of office space. After

the completion of the entire project, it is expected to be officially

LEED certified, as it is being built in accordance with the LEED

Golden Certification standards.


The residential market recorded slow but still unstable

increase in demand during the first 9 months, after a

steep decline recorded in 2012. Mortgage sales

dynamics in Serbia increased by 6.1% in the first 9

months of 2013 compared with the same period last

year, which is still a decline of 22% compared to 2011.

Construction of the government financed large scale

residential complex (4,616 apartments) “Stepa

Stepanovic” in Vozdovac boosted new delivery in

Belgrade market in 2012. Housing supply increased by

30% in 2012 or 7.5% if this project is excluded.

The slowdown of construction activity in Serbia

continues in 2013 and according to the issued building

permits, the number of dwellings decreased by 29% in

1H 2013.

Supply

Residential development completions in Belgrade increased for 30%

to 7,844 apartments in 2012, which is close to the pre-crisis average.

The main driver of new supply was completion of few stages of the

large scale project “Stepa Stepanovic” in Vozdovac municipality.

Demand contraction in 2012 reduced investor confidence leading to a

visible slowdown in construction activity during 2012 as well as

2013. According to the issued building permits, the number of

dwellings decreased by 8.7% in 2012 and by 29.2% in 1H 2013,

compared with the same period 2012.

As in the past few years, the largest development activity in 2012

within the immediate metropolitan area was recorded in Vozdovac

and Zvezdara municipalities, despite a significant decrease in

construction dynamics in municipality Zvezdara in 2012

decrease). The most significant construction slowdown in 2012 was

noted in the peripheral municipalities Rakovica (62% decrease),

Palilula (56% decrease) and Cukarica (48% decrease), while a

significant increase was recorded in New Belgrade, Zemun and Stari

Grad.

Chart 15

Number of constructed apartments in Belgrade & Serbia


0

4,000

8,000

12,000

16,000

20,000

2005 2006 2007 2008 2009 2010 2011 2012

16,41718,162

19,049 19,815 19,103 18,648 18,449

15,223

7,292 7,379 7,601 7,3065,759 5,048

6,0187,844

Nu

mb

er o

f a

par

tmen

ts

Serbia Belgrade

Chart 16

Number of constructed apartments in Belgrade municipalities


0

400

800

1,200

1,600

2,000

2,400

381

2,165

438

907

450

210 63 183 16424

1,033

827

1,609

194

2,352

234

795

78

534

62 71

1,088

Nu

mb

er o

f ap

artm

ents

2011 2012

Residential

Market & Trends 3Q

2013


Chart 17

Structure of new apartments in Serbia, I-IX 2013


24%

33%

23%

20%

Studio & 1 bdr

2 bdr

3 bdr

4 bdr & larger

Statistics in the first 6 months of 2013 confirm decline in number of

issued building permits for residential buildings in Serbia by 9.8%

compared with the same period last year. Decline in number of

issued building permits for residential buildings within central

Belgrade municipalities is even higher than the national average and

amounts to 21%, which indicates a visible reduction in construction

activity in the capital.

Chart 18

Residential construction permits issued in Serbia & Belgrade


0

2,000

4,000

2006 2007 2008 2009 2010 2011 2012 I-VI

2013

2,129

3,1133,281

2,901

2,184 2,165 2,261

944566 649 741 620

471 507 528202N

um

ber

of

per

mit

s

Serbia Belgrade

Chart 19

Residential construction permits issued in Belgrade municipalities


0

30

60

90 84

67

18

2723

14

411 7 9

68

57

23

42

2113

3 5 310

24 21

5

19

94 1 2 0 3

2011 2012 I-VI 2013

Based on the number of issued permits in 2012 and 1H 2013, we can

conclude that the highest pace of construction in the following

period will be in the municipalities Zvezdara, Vozdovac and Zemun.

Downward corrections of market prices are also evident in the first

half of 2013, following 2012 trends. Many new projects are currently

under construction thereby threatening to increase the offer of new

apartments in the already oversupplied market. However, it remains

to be seen whether the commenced projects will be completed in the

announced deadlines, especially multi-phase residential

developments. The expected supply in Belgrade is estimated at app.

5,500 - 6,000 units in 2013.

Demand

Housing market continues to struggle, following the economic

turbulences and unemployment growth, which is reflected in steep

decline in number of housing loans approved by the banks in Serbia

during 2012. Subsidies for home buyers were approved by the

Government in 2013 (RSD 1.7 billion). According to this regulation,

the citizen participation is 10%. Given the relatively small growth in

number of subsidized loans, we do not believe that will have a

notable impact on the overall market demand.

In the first 9 months of 2013, the number of approved loans increased

by 6.1% (throughout Serbia) compared with the same period last

year and totaled 5,075 loans (according to the National Mortgage

Insurance Corporation), which is still 22% less than in the same

period 2011. According to the same Authority, the number of loan

purchases in the first three quarters of 2013 in Belgrade was 2,351

apartments (excluding peripheral municipalities: Barajevo, Grocka,

Lazarevac, Mladenovac, Obrenovac, Sopot, Surcin), which is 11%

increase compared with the same period 2012, but 4.7% decrease

compared with the same period 2011.

* Number of apartments sold on credit

Chart 20

Number of sold* apartments in central Belgrade municipalities

Source: National Mortgage Insurance Corporation

0

1,000

2,000

3,000

4,000

5,000

2008 2009 2010 2011 2012 2013

1,075346

833 657 526 644

1,237

374

803771 708

906

1,370

418

779 1,040877

801

974

724

869 889749

Q1 Q2 Q3 Q4


* Number of apartments sold on credit

Chart 21

Number of sold* apartments in Belgrade & Serbia

Source: National Mortgage Insurance Corporation

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007 2008 2009 2010 2011 2012 1Q-3Q

2013

14,22415,650

6,549

9,5598,084

6,4374,9574,792 5,277

2,1553,750 3,695 3,096

2,513

Nu

mb

er o

f ap

artm

ents

Serbia Belgrade

The most active segment of the market consists of low to mid class

residential projects located mainly on the outskirts of residential

neighborhoods, while the demand for larger and more luxurious

units is almost negligible. The similar situation can be also reflected

on rental market. Due to overall macroeconomic developments in the

country, prices can still continue to decline.

The demand for affordable housing will continue to be active,

especially for government financed program of residential

construction. This segment of the market is heavily sentiment driven,

and demand will depend greatly on the government initiatives and

buyers’ confidence. Residential demand in Belgrade in 2013 will be at

something higher level than in the previous year.

Pricing

Price decline continued during the entire 2012 as well as during the

first three quarters of 2013. Average price correction in the first 9

months of 2013 was 3.5%, compared with Q4 2012. The highest

downward asking price correction was observed in the case of high-

priced apartments in central locations, and amounts to 8%. Achieved

prices of apartments in these locations are close to the lower level of

rank, which can be seen in Chart 22. In the mid-market segment the

highest recorded decrease was in New Belgrade.

Asking prices for mid quality projects depend mainly on

municipality and micro location and vary between EUR 1,300 – 1,700

per sq m. High quality development prices are between EUR 2,000 –

2,400 per sq m on average, while the highest price range goes up to

EUR 3,000 per sq m.

It should be noted that these price levels rely on the existing offer.

Most of developers/sellers still prefer to keep higher asking prices,

but are more flexible when negotiating with clients. Therefore, the

effective price for a closed transaction can be up to 10% lower.

Achieved prices are official statistics from the National Mortgage

Insurance Corporation.

The housing crash initially resulted in a huge expansion of offers to

rent. However, rents are stabilizing in Belgrade, and modestly rising

in some areas, as a result of a better quality offer. Slight rent decrease

of 3 - 4% was recorded in the wider city area (Zvezdara, Vozdovac,

Cukarica and New Belgrade).

* National Mortgage Insurance Corporation data

Chart 22

Average asking prices in Belgrade municipalities


1,7161,666

1,513

1,319 1,286 1,287

1,096 1,127 1,159

500

1,000

1,500

2,000

2,500

EU

R/s

q m

min max average*

Chart 23

Average asking rents in Belgrade municipalities


8.07.5

8.0

6.35.5 5.4

5.0 4.8

2.0

4.0

6.0

8.0

10.0

12.0

EU

R/s

q m

min max average

Developed & Under Construction

Several larger projects currently under construction are expected to

be delivered during 2013-2014 period. Most of the developments are

designed for mid-market buyers.

During the first half of 2013 the second stage of the project “Golf 8”

in Banovo Brdo was completed bringing 35 new apartments.

Third stage of the residential complex “Maxima center” with 84

apartments was completed in New Belgrade block 11.


The residential complex “Stepa Stepanovic” in Vozdovac is

scheduled for completion by the end of 2013, with approximately

4,300 units completed until August 2013.

The residential complex with 707 apartments, “Dr.Ivan Ribar” in

New Belgrade is scheduled for completion in 2013/2014. The first two

buildings (out of 6) were delivered in September 2013. The investor

of this project is Gradjevinska direkcija Srbije.

The project “Alpha city” in Zivka Davidovica Street Zvezdara was

completed in September 2013. The complex contains 299 apartments.

After a period of slowdown, new residential projects commenced in

New Belgrade during 2011/2012.

The biggest project currently under construction is the “West 65”

complex in block 65. During the first half of 2013 the first stage of the

residential complex “West 65” in New Belgrade was completed

bringing 150 new apartments and 19 retail units. The second stage is

to be launched soon.

The company Napred completed a building with 107 apartments in

block 34.

The project in Dusana Vukasovica Street in block 61, consisting of

126 apartments is also scheduled for completion in 2013. The investor

of this project is company Neimar V.

The project in Dzona Kenedija Street (corner with Mihajla Pupina

Blvd) in block 9a, consisting of 108 apartments and 12 retail units is

scheduled for completion in 2014. The investor of this project is the

company Obelisk Gradnja.

The construction of a new mixed-use complex in block 63 in New

Belgrade has started. The first phase will contain 4 residential

buildings with 91 apartments. The second stage will deliver a new

office building. Deadline for the first stage is December 2014.

Construction of the residential project “Marmil land”, with 159

residential units, in Maksima Gorkog Street is close to end and the

expected date of completion is December 2013.

Another larger project in Vracar municipality (corner of Maksima

Gorkog Street and Juzni Boulevard) is the “Harmony apartments”

complex, currently under construction, that will contain 80

apartments and the project should be developed by 2014. The

investor of this project is the company Pluto Capital.

Delivery of the project in Banjica with 107 apartments is announced

for 2014. The investor of this project is the company CPI Group.

The project “Dunavske terase” in Palilula municipality is close to

completion. The complex will consist of 270 apartments, 162 business

apartments, 93 retail units and 54 studios. The investor of this project

is the company Aramont and the delivery date is December 2013.

Forecast

Performance of the housing market in the first three quarters of 2013

seems to be better than in 2012, despite weak economic fundamentals

and expectations regarding medium term recovery. Weak to negative

growth for the economy as a whole has been reflected in weak to

negative growth in disposable incomes, which resulted in a further

fall in apartment prices. If weak income growth were to persist,

positive changes in this market segment cannot be expected.

Downward trend in prices is likely to be prolonged in the next two

quarters, since sellers will probably outnumber buyers for some time

to come.

Table 5

Project LocationNo of

unitsDeadline Investor

Maxima Center- III stage New Belgrade 84 Dec-13Imperial gradnja/

Capotto Build

West 65* New Belgrade 514

Completed 1st

phase;

2014/2015

PSP Farman

Golf 8** Banovo Brdo 153Completed 2nd

phase; 2014Peteg

Stepa Stepanović Vozdovac 4,578 2013 Gradj.direkcija Srbije

Dr. Ivan Ribar New Belgrade 707 2013/2014 Gradj.direkcija Srbije

Alpha City Zvezdara 299 CompletedInternational alpha

construction

Block 34 New Belgrade 107 Completed Napred

Dusana Vukasovica Street Novi Beograd 126 Completed Neimar V

Marmil Land Vracar 159 Dec-13 Marmil inzenjering

Harmony Apartments Vracar 80 2014 Pluto Capital

Block 9a - Dzona Kenedija St. New Belgrade 108 2014 Obelisk Gradnja

Paunova Street Banjica 107 2014 CPI Group

Dunavske terase Palilula 270 Dec-13 Aramont

Atrium 63 New Belgrade 91 Dec-14 Basal

Gardenia Apartments Zvezdara 263 Announced Aviv Arlon

Ruzveltova Street Zvezdara 50 Announced Edil Italiana

Block 67a New Belgrade 840 Announced Deka inzenjering


*First stage (152 apartments) is delivered in 1H 2013

** Second stage (35 apartments) is delivered in Q1 2013


Investment opportunity

KOPAONIK MOUNTAIN


EXCLUSIVE LOCATION FOR MIXED-USE DEVELOPMENT

(HOTEL, CONDO-HOTEL & RETAIL) -

Kopaonik Ski Resort, Serbia

Proposed Development

Apartments / Condominiums : cca 201 units

Hotel 4*: cca 36 rooms + 3 penthouses

Retail units: cca 1,387 sq m (divisible units)

Location

Kopaonik Mountain is situated in the central part of Serbia and is approximately 260 km away from the capital

city of Belgrade. It is also 177 km away from Nis, the administrative center of the Serbia’s south-east region. The

highest section of Kopaonik is its northern part, known as Ravni Kopaonik. Around spacious plateau Ravni

Kopaonik (altitude of about 1.700 m) rises Suvo Rudiste area with Serbia’s highest peak called Pancicev Vrh at

2,017 m above the sea level.

The subject site is located in the south-western part of Suvo Rudiste area, which is the central tourist area of

Kopaonik within the National park, approximately 550 m away from the central zone, known as “Konaci”.

The property is located along the right side of the local road that connects center of Kopaonik with “Pancicev

Vrh” peak, at an altitude of 1,740 m. Therefore location enjoys excellent car accessibility as well as exceptional

posi?on and visibility from the main road (R-218) which is only 50 - 70 m away from the subject property.

Total Land Area 6,257 sq m

Zoning I zone, Hotel & Apartments

Building Height Ug + Gf +4 + Attic (building height: 21 m)

Gross Building Area

Above ground: 14,000 sq m

Underground garage: 3,495 sq m (122 parking spaces)

TOTAL 17,495 sq m GBA

Net Aboveground Building Area 10,473 sq m

Property description

The subject property is positioned between ski slopes “Malo Jezero” and “Suncana dolina” and is only 200 m

away from the ski-lifts, allowing ski in and ski out access to the site, which will significantly increase fluctuation

of visitors and skiers, contributing undoubtedly to the overall attractiveness of this location.

Micro location of the property is a position with one of the best views in Kopaonik, where the south-western

side of the plot.

Along the north border of the subject land plot is the area where construction of the new ski-lift was planned,

while along the south border is planned construction of new road that will connect location directly with the

neighbouring complexes and the main road.

Available documentationValid Location Permit and ownership documentation are available on request.The subject property is privately

owned (Freehold, 1/1).

Price Available on request

real estate market outlook (belgrade)_3q 2013

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