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MARKET OVERVIEW SLOVENIA H2 2018 OVERVIEW & 2019 FORECAST Market Overview | H2 2018 | Slovenia RECENT TRENDS Economic Overview 3 > Slovenian economy is showing signs of slowing Office Market 4 down but real estate market is not losing momentum. Retail Market 5 > Transaction volume of commercial real estate in H2 grew strongly and total value in 2018 reached Industrial/Logistics Market 6 close to €480m. > Largest transaction was the sale of 10 Mercator HTL Market 7 shopping malls located across Slovenia to Supernova Holding for €110m. Investment Overview 8 > Office market is in the focus of investors in Ljubljana, while retail sector is more interesting in Residential Market 9 secondary and tertiary locations where there is room for expansion. Our Services 10 > HTL market is becoming more attractive to investors mainly because of positive trends in tourism. > Same as in H1, investment market has seen most of the activity from local players already present in the market. > Residential development is seeing increase in new developments following strong increase of apartment prices in past 2 years. MARKET PROGNOSIS > Economic growth is set to continue in the following years but at more moderate pace. > New scheme developments are announced in all segments, except the office sector which lacks with new supply. > We expect that CRE transaction volume will remain solid in the following period, although it reached below the level in 2018. 2 Market Overview | H1 2018 | Slovenia | Colliers International Economic Overview SUMMARY AND PROGNOSIS Economic Growth (GDP) Seasonally adjusted GDP in Q4 increased 0.8% compared to Q3, while GDP in 2018 amounted to €45,948 million, an increase of 4.5% 6% over 2017. Forecast for GDP growth in 2019 is 3.5%, followed by a 5% slowdown in next years. 4% GDP growth rates 2018 3% Seasonally adjusted data Q1 Q2 Q3 Q4 2% Changes on the same quarter 5.2% 4.6% 5.1% 3.6% of the previous year 1% Source: SURS 0% In the last quarter of 2018 domestic expenditure increased by 3.7% whilst the final consumption expenditure grew by 2.1%. Both imports and exports experienced moderate growth in Q4 2018 compared to the last two years. Imports and exports increased by 6.6% and 6.8% respectively. Private Consumption (%) 5% At the end of 2018, the consumer prices went up by 1.4% compared to 2017: During 2018 some months had around 2.0% inflation which 4% has not been seen since 2012. The largest upward impact on annual 3% inflation came from higher prices of hospital services and actual rentals for housing. 2% Unemployment rate in Q4 2018 decreased to 4.4% from 5.0% in Q3. 1% Compared to Q4 2018, unemployment rate fell by 1.4 percentage 0% points and the number of employed persons increased by 1.2%. Unemployment rate in Q4 2018 is at the lowest level since 2008. After a smaller setback in 2017, Foreign Direct Investments (FDI) continued the trend of amounting to more than 2.0% of GDP, so in Inflation (HICP, %) 2018 FDI amounted to approximately 3.5% of GDP. Forecasts for 3% 2019 and 2020 show continuation of this trend, as FDI are expected 2% to reach 3.0% in both years. 1% High credit ratings from all three major credit rating agencies that 0% Slovenia currently holds is a strong stimulus to potential investors who are considering investing in Slovenia. Today, Moody’s rating for -1% Slovenia stands at Baa1, S&P’s at A+ (Positive outlook), while Fitch rating for this country is A- (Stable outlook). All three credit ratings are an investment grade which means that the credit rating agencies deem the country safe for any potential investments. Unemployment (% of active population) 10% Total building permits issued and floor area (m²) 2.000 8.000 8% 1.500 6.000 6% 1.000 4.000 4% 500 2.000 2% 0 0 0% 2011 2012 2013 2014 2015 2016 2017 2018 Floor area ('000 m²) No of issued building permits Source: Colliers International on SURS Source: Colliers International on FocusEconomics Market Overview | H2 2018 | Slovenia | Colliers International 3 Office Market SUPPLY Key office figures 2018 Total office stock in Ljubljana is around 1 million m² and consists of Ljubljana only a small number of high quality office premises. The majority of Vacancy 15 - 20% the current office stock is outdated and does not satisfy the requirements of international companies who are looking for modern Prime Monthly Rent €14.0-17.0/m² office buildings. Class A Monthly Rent €12.0-14.0/m² Class B and C Monthly Rent €6.0-12.0/m² Office building in Stegne district with 6,600 m² of GLA is the only recent significant office scheme built in Ljubljana. Development is Average Office Monthly Rents in Slovenia almost finished and premises will be available for rent from April Maribor €6.5-7.0/m² 2019. Investor is Golden Palace d.o.o. Celje €6.0-6.5/m² No other substantial office schemes were delivered to the market and Kranj €6.0-6.5/m² the pipeline lacks quality projects. Koper €10.0-11.0/m² DEMAND Ljubljana office take-up (m²) Demand was driven by relocations by companies already present in 200.000 the market, as well as companies currently occupying lower standard 150.000 offices. Most of the demand comes from companies operating in ICT, 100.000 professional services and pharmaceutical sector. 50.000 In 2018 the total take-up amounted to approx. 87,500 m², which is a decrease of 45% in comparison with the year before, mostly as a 0 result of low supply in A class offices. 2013 2014 2015 2016 2017 2018 Source: Colliers International on Trgoskop RENTS AND VACANCY RATE Floor area of new office construction in The prime headline monthly rent in Ljubljana is currently in the range 2 Slovenia (m²) of €14.0 – €17.0/m . An average rent in competitive stock is stable 35.000 and stands between €12.0 – €14.0/m²/month for class A premises 30.000 and between €6.0 – €12.0/m²/month for the class B and C premises. 25.000 Ljubljana office market shows that the monthly rents signed for the 20.000 newer office stock are around 25% higher than overall average. We 15.000 expect slight increase of average rents in class A and prime 10.000 properties as a result of domestic economy’s growth and lack of new 5.000 supply. 0 The average vacancy rate for Ljubljana office market has continued 2013 2014 2015 2016 2017 2018 decreasing due to improved demand and lack of new supply. The Completed Issued permit average vacancy rate is between 15% and 20%. A-class buildings have above 90% occupancy while the outdated buildings in Source: Colliers International on SURS secondary locations have high vacancy rate which affects the overall market’s average. PIPELINE > ILAG Tivoli acquired 9,932 m² plot for Tivoli Development from Greenbay Properties in March 2018. Luxurious mixed-use development worth €70m should also comprise 3,850 m² of A- class offices. Start of construction is still pending. Office building in Stegne Source: tosidos.si 4 Market Overview | H1 2018 | Slovenia | Colliers International Retail Market SUPPLY AND DEMAND Key retail figures 2018 Slovenian retail market is close to saturation, especially in Ljubljana Ljubljana but there are still opportunities for retailers’ expansion in secondary Total Shopping Centre Stock 272,000 m² and tertiary cities. Average SC Monthly Rent €12.0-14.0/m² Ljubljana shopping centre stock comprises of four shopping centres / Average High Street Monthly Rent €40.0/m² retail parks totalling 272,000 m². Majority of Ljubljana retail stock Average SC Monthly Rents in Slovenia (around 60%) is located in BTC. Ljubljana’s high-street, Čopova, also Maribor €8.5-9.0/m² holds important part of retail offering. Celje €9.5-10.0/m² Local and international retailers in Slovenia continued their expansion Kranj €8.0-9.0/m² in 2018. Food retailers Lidl and Tuš opened new stores, both located Koper €10.0-11.0/m² in Maribor. Pepco and Mana are expanding as well. Petrol, leading Slovenian energy company, opened five HopIN stores which are not Source: Colliers International on Trgoskop part of filling station and offer consumer goods. Polish LPP entered Slovenian market with opening of Reserved store in Citypark Celje in September 2018. British cosmetics and skincare retailer Body Shop opened in June 2018 first Slovenian store in Floor area of new retail and wholesale Supernova Rudnik, Ljubljana. construction in Slovenia (m²) Primark announced its first store in Slovenia. The store will be 100.000 located in Citypark Ljubljana while exact opening time is still not 90.000 known. 80.000 70.000 60.000 RENTS AND VACANCY RATE 50.000 40.000 The average rents in shopping malls and retail parks are stable but 30.000 slight increase was recorded in prime locations throughout previous 20.000 years. We expect that the same trend will continue. 10.000 0 Weighted average rent in shopping malls and retail parks ranges 2013 2014 2015 2016 2017 2018 from €7.5 to €16.5 m2/month. Rents on high street depend on the micro location and the size of the premise. In Čopova Street in Completed Issued permits Ljubljana monthly rents range from €20/m² up to over €100/m² for Source: Colliers International on SURS smaller shops on top location. Vacancy rate is stable. Location and size can play a large role in the vacancy rate; therefore it can vary between centres.