COLLIERS INTERNATIONAL 2011 REAL ESTATE REVIEW

Albania Croatia Czech Republic Greece Hungary Poland Russia Serbia Ukraine

Accelerating success. 2011 Colliers Real Estate Review » COUNTRY Serbia

Dear Friends and Partners,

The last year has proven to be challenging for all of us. All of the real estate market segments suffered, each in their own manner. Although the messages we receive from banks, investors as well as the government are encouraging, 2011 will continue to be a year of caution but a slow and definite recovery.

Maja Sahbaz As a result of all this change, the one thing we can say is that the market general manager is a lot more sophisticated than it was 2 – 3 years ago. Some difficult colliers international serbia lessons were learned, and among them the most important one would be Address 115D Mihajla Pupina Blvd. that the market has shifted towards tenants and buyers. 11070 New , Serbia

Phone +381 11 313 99 55 It will continue to take an innovative and sophisticated approach to

Email [email protected] achieve successful and sustainable real estate solutions, tapping into local and global experience.

We hope to continue to accelerate your success.

Best regards, Maja Sahbaz

p. 130 | Colliers International Research: [email protected] 2011 Colliers Real Estate Review » SERBIA

ECONOMIC OVERVIEW

KEY ECONOMIC FIGURES SUMMARY PROGNOSIS Metric 2010E 2011F  After a sharp decline in GDP in 2009  Serbia’s GDP growth should be more GDP Growth 1.5% 2.5% (-3.1%), Serbia began to show some robust in 2011 than in 2010, with Industrial Production -0.5% 5.0% positive signs economically, with three UniCredit bank forecasting GDP growth Unemployment 20.0% 19.5% consecutive positive growth quarters of 2.7% in 2011. Inflation 10.3% 7.5% (Q1: +.03%, Q2: +.08%, Q3: +1.6%, qoq Retail Sales -1.1% n/a seasonally adjusted).  Consumer prices will continue to Public Deficit -4.8% -4.0% experience upward pressure, the target Source: NBS, Raiffesen Bank, Colliers Research  Estimated GDP in 2010 was €29.7 of 4.5% (± 1.5%) set by the National Bank Bln, 1.5% above the previous year. Due will likely be difficult to achieve with to the significant drop in GDP in 2009, UniCredit Bank projecting an inflation this brings Serbia’s GDP just above its rate of 7.5%. 2007 figures. GDP, INDUSTRIAL OUTPUT & UNEMPLOYMENT 25%  The Serbian Dinar (RSD) is expected 20%  Production and export trends have to continue to depreciate during 2011, 15% 10% improved in 2010, with industrial with some analysts projecting the 5% production in the first 11 months of 2010 exchange rate against the Euro as high 0% -5% increasing 3.2% compared with the as 117 RDS. Source: NBS, Raiffeisen Bank -10% Colliers Research same period in 2009. -15% | | | | | | 2007 2008 2009 2010 2011F 2012F  The “Serbian post-crisis economic ▬ GDP Growth ▬ Industrial Output ▬ Unemployment  Unemployment figures remained growth and development model week in 2010, in October reaching 19.2%. 2011 – 2020” study should act as the basis for the government’s economic  Consumer prices have grown beyond strategy. The document calls for more FDI (EUR BN.) 2.5 the National Bank’s target of 6.0% (±2%), focus on investment and imports as the Source: UniCredit Bank 2 increasing 10.3% yoy for the period historical reliance on privatizations and

1.5 January – December. foreign direct investment may be drying

1 up.

0.5  The Belgrade Stock Exchange has  0 | | | | | been plagued by poor performance and  Telekom Srbija, Serbia’s fixed phone 2008 2009 2010 2011F 2012F extremely low turnover, the two main line operator is likely to be privatized in indices, Belex 15 and Belexline, fell 1.8% 2011, with major players in the and 2.2% in 2010 respectively. Total telecommunications industry interested turnover on the exchange was only in acquiring the state-run company. The €222 Mln. sale is expected to generate at least €1 Bln in revenues to the country, significantly boosting FDI in 2011 compared to 2010.

Research: [email protected] Colliers International | P. 131 2011 Colliers Real Estate Review » SERBIA

OFFICE MARKET

KEY OFFICE FIGURES SUPPLY  In terms of deal size, the majority of Metric Measure  Despite the construction slowdown demand (70% of requests) was for Total Stock (A and B) 658,419 Sqm GLA experienced by the Belgrade office premises up to 500 Sqm. The remaining Vacancy (A and B) 24.24% market during 2010, the total stock of 30% of requests were for larger Prime Headline Rent €16/Sqm/month Class A and B office space increased by footplates of 1,000 Sqm and above. Source: Colliers International 76,100 Sqm. By year-end it stood at 658,419 Sqm. VACANCY / AVAILABILITY  The vacancy rate increased to  Of this, Class A stock comprises 24,24% by end 2010, which equates to 414,503 Sqm GLA an increase of 22.5% 159,633 Sqm. Class A vacancy increased ADDITIONS TO OFFICE STOCK IN BELGRADE 70,000 compared to 2009. The total stock of compared to the previous year, driven in 60,000 Source: Colliers International Class B space remained the same as in large part by additions to stock, while 50,000 40,000 2009 – at 243,916 Sqm. Class B vacancy decreased. 30,000 20,000  New Class A buildings delivered to  By type, there was 105,222 Sqm of 10,000

0 | | | | | the market in the second half 2010 vacant Class A – a vacancy rate of H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 included the Dexy Co office building of 25.4%. Class B vacant space account for 9,056 Sqm, located in New Belgrade. 54,111 Sqm – a vacancy rate of 22.3%. Other significant additions to stock included two buildings (Belville Office RENTS Building 1 – 8,089 Sqm GLA and Belville  Although rents for all types of office KEY LEASE TRANSACTIONS Office Building 2 – 15,302 Sqm GLA) space experienced a decrease, there Tenant Size (Sqm) Project Location which opened within the University was a greater fall in Class A rents, due to Findomestic New bank 2,500 Napred Block 26 Belgrade village on Jurija Gagarina Street, in New the higher level of new additions. Prime Belgrade. headline rents by year-end fell to €16 Medico Uno 1,000 Belgrade Pancevo Warehouse per Sqm. In general, headline rents for Cardiovasular New Hospital 1,250 Block 24 Belgrade DEMAND Class A space vary from €13 to €16  Numanovic 1,950 Garden Center Zemun  Encouraged by somewhat lower Sqm/pcm. Class B rents remained Furniture rental levels, numerous companies steady at ca. €13.5 Sqm/pcm. started their search for new business premises in 2010. These tenants came  In cases where the whole building is from a range of business sectors offered for rent, with sizes ranging from VACANT SPACE IN BELGRADE 180,000 including finance and insurance, 1,000 to 2,500 Sqm, prime headline 160,000 Source: Colliers International engineering, architecture and rents range from €10 to €12 Sqm/pcm. 140,000 construction; IT, media and publishing 120,000 and retaling. Among the companies PROGNOSIS 100,000 80,000 seeking space were Findomestic Bank,  Over 50,000 Sqm of space is on 60,000 KBC Securities, Meridian Balkans, track to be delivered to the market in 40,000 SunGard, Reuters, Beneton, and others. 2011. This comprises of primarly Class A 20,000 stock, delivered by a few key 0 | | | | | | Q1 2008 Q2 2008 Q1 2009 Q2 2009 Q1 2010 Q2 2010  Local and foreign government developments. The buildings expected to ▬ Class A ▬ Class B ▬ Overall institutions and embassies were also have a big impact on the market are the active players in the market. The B23 office building by Verano, Australian Embassy took 800 Sqm in the comprising 35,000 Sqm including state “19th Avenue” office building in New of the art systems. Another interesting Belgrade, and the Flight Control Agency new project is Tri lista Duvana by MPC of Serbia took up 1,200 Sqm in the “M Holding (8,200 Sqm GLA) in one of the Invest” building also in New Belgrade. top business location in Belgrade’s CBD.

 This will create significant competition amongst developers/owners for grade A tenants, putting further downward pressure on class A rents.

p. 132 | Colliers International Research: [email protected] 2011 Colliers Real Estate Review » SERBIA

RETAIL MARKET

KEY RETAIL FIGURES GENERAL OVERVIEW  Traditional shopping center stock only Metric Measure  The Serbian retail market took further increased by 5,130 Sqm (3.3%) in 2010, Prime High Street Rents €110/Sqm/month steps toward reaching greater maturity reaching 155,530 Sqm. This was driven Prime SC Rents €60/Sqm/month in terms of its overall retail offering, by the opening of a new neighborhood SC Stock 155,530 Sqm converging more closely with shopping center in the latter half of 2010 Source: Colliers Research neighboring SEE countries Bulgaria and — Point Centar in Kaludjerica. The center Croatia. consists of approx. 5,000 Sqm GLA. Tenants include local brands sutch as  Belgrade and remain at the Fitex, OFY Toys, Brankodex, Atrattivo, forefront of the country’s retail Diopta, and consumer electronic store SHOPPING CENTER STOCK IN BELGRADE 180,000 development as local and international — Technomarket. 160,000 Source: Colliers Research 140,000 retail chains have continued to expand. 120,000 More recently, however, retailers have  Outlet center stock remained the 100,000 80,000 chosen to venture outside of these two same over the year, with no new 60,000 40,000 big markets into the secondary cities of deliveries expected until H2 2011 through 20,000 0 | | | | | | | Serbia. the opening of Fashion House Outlet 2005 2006 2007 2008 2009 2010 2011F Center in Indjija.  An improvement in retail turnover was experienced, albeit to a small extent, DEMAND in the last quarter of 2010. This growth  Due to continuous unfavorable market trend is expected to continue in 2011. conditions, the demand for retail units RENTAL LEVELS IN BELGRADE €120 continued to decrease in the latter half of

€100 SUPPLY 2010. This created a scenario of lower

€80  Total retail supply in Belgrade rents and easier lease terms for €60 increased by 24,000 Sqm in 2010, renegotiations. €40 predominantly driven by the growth of €20 retail parks and outlets, including the  This resulted in new market entries €0 | | | new Tempo Center and Hiper Cort. as well as expansions – Burberry Prime SC Prime High Prime Street Outlet opened its first store in in April,  A new Tempo Center, comprising followed by Emporio Armani which 9,000 Sqm, opened in Kragujevac in opened in October. KFC expanded to November 2010. This represents the first Novi Sad and a new location in Belgrade phase of “Delta Retail Park.” Phase two near Studentski trg. will include DIY and other stores scheduled for opening in spring 2011.  High street units are traditionally the most sought-after retail type for new  Hiper Cort (15,000 Sqm) was sold to market entries in Belgrade – exemplified DIS in last quarter of 2010. This is by fashion brand Peacocks opened its expected to mark the expansion of DIS first store in the primary shopping area markets which are mostly located in of Terazije. Crabtree & Evelyn opened Central Serbia with more supermarkets their first store in Cika Ljubina Street. expected to be opened in Belgrade in 2011.  That said, several new market entries in 2010 were, however, made through shopping centers – examples include natural cosmetics brand, Lush, shoes retailer Nine West and Diva jewelry.

Research: [email protected] Colliers International | P. 133 2011 Colliers Real Estate Review » SERBIA

RETAIL MARKET

NEW MARKET ENTRANTS OR DEVELOPMENTS VACANCY & RENTS  Big CEE, an Israeli company, plans to Tenant Size (Sqm) Project Developer  The vacancy rate in the large, existing develop a new retail park in the vicinity Emporio Armani 270 Terazije High Street modern international-style shopping of Novi Sad – some 4 km away from the Quiz 180 Usce MPC centers – Delta and Usce – remained at city. This project will feature 30,000 Nine West 100 Usce MPC 0%. Such shopping centers maintained Sqm of GLA and 1,500 parking spaces. Lush 44 Usce MPC high asking rents although some retailers The building process is expected to Diva 40 Usce MPC did renegotiate terms to reflect difficult commence during 2011 with completion conditions. set for 2012.

 Prime High street rents continued to PROGNOSIS REPRESENTATIVE PIPELINE PROJECTS IN SERBIA be strong at €110 per Sqm. Asking rents  The Serbian retail market experienced GLA Project Type Investor Location at the lower end of the scale, for larger its biggest expansion during 2007 – 2009, Shopping Old town 18,500 Rajiceva Center ABD/Astrom Belgrade units can be €40 – 50 per Sqm lower. although it still lags behind more developed regional capitals on a Sqm per 6,500 Pasino Brdo Shopping Novi Dom Vozdov ac, Center a.d. Belgrade  Peripheral retail areas experienced an capita basis. While the potential is there, 8,000 Pancevo Retail Retail Park/IInd phase Park Aviv Arlon Pancevo increase in the vacancy rate. Interest in this depends on Serbia’s ability to Fashion House these locations is mostly generated by generate economic growth and stability, Outlet Center Outlet GVA/Black 15,000 Belgrade/Ist Center Oak Indjija local retailers, service providers and which is looking ever more promising. phase banks interested in expanding their network. Rental levels in these areas  Based on planned and committed range from €15 – 25 per Sqm. developments, the retail offer in Serbia is clearly growing and improving. With this PIPELINE change comes more choice for retailers  The retail market in Belgrade will considering Serbia/Belgrade as their feature several new, large shopping market entry point. Although most center commencements and completions retailers choose Belgrade to start in 2011. building their network, Mr. Bricolage and TKC opted for other cities and are  The Pasino brdo neighborhood planning their Belgrade expansion in shopping center, anchored by Roda 2011. market, is expected to have their big opening in the beginning of 2011. The  A continued improvement in retail second phase of Pancevo Retail Park turnover, albeit it moderate in 2011, will featuring 8,000 Sqm GLA, as well as the help bring more retailers to the market. second phase of Delta Park in Kragujevac are both expected for delivery during 2011.

 Fashion House Outlet Center Belgrade, located between Belgrade and Novi Sad in Indjija Retail Park; will feature 15,000 Sqm in phase one and is scheduled for completion in 2011.

 In terms of commencements, Rajiceva shopping center — the first shopping center development in the downtown area comprising 18,500 Sqm GLA is expected to start in Q1 2011. Completion is scheduled for 2012.

p. 134 | Colliers International Research: [email protected] 2011 Colliers Real Estate Review » SERBIA

RESIDENTIAL MARKET

RESIDENTIAL SUPPLY IN SERBIA (No. of units) OVERVIEW The highest sales prices of new Tenant 2008 2009 Index  The Serbian residential market developments are still achieved in the Serbia 17,967 17,408 -3.1% activity continued on a downward trend municipalities of Stari Grad, then Savski Belgrade 7,306 5,759 -21.1% in 2010. In particular, average sales Venac, New Belgrade and Vracar. Novi Sad 1,946 2,186 +12.3% prices decreased and construction Nis 1,000 1,016 +1.6% activity was lower significantly than in RENTS Kragujevac 419 532 +26.9% previous years. This is most prevalent in  In the second half of 2010, net rental Subotica 472 409 -13.3% Belgrade, which is traditionally the most levels remained similar to the first half of Source: Statistical Office of Republic of Serbia active residential market. 2010. Traditionally the most attractive area for renting is Senjak, followed by SUPPLY Dedinje and Stari Grad. In the second  The Serbian market witnessed a half of 2010 demand for apartments in AVG. RANGE OF PRICES FOR NEW DEVELOPMENTS continued decrease in the number of Stari Grad (old town) increased Municipality Belgrade building permits issued in 2010. On considerably. There was also an increase Voždovac €1,500 – 1,700 (VAT included) average there was a 20% decreased in in demand for apartments in Vracar. Vračar €2,300 – 2,500 (VAT included) building permits issued in 2010 when Demand for New Belgrade showed a Zvezdara €1,650 – 1,850 (VAT included) compared to 2009. In Belgrade, this is a marked decrease. Zemun €1,200 – 1,400 (VAT included) continuation of the trend set in 2009 New Belgrade €2,300 – 2,600 (VAT included) when the market experienced a 21.1%  Average rental levels Sqm/pcm in Palilula €1,700 – 1,900 (VAT included) decrease in the delivery residential units Belgrade’s most popular municipalities Stari Grad €3,000 – 3,300 (VAT included) compared to 2008. range from €6–12. Rents differ by Čukarica €2,000 – 2,300 (VAT included) location – from the top of the market, Savski Venac €2,300 – 2,700 (VAT included) PIPELINE such as Senjak (€9 – 12), to the lower end Source: Colliers International  Several major developments have of the market such as Banovo Brdo been announced to be delivered through (€6 – 8). the phasing of developments over the next 3 years. The most notable FORECAST PRICE DECREASE TREND IN BELGRADE -0.12 developments include large scale  Sales prices are expected to decline

-0.10 Source: Colliers International complexes such as (GBA: in the short term, before stabilising in the

-0.08 47,500 Sqm) in New Belgrade, Golf 8 second half of 2011. It is expected that -0.06 (GBA: 15,172 Sqm) in Banovo brdo, Basal the apartments constructed by the -0.04 complex (GBA: 7,500 M2) and 4. Juli Government will have influence on the -0.02 Government complex (GBA: 271,252 mid- to low-class market. This should 0 | | | | | | | | | Sqm) in New Belgrade. Besides New result in a slight price reduction of

Vracar Palilula Zemun Belgrade, which traditionally offers the similarly targeted projects in order to be Cukarica Stari Grad Vozdovac Zvezdara Savski VenacNew Belgrade largest possibilities for development, more competitive. major developments will also take place in other major municipalities.  At present a discrepancy in prices among similar projects in similar RENTAL LEVELS DEMAND AND SALES PRICE locations still exists. Colliers expects Area Average Rent (€/Sqm/pcm)  Sales prices dropped a further 5% in greater transparency and sophistication Savski Venac (Senjak) 9 – 12 the second half of 2010, meaning prices on the market to emerge in future so Savski Venac (Dedinje) 9 – 11 have dropped by some 15 – 20% in the prices are more closely correlated to Vracar 8 – 12 last two years as demand remains location, size and the quality of a given Stari Grad 8 – 11 muted. project. New Belgrade 7 – 10 Vozdovac 7 – 9  In the last 12 months the largest Cukarica (Banovo Brdo) 6 – 8 decreases occured in the municipality of Source: Colliers International Cukarica (cca. 10%), followed by Stari Grad (cca. 8.25%), Savski Venac (cca. 7.25%), New Belgrade (cca. 6.85%), Vozdovac (cca. 6.75%), Vracar (cca. 6.15%), Palilula (cca. 5.55%), Zemun (cca. 5.35%) and Zvezdara (cca. 3.75%).

Research: [email protected] Colliers International | P. 135 2011 Colliers Real Estate Review » SERBIA

SERBIA TAX SUMMARY

CORPORATE INCOME TAX AND TAX DEPRECIATION DOUBLE TAXATION CONVENTIONS CAPITAL GAINS  For corporate income tax purposes, fixed  As at 1 January 2011 Serbia has 47  Corporate income tax is levied at a 10% assets are divided into five groups, with effective double taxation conventions on flat rate on resident and non-resident entities. depreciation rates prescribed for each group: income and capital. Agreements with Egypt, A resident entity is a legal entity which is France, Great Britain and Malaysia cover the incorporated or has a place of effective Group Depreciation rate avoidance of double taxation of income only. management and control on the territory of I 2.5% Serbia. Resident legal entities are liable for II 10% VAT payment of tax on their worldwide income in III 15%  VAT is levied on the following: the country. Non-resident entities pay tax on IV 20% —— supply of goods and services by a the income generated through a permanent V 30% taxpayer on the territory of Serbia in the establishment on the territory of Serbia course of doing business and. (branches). —— import of goods into Serbia.  Fixed assets classified under the first  The tax period is the calendar year. A group are depreciated using the straight-line  A taxpayer is any entity that independently corporate tax return has to be submitted by method, while a declining method is supplies goods and services in the course of 10 March of the following year for the then prescribed for fixed assets in the other doing business. previous year, whereas corporate income tax groups. A depreciation rate of 2.5% is applied is to be paid during the year through monthly to the purchase value of a first group fixed  Each entity whose turnover in the advanced payments (by 15th in the month for asset where the real estate is classified. previous 12 months (sales of goods and the previous month). services excluding sales of real estate and THIN CAPITALIZATION equipment used in performing business  Taxable income is established on the basis  Interest and related expenses towards activity) exceeds RSD 4 Mln is obliged to of accounting profit disclosed in the annual related entities are deductible up to four register for VAT. An entity whose turnover in income statement, in accordance with times the value of the taxpayer’s equity (limit the previous 12 months or forecasted International Financial Reporting Standards, for banks is 10 times the bank’s equity). The turnover in the following 12 months is and is subject to further adjustments in the non-deductible amount of interest expense between RSD 2 and 4 Mln may opt to be tax balance. may not be carried forward any longer and registered for VAT (small undertakings). represents a permanent difference.  Capital gains are disclosed separately in  Only the first transfer of newly built the tax balance and are subject to a 10% tax. WITHHOLDING TAXES buildings (i.e. buildings built as of 1 January The capital gain is the difference between the  Withholding tax at the rate of 20% is 2005) is subject to VAT at the rate of 8% sale and purchase price of assets (real deducted from dividends, share in profits, (residential building) or 18%. Supply of land, estate, securities, intellectual property rights, royalties, interest, capital gains and lease as well as renting of land is exempt from VAT investment units). If such difference is payments for real estate and other assets without credit. negative, a capital loss is reported. derived by non-residents on the territory of Serbia. Withholding tax may be reduced by PROPERTY TAX LOSSES double taxation treaties.  In Serbia tax on property is paid by the  Losses generated from business, financial title holder of property rights (ownership, and non-business transactions, excluding  If a non-resident taxpayer receives capital right of use, etc.). Companies pay property capital losses, may be carried forward for up gains from a Serbian resident, other non- tax at the maximum rate of 0.4% per year on to five subsequent tax periods and can be resident, resident or non-resident individual the net book value of land and completed offset against future taxable income. Losses or open investment fund on the territory of development property as at 31 December. carried forward into the future are not Serbia, 20% withholding tax has to be paid if cancelled by mergers, acquisitions, spin-offs not provided otherwise by a respective REAL ESTATE TRANSFER TAX and other organizational changes. double taxation treaty. The non-resident  Second and all future transfers of taxpayer has to submit a special tax return real-estate property, as well as the first  Capital losses may be carried forward for within 15 days of generating the capital gains transfer of real-estate property built before 1 five years and offset only against capital via proxy, based on which the Tax Authorities January 2005, are subject to transfer tax at gains. assess the tax liability. the rate of 2.5%. The taxpayer is the seller. However, the buyer may assume liability of paying this tax, but this has to be stipulated in the sales and purchase agreement.

p. 136 | Colliers International Contact: [email protected] www.colliers.com