1 Research H1 2020 | Slovenia | and Forecast Report Colliers | International SLOVENIA MARKET OVERVIEW H1 | 2020 RESEARCH AND FORECAST REPORT 2 CONTENT Slovenia | Summary 3 H1 2020 Economic Overview 4 Office Market 6 Forecast Report Colliers | International Retail Market 8 Research and Industrial and Logistics Market 10 HTL Market 12 Investment Market 14 Residential Market 16 About Colliers 18 3 Research SUMMARY H1 2020 Recent Trends Market Forecast Slovenia | and The COVID-19 pandemic and related The large stimulus package announced by Forecast Report Colliers | International containment measures have strongly the authorities is expected to partly cushion affected Slovenia's economy, leading to a losses in employment and household year-on-year contraction in GDP and all incomes and pave the way to an economic main macroeconomic indicators. At the rebound in 2021. same time, the investment transaction New developments are announced in all volume of commercial real estate in H1 CRE sectors. As the currently least 2020 decreased amid pandemic developed sector, the industrial/ logistics uncertainties and travel restrictions, which sector is expected to see an increase in disabled investors to perform property developments in the coming years. With inspections. Total CRE investment volume proven resilience and rising demand, it in H1 2020 amounted to approx. €50 could become the big winner of the COVID- million, 60% less than in the same period 19 crises. 2019. The office sector was the most popular among investors, with 73% share The strongest investor demand is expected in total volume. to continue for core properties: income- generating properties with high occupancy, Apartment prices are still slightly prominent tenants and long-term leases. increasing, although with lower recorded Higher activity is expected when there volume. There are a number of projects would be more clarity, and thus lower currently under construction and in the spread in pricing expectations between pipeline (especially in Ljubljana), but a buyers and sellers. number of issued building permits dropped. Yields for prime income-producing The office sector was looking positive at the properties are expected to remain stable. start of 2020, and the market should be Pricing will be most affected by the able to ride out a short, sharp shock or even changes in the underlying performance of a longer economic downturn. the properties. High street and enclosed shopping centres Residential prices are expected to stabilize were the most exposed to a downturn in as new projects come to market. However, discretionary consumer spending. Grocery for properties in prime locations, the prices stores and the more convenient, car-based are expected to increase on the ground of retail park models proved to be more strong demand. defensive. Hotel sector was hit hardest due to the closure of borders and travel restrictions. With the relaxation of measures, the activity began +to increase, but at a slower pace. Logistics sector is still the least developed real estate sector in Slovenia. Most of the projects coming to market are for owner- occupiers. 4 ECONOMIC OVERVIEW Summary Forecast | Slovenia | The COVID-19 pandemic put an end to Although, the economy is set to plunge into H1 2020 several years of healthy growth in Slovenia. a sharp recession in 2020 due to the As in other countries, the economy has coronavirus impact, a solid rebound is been strongly affected by containment expected in 2021, according to Oxford measures and the collapse in international Economics. Forecast from European trade. In the first quarter of 2020, gross Commission states 7% GDP drop in 2020, Forecast Report Colliers | International domestic product (GDP) decreased by and rebound by around 6% in 2021. 2.3% over the first quarter of 2019. As the Market demand, which fell in H1 2020, is second quarter was more affected by expected to improve in H2 as measures are Research and confinement measures, the decline in GDP lifted and normal daily activities resume. is expected to be even steeper. Necessary fiscal response to the In Q1 2020, domestic expenditure declined coronavirus crisis will push Slovenia into a by 3.1%, while exports decreased by 1.6% fiscal deficit in 2020. In turn, the public and imports by 2.5% compared to the first debt-to-GDP ratio is expected to rise from quarter of 2019, respectively. 66% to around 77% in 2020. Once the Total employment in the first quarter of economy recovers, public debt can start to 2020 amounted to approx. 1.0 million, it stabilize and drop below the 60% cap increased by 0.4% compared to the same under the EU's Growth and Stability Pact period last year. Newly employed persons by 2025. were hired in construction and human Overall, consumer price inflation is health and social work activities. forecasted at 0.2% y-o-y in 2020 and 1.1% In July 2020, annual inflation stood at 0.3%. y-o-y in 2021, according to the European Service prices went up on average by Commission. 2.1%. Goods prices went down on average According to Oxford Economics exports by 0.8%. Monthly deflation was −0.1%, are expected to decline 8.1% this year, which is mainly the consequence of the before rebounding by 9.0% in 2021 as 10.3% drop in the prices of clothing and global trade and tourism return to footwear. normality. However, while the government Average gross earnings for May 2020 has partially reopened borders, the risks amounted to EUR 1,892. They were lower remain to the downside, especially if a than gross earnings for April 2020, in real second outbreak appears and strict travel terms by 3.2%, but they were higher in real restrictions return. terms by 10.8% compared to average gross earnings for May 2019. Slovenia - Credit rating (as of July 2020) Agency S&P Mood'y Fitch Rating AA- Baa1 A Outlook stable positive stable Source: Trading Economics 5 Research and H1 2020 Figure 1: GDP growth rate Slovenia | 8,0% ECONOMIC GROWTH, Forecast Report Colliers | International (HISTORICAL AND 6,0% FORECAST) 4,0% 2,0% 0,0% -2,0% -4,0% -6,0% -8,0% 2018 2019 2020F 2021F 2020F 2023F Figure 2: Government balance, % of GDP Unemployment rate MAIN ECONOMIC INDICATORS Private consumption (HISTORICAL AND FORECAST) 12,0 10,0 8,0 6,0 4,0 2,0 0,0 -2,0 -4,0 -6,0 -8,0 -10,0 2018 2019 2020F 2021F 2020F 2023F Figure 3: Floor area H1 Floor area H2 Number of permits BUILDING PERMITS ISSUED (NUMBER AND FLOOR AREA) 2,0 8.000 IN SLOVENIA 1,8 7.000 1,6 6.000 1,4 1,2 5.000 1,0 4.000 0,8 3.000 0,6 2.000 permits of Number Floor area (in miilion m²) miilion(in area Floor 0,4 0,2 1.000 0,0 0 2013 2014 2015 2016 2017 2018 2019 2020 (H1) Sources: Figure 1: Oxford Economics | Figure 2: Oxford Economics | Figure 3: SURS 6 OFFICE MARKET Supply distance between workers should increase | Slovenia | In H1 2020, no new significant office in offices, which increases the demand for office space. Some companies will require H1 2020 schemes were brought to the market in Ljubljana, the centre of the Slovenian office physical distancing for up to at least 12 market. A smaller office building on months with shift work taking place with Dunajska Street is in late stage of smaller teams. construction. The building will feature 2,000 Rents and Vacancy Rate Forecast Report Colliers | International m² of office space, completion is planned in Companies that implemented remote work September 2020. procedures during the lockdown have been negotiating rental incentives, rent-free Research and As the capital and largest city, Ljubljana periods and earlier contractual breaks. serves as headquarters for most of Properties with strong tenants (IT, life international and domestic companies. science, government bodies) proved to be Total office stock in Ljubljana is around 1 more resilient than the properties million m² and consists of only a small dependent on the most distressed firms number of high-quality office premises. The (e.g., airlines, tour/ events operators). majority of the current office stock is outdated and does not satisfy the The prime headline monthly rent in requirements of companies who are Ljubljana is currently in the range from looking for modern office premises. €14.0 to €17.0/m². Average rent in competitive stock is stable and stands Ljubljana office stock by age between €12.0 and €14.0/m²/month for Up to 5 years old 1% Class A premises and between €6.0 and 5 – 10 years old 8% €12.0/m²/month for the class B and C Older than 10 years 91% premises. We expect that the average Source: Colliers International rents for Class A buildings in Ljubljana will remain stable in the next period due to a Demand low vacancy rate and limited pipeline. The spread of Covid-19 and the Due to lack of new supply, the average implementation of preventive measures vacancy rate in the Ljubljana office market with a general lockdown in mid-March in Class A buildings remained in the region suddenly brought shock to the Slovenian of 4.0%. office market. Pipeline Due to the cancellation of public transport during the lockdown, as well as Currently, only new multi-tenant office recommendations by the government and building under development in Ljubljana health experts, many companies have is Palais Schellenburg, a mixed-use implemented work from home. However, development in Tivoli district. In addition most office buildings remained open during to the residential component, the project the lockdown. will also feature circa 6,000 m² of office space.