ALBANIA PROPERTY MARKET OVERVIEW

1st SEMESTER 2012 1. Economic Overview & Key Facts

The economy of has undergone a transition from its communist past into an open- market economy in the early 1990s. Although the country is rich in natural resources, the economy is mainly bolstered by agriculture, food processing, oil, cement, chemicals, mining, basic metals, hydropower, tourism, textile industry, migrant remittances, and the informal economy.

Though the government largely refuses to acknowledge it, a number of economic indicators are showing critical signs of decline in the Albanian economy for the first quarter of 2012, following a slowdown in economic growth over the past two years.

According the World Bank there are six countries in the Southeast facing the risk of a sharp slowdown in growth this year. Albania, Bosnia and Herzegovina, Kosovo, Fyrom, Montenegro and Serbia are the main countries mentioned to establish a foundation for more dynamic long term growth.

Albania’s GDP growth stood at 3.5% from the end of 2011, down from 5.6% registered in the second semester of 2010 according INSTAT.

Consumer Price Index (CPI), in May 2012, resulted 113.2 percent against December 2007 (December 07=100), signing a decrease of 0.8 percent against the previous month.

Labour force during the first quarter 2012 is 1,076,714 persons, the registered unemployment is 13.32% and the average number of the unemployed who receive unemployment benefit is 9,569 persons. Over the first quarter 2012, the average number of employed persons in the private non agricultural sector has increased by 5.5% compared to the first quarter of the previous year. Inflation reached 0.6% during February, according to INSTAT, marking the very limits of deflation, also confirming serious hits in both demand and consumption. There are declines in private and public investment. The construction and industry sectors, in particular have been among the hardest hit.

According the last publications in media the Public Debt for the first quarter of this year is decreased to 57% of the GDP which means is almost 3% lower than Public Debt of the fourth quarter of the previous year.

Albanian Tourism official representatives have begun creating a national strategy that would coordinate tourism issues for the rest of the decade, capitalizing on an industry that accounts for 11% of the nation’s GDP. Statistics from the state shows that the number of the foreign tourists to Albania has been steadily increasing since at least 2007, rising from just over 1 million six years ago to more than 2.7 million in 2011, the last year that statistics are available. According the Ministry of Tourism there is a long term project for 2013-2015 which is now on its first stages of study on national range to discuss the strength, weakness, opportunities and threats of each region of Albania to further decide the main strategies for each case.

According the last updates of the the Public debt is 5.7 billion$ (2012est). Public debt strategy for the period 2011-2013 aims to provide orientation regarding the policy of the Ministry of Finance for the management of the public debt for this period of time. Issue policy is part of the 2012-2013 medium term budgetary programs. This strategy aims keeping interest expenses as low as possible in accordance with the conditions of financial markets and seeks to contain the risks of portfolio of the public debt. 2. Office Market TWIN TOWERS Supply

In the major office developments the last fifteen years the first office buildings were the Sky Tower of 8,000 sq m (2005), the Twin Towers of 11,800 sq m (2005), the European Trade Center of approximately 9,000 sq m (2006), the G-KAM center of 4,500 sq m (2008) and the Hekla Center of approximately 3,000 sq m (2009).

During H1 2012, no new supply was added to the total office stock, which has been registered at 63,400 sq m since the first half of 2009 after the entrance of the ABA Business Center into ’s Real estate market. Currently, the Grade A inventory comprises the largest proportion of office space with 34,300 sq m against 13,000 sq m of grade B+. 16,100 sq m Grade an office buildings in Tirana include Sky Tower, Twin Towers, the European Trade Center (ETC) and ABA Business Center. Nearly 80% of the business towers are located in the ABA CENTER Central Business District. The remaining office stock is spread across the broad center and central Tirana.

Projects currently under construction are expected to increase the office stock by a further 238,700 sq m in the next 2-3 years, where Archea Tower is planned to be approximately 12,000 sq m, American BC nearly 3,000 sq m, Millennium BC 8,700 sq m, TID Tower 15,000 sq m and Tirana Business Park 200,000 sq m. Some of these projects were supposed to be completed by the first half of 2011 but none was completed till the end of the year.

The main reason for the suspension of the works is the worldwide financial crisis (global crisis) that has affected Remittances, one of the main sources of income in the Albanian economy. Also, the reduction of the demand for this high-class business centers led to rapid decline in the office rental prices and consequently this affected the unchanged office supply. Prime rent growth stable OFFICE MARKET TRENDS Office rents are reported stable for H1 2012, while approximately 7,000 sq m of offices are currently without a tenant. Average rental prices for offices in Demand business centers vary from €10 -25 per sq m (A+/B Vacancy categories). As per prime offices average rental price vary Price from €22-25 per sq m. Short Term Outlook Vacancy/Availability

The trend for H1 2012 was the relocation of companies to smaller offices or the renegotiation of their current rental levels. From 2002 FDI has been increasing every year, VESA Center which has as a result the increase of the demand for office space. In 2009 the FDI has decreased due to the world economic crisis and the demand for new office space has European Trade Center decreased also. Average typical demand continues to be between 80-200 sq m. Highest vacancy rates continue to be recorded in grade A office building at 13.6% and lowest in grade B+ at 5.5%. One of the main factors causing the high rate of vacant office space in grade A office towers is the significantly higher rental prices.

Tirana office yields to increase in 2011

Prime office yields in Tirana dropped of 0.5 % from 2010. City yields have spent most of the year trading at 7.5-8%. Lack of yield movement has occurred despite the money coming into the Albanian market from emigrants abroad. Due to political changes after the Albanian Municipality elections on spring 2011 and according to the prognosis of the financial development in the country a new positive start for the investment and construction market has been previewed. Investors are starting to think about interest rate rises again so it is unlikely that Tirana will experience yield compression in 2012. 3. Market

SUPPLY

The retail market in Albania has seen a significant Now QTU is widely recognized by consumers and growth in the past few years. Many international customers. It has a built area of about 47,000 sq m, retailers have entered the market as the first of which about 22,042 sq m area shops, 1000 shopping centers were built. parking spaces of which 600 covered. The EUROMAX hypermarket has increased by about 50%, achieving But with the world crisis the situation changed also in an area of about 6000 sq m. Also NEPTUN has Albania. reached the surface of 2500 sq m.

A part of the shopping centers reported to be in The new shopping center (TEF) is considered to be financial trouble now, but officially only Praktiker had the biggest in Albania and one of the biggest in the stopped its operation. Balkans and except the existing main shops of QTU there are operating also some well known shops for A huge impact also on the market of shopping the first time in Albania such as: Carrefour centers in Albania was expected to have the hypermarket, LC Wakiki etc. opening of the biggest shopping center in Albania, i.e. TEG. It opened on 25 November 2011, but it has not Rents of stores in shopping malls around the the expected flow of buyers and visitors during the capital have dropped at 20-40% during this first months of 2012. year, mainly due to the crisis and the reduction of consumers, and as a result of further enlargement QTU (Universe Shopping Center) used to be the prospects of the market. leader of the shopping centers, operates in competition with City Park and recently has a strong Prices of stores in shopping centers vary from 10 competitive in the market which is TEG (Tirana East Euros per square meter for huge surfaces to Gate). The official opening of the QTU was held on 1st €35 per sq m per month for smaller surface. The October 2005. decrease in the prices of leases is related, on the one hand with the reduction of retail sales during the first half of this year and on the other hand, with the increased supply of mixed commercial lease for premises. Tirana East Gate DEMAND

For more than 2 years the situation of the retail market has been stable. Due to the financial crisis, mostly from Europe and Balkans, and in particular in Italy and , two main countries which have been a strong source for Albanian market in general, demand for retail premises has fallen.

RETAIL MARKET TRENDS

Demand Vacancy Price Short Term Outlook 4. Residential Market

SUPPLY

In the first half of 2012 there are issued almost no It is common to see a long exposure time for construction licenses in Tirana because of the properties on the market. However, in the first municipality new reforms. There are many reasons half of 2012 the exposure time has been why the supply has slowed down. Factors that reduced due to liquidity needs that put pressure contribute to this slow down are the lack of on prices to fall for some of these properties, construction licenses, economic crisis in the especially in surroundings of Tirana. neighbor countries from which Albania has the Although the residential market has seen slow most remittances, slow development on growth in the past year compared to the completing the constructions by the builders and previews years it with the lowest prices tougher financing regulations from banks and comparing to the residential markets in Europe. financial institutions.

Residential property prices in Albania have not seen any changes in the past 2 years. Yzberisht, , Tirana – Apartments for Sale The prices in Albania are quoted in €. New high- end residential developments maintain the highest asking prices of €1,100 - 2,000 per sq m and are located on the best areas. In the mid market the prices range from €500-700 per sq m.

The prices have been under pressure to go down and Danos has observed a decrease in prices in areas that have slow sale rates. But in the luxury areas there are still high prices and pressure from the buyers to low it.

For the second semester of 2012 according to construction companies and due to the fact that new construction licenses will be issued from September we expect that the prices will go down, especially in the luxury areas. DEMAND

The demand for residential units has decreased comparing the last year. The main reasons for this is the conflict and the gap between the buyers who are targeting to decrease the prices and the owners who want to increase them because they find the RESIDENTIAL MARKET TRENDS situation favorite as there were more buildings and permissions to be approved. The building mortgage loans have decreased due to tougher criteria from Demand the banks. Another factor to the slow demand is the Vacancy decline in remittances from emigrants living abroad Price by 15% of GPD. People living abroad and having Short Term Outlook families in Albania always invested in their home country and the majority of these investments were apartments.

Even the foreign real estate buyers, focused on buying quality apartments at the seaside, have reduced their demand in this period of year compared with the same period last year.

As a result of the current market conditions and Apartment for rent, ex-BLLOKU area economics we expect the market to adjust and this could be reflected in price decreases would boost the demand again. Comparison between demands for different types of residential properties shows that in the first half of 2012, more small apartments are required. Thus, the demand for small apartments (1 bedroom +1 living room) has increased; medium apartments (2 bedroom + 1 living room) remain the most requested while the demand for the big apartments (3 bedroom +1 living room) has decreased. The first half of 2012, characterized by a slight increase of rental demand compared with the first half of 2011. Increased demand for rental is already a long- term trend of the Albanian market structure with an upward trend. This is also affected from the crisis; people are reluctant on making request for loans due to the fear of losing their job. So the buyers let their plans to proceed with a real estate investment to the future, hoping that the crisis will end soon. 5. Land Market

SUPPLY The land market in Albania has increased As a result of the lack of urban studies and throughout the years due to the buyer’s indifference to the illegal constructions, there interest in bigger areas, mainly for has been an artificial increase of the land prices construction of tourist complexes. in the tourist areas of the country. With the However, lands sales in the first half of 2012 performing and approval of urban plans in have fallen. Probably the situation will change Albania, significant differences in terms of land on September as some new reforms will take value within these areas are expected. There place and will have a great impact in the land will be a decline of land values outside the market. areas which could provide the environment for legal constructions and an increase and The agro land asking price vary from €15- 200 stabilization of values inside these areas. per sq m depending on the position, also in relation to the main roads. The industrial land asking prices vary from €30- 250 per sq m depending on the position, Farka, Tirana, Residential for sale, an area of also in relation to the main roads. luxury villas. The plot land asking prices vary from €70 - 1,400 per sq m depending on the position, also in relation to the main roads and to the city. The highest prices are noticed in the proximity coastline and on the side of national highways. DEMAND LAND MARKET TRENDS Real Estate Agents emphasize that Albania remains a very interesting country as long as Demand prices are much cheaper than in other Vacancy Price neighboring states. Short Term Outlook It happens to appear some foreign investments for plants and lands in Albania to be used for business purposes, mainly from Greek, Italian and other investors especially from Western Tirana Durres highway, Land for rent Europe.

In Tirana-Durres highway there is a considerable demand to rent land. The prices vary from €0.5- 1.5 per sq m. ALBANIA GREECE CYPRUS Athens Ɉirana 1 Eratosthenous Str. & Vas. Ave., 116 35 Nicosia Blvd. Deshmoret e Kombit Ɉel:+30 210 7 567 567 35 I. Hatziiosif Ave., 2027 Strovolos Fax:+30 210 7 567 267 Ɉel:+357 22317031 Abdyl Frasheri Str. [email protected] Fax:+357 22317011 EGT Tower, Floor 5/1 [email protected] Tel.: +355 4 4500960 Thessaloniki Fax.: +355 4 4500961 Limassol 4 Ionos Dragoumi Str., 546 24 [email protected] Ɉel:+30 2310 244962 www.danos.al Fax:+30 2310 224781 69 Gladstonos Str., 3040 Acropolis [email protected] Centre, Shop 10 Ɉel:+357 25343934 Crete - Chania Fax:+357 25343933 Sofia 3 Iroon Polytechniou Str., 731 33 [email protected] Blvd. Hristo Botev 28 Ɉel :+30 – 28210 50900 Tel.: +359 2 953 23 14 www.danos.com.cy Fax:+30 – 28210 59700 Fax.: +359 2 953 23 99 [email protected] [email protected] Crete - Heraklion www.danos.bg 38, Aretousas Str., 712 02 Tel.: +30 2810 282822 SERBIA Fax: + 30 2810 282822 Belgrade [email protected] 3 Spanskih boraca Str. www.danos.gr 11070 New Belgrade Tel.: +381 11 2600 603 Fax.: +381 11 2601 571 [email protected] www.danos.rs DISCLAIMER

This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, view, and projections presented in this report, no legal responsibility can be accepted by DANOS or BNP PARIBAS RE for any loss or damage resultant from the contents of this document. As a general report this material does not necessarily represent the view of DANOS or BNP PARIBAS RE in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to DANOS Research.