RESEARCH & FORECAST REPORT 2017 Overview Q2

Summary

Recent Trends Prognosis

In the past decade Montenegro has shown considerable With the country directing the inflow of investments into growth, and many consider the country one of the fastest tourism, it is very likely that new structures will continue to rising tourism markets in the world. With its stable economic be built to accommodate the demands of the market. The growth over the past few years, it is sure to continue to new road infrastructure and air connections should allow not attract foreign investmets in the forseeable future. The only only a better and faster connection between the southern downside of such trends is that development has largely and northern region, which would again present a valuable been concentrated on retail and hospitality sectors, whereas opportunity for new projects in the northern parts of the the industrial market has been largely left in the backdrop. country, but this will largely depend on external factors.

Economic Unemployment (% of active population) 19.7% 19.5% 18.0% 17.7% Overview 20.3% 17.6% 15.2% Summary & Prognosis

Introduction: Montenegro is an upper middle income country, with a small open economy. The country is in 2011 2012 2013 2014 2015 2016 2017 transition towards a market based economy and integration into the EU. Steady progress has been made on key Source: Montenegro Statistical Office reforms geared towards EU integration. However, further structural and institutional changes are required. The > Economic Performance: Montenegro has been badly economy continues to be over reliant on the state and affected by the global financial crisis and the resultant unprofitable state owned companies are kept afloat by volatility in the euro zone. Marked recession in 2009 was public finance. Unemployment and regional differences in followed by economic growth in 2010 and in 2011 driven by development are also key political and economic issues. increased exports, recovering domestic consumption and Key Economic Indicators are summarized in the following the performance of the tourism sector. However, weak table: external demand resulted in a decline in exports and this, together with weak domestic demand, contributed to 2.5% Economic Figures real economic decline in 2012. Growth resumed in 2013, with a 3.5% growth, and has since continued to expand, with 2013 2014 2015 2016 2017F 2018F IMF staff projecting a 3.0% rise in 2017. However, an IMF assessment states that Montenegro is Actual vulnerable to a downturn in external demand, and Nominal substantial financing needs expose the country to shifts in GDP € 3,362 3,458 3,625 3,773 3,970 4.187 risk aversion and disruptions to global financial markets. In millions Real GDP the following years Montenegro has continued to rely on its 3.5 1.8 3.4 2.5 3.0 2.8 % Change tourism as a source of income. Inflation Montenegro’s economy continues to grow at a moderate CPI Year 0.3 (0.3) 1.4 1.0 1.6 2.6 pace, and growth should continueover the medium term, End boosted by the implementation of large investment projects, % of GDP includingthe construction of the Bar-Boljare highway. IMF Current staff projects the economy to expand by 3 percent in 2017 Account (14.5) (15.2) (13.3) (19.0) (20.2) (21.2) and 2.8 percent in 2018, with planned fiscal consolidation Balance Foreign acting as a moderate drag on growth. Direct 9.6 10.2 17.1 9.8 10.3 10.4 While the implementation of large publicly financed Investment infrastructure projects will add to economic growth, the External 153.5 163.1 163.1 166.8 169.8 173.5 accompanying use of fiscal resources has contributed to a Debt large increase in government debt, which reached 78 Exports 41.3 40.1 42.5 42.4 42.9 42.8 percent of GDP in 2016. Large refinancing needs in coming years are also a source of fiscal vulnerability. Imports 61.4 60.0 61.1 66.0 67.7 68.6 Source: IMF Average monthly gross earnings (€/month) 748 (GDP, annual var in %) 3.5% 3.4% 3.0% 2.5% 2.8% 1.8% 727 727 726 725 723

-2.7% 2011 2012 2013 2014 2015 2016

Source: Montenegro Statistical Office Source: Montenegro Statistical Office

2 Research and forecast report Q2 | 2017 | Montenegro | Colliers International > Economic Sectors: Tourism and the export of refined individual employment agreements. Employment of metals are major economic sectors. Significant natural expatriates is regulated by the Law on Employment of resources include bauxite, hydroelectricity and, for tourism, Foreign Citizens. For an expatriate employee a work permit, the coast and climate. A large aluminium complex and permanent or temporary residence permit and an much of the financial sector have been privatised, and employment contract are obligatory. The Government has foreign direct investment in the tourism sector has an annual maximum quota of foreigners to be employed. commenced. The following table indicates the composition Foreign employees are entitled to equal treatment as local of the economy by broad economic sector, based on employees. employment by sector in September 2017. > Taxation: The tax system has undergone progressive Sector % of Workforce reform since 2001, when Montenegro was moving towards Agriculture 2 independence. The main objectives have been to make the Industry 18 tax system regime more efficient and easier to implement, to increase the attractiveness of the tax regime foreign Services 80 investors and to harmonise the tax system with EU and Total 100 international standards. Tax rates have been significantly rd Source: Montenegro Statistical Office, Labour Force Survey 3 decreased, making Montenegro’s tax regime one of the Q2017 most competitive in the region and Europe as a whole. The rates of significant taxes are as follows: % of Workforce per Sector > Personal Income Tax 9%. 2% Agriculture 18% > Corporation Tax: 9%. Industry > Value Added Tax: 19%, 7% (includes hotel Services accommodation) and 0%.

80% > Withholding Tax: 9%. > Social Security Charges: Employer 9.8% and Employee

Source: Colliers International Montenegro 24%.

> Foreign Trade: Exports declined from €376 million in > Property tax is levied at proportional rates from between 2013 to €338 million in 2014. Imports increased marginally 0.1% and 1.0%. from €1,773 million in 2013 to €1,784 million in 2014. In > Property transfer tax of 3% of the property’s value is 2014 the major partners for exports were (24% of total exports), (10%) and Croatia (10%). The major payable by the buyer. partners for imports were Serbia (27% of total imports), Greece (8%) and (7%). > Tourism: A crucial economic sector in Montenegro. World Travel and Tourism Council (WTTC) estimated that > Exchange Rate: Montenegro adopted the German mark tourism accounts in excess of 10% of total GDP, although in 1999, then the euro on its introduction in 2002. In the last local estimates consider it to be higher. Tourism policies couple of years the US Dollar has steadily risen in value, and strategies, development, operations and marketing are stabilizing during the summer months of 2017 at 1€=1.18. the responsibility of the Ministry of Sustainable Development The value of the Russian Ruble has fluctuated over the and Tourism, with the National Tourism Organisation years, with a decrease in the last year from 1€=74.14 in responsible for planning and implementation tourism 2016 to the current rate of 1€=63.9 in October 2017. strategies, promotion and enhancing the tourism product. Local tourism organisations are active in 19 . Year End 2012 2013 2014 2015 2016 2017 Montenegro’s tourism product is subdivided into six US$ per € 1.32 1.37 1.23 1.15 1.11 1.18 clusters, whose scenic and cultural traits differ from each Russian other, in the Tourism Strategy. 40.3 45.3 72.3 68.07 74.14 67.75 Rubles/ € > The rocky coastline from Lustica to , with many Source: European Central Bank bays and beaches, is the major beach tourism destination and includes . > Employment: 84.9% of the total economically active work force (273,800) was in employment and 15.1% were > Ulcinj, which has an expansive sandy beach, with Ada reported unemployed in Q2 2017, a drastic improvement Bojana and Valdanos. over the 17.5% unemployment rate in Q2 2016. In August

2016 the gross average monthly salary was €763 and the > The Bay of , a cultural area surrounded by cliffs, net monthly salary (after tax and contributions) was €509. together with Bay and the Lustica peninsula. The Employment is governed by the Labour Law, Collective Agreements, general conditions of the employer and

3 Research and forecast report Q2 | 2017 | Montenegro | Colliers International natural and cultural-historic features of the Kotor region are Tourist Arrivals 000s a UNESCO World Heritage Site. 2,000 1,787 1,713

1,492 1,517 > , of historic significance, and Skadar Lake, an area 1,500 of natural beauty. 1,643 1,560

1,350 > and Sinjajevina, mountainous regions with the 1,324 Tara canyon and the national park. Durmitor National Park 1,000 is a UNESCO World heritage Site.

500 > Bjelasica, Komovi and Prokletije, mountainous areas 168 167 153 144 with national parks, monasteries and mosques. Official statistics cover tourists staying in registered tourist - accommodation. However, this understates tourism demand 2013 2014 2015 2016 Domestic Foreign Total because they exclude tourists in unregistered accommodation (the “grey” market). Source: Montenegro Statistical Office

The coast between Budva and Bar is the main tourism zone. Tourist Nights by Type of Accommodation: The majority It accounts for approximately 50% of all tourist nights in (67% in 2016) of tourists stay in private accommodation registered accommodation. There is also a significant (private, rooms, houses and apartments). Hotels accounted demand for unregistered accommodation. There was extensive real estate development, particularly apartment for 23% of tourist nights. blocks, in the period from independence to the global economic crisis. Now, many projects are incomplete or Total % of Total remain undeveloped. In peak season there is pressure on Tourist Accommodation Overnights 000s utilities and infrastructure, and beaches are crowded. Collective Accommodation* 2,687 23 Private Accommodation 5,358 67 Tourist Arrivals and Nights: Foreign tourism (nights and Total 8,045 100 arrivals) has grown annually, with the exception of 2009 Source: Montenegro Statistical Office (* Collective accommodation when tourist nights declined. Domestic tourism has establishments include: hotels, camping sites, tourist resorts, boarding fluctuated, but has declined in recent years. Nevertheless, houses, motels, inns etc.) the number of nights tourist spend in Montenegro has grown steadily over the years, with a large increase in 2015. Region of Origin of Foreign Tourists: Europe is the source market region for the vast majority (96.9% in 2016). Tourist nights 000s 11,054 11,153 % of Foreign Tourist Nights 12,000 Source Markets 9,412 9,554 22012 2013 2014 2015 2016

Europe 98.2 98.0 97.3 97.4 96.9 10,307 10,450 Other 8,000 1.8 2.0 2.7 2.6 3.1 Regions 8,597 8,414 Total 100.0 100.0 100.0 100.0 100.0 Source: Montenegro Statistical Office

4,000 Tourist Arrivals by Destination Type: The vast majority (approximately 90.4% in 2016) of tourist arrivals stay in 998 957 747 703 seaside resorts. attracts demand in its role as the capital city (4.4%), while mountain resorts and other - destinations attract limited demand for winter sports and 2013 2014 2015 2016 summer nature tourism (5.2%) Domestic Foreign Total

Source: Montenegro Statistical Office Country of Origin of Foreign Tourists: and Serbia generate the majority of tourist demand (around 41% of foreign tourist nights in 2016), followed by Eastern European countries. Demand from Western Europe is limited, led by Germany and France (each 2% of foreign tourist nights).

4 Research and forecast report Q2 | 2017 | Montenegro | Colliers International % of Foreign Tourist Nights Nights 000s Source Markets 2013 2014 2015 2016 Foreign Domestic Total Russia 28.1 22.8 16.8 16.8 Jan 65,722 19,062 84,784 Serbia 25.1 24.7 27.3 24.3 Feb 67,162 18,490 85,652 Bosnia and 7.5 7.9 13.2 13.3 Mar 77,027 21,743 98,770 Herzegovina Apr 137,074 22,111 159,185 5.6 4.0 3.2 3.2 May 416,699 36,615 453,314 Kosovo 3.3 2.9 2.9 2.8 Poland 2.7 3.4 3.6 3.5 Jun 1,122,967 78,699 1,201,434 Germany 2.3 2.4 3.3 3.5 Jul 3,006,367 137,873 3,144,240 France 2.2 2.6 2.7 2.7 Aug 3,801,146 237,192 4,038,338 Macedonia 2.1 1.8 1.8 1.8 Sep 1,429,785 84,298 1,514,083 Czech 2.1 2.6 1.3 1.3 Oct 234,255 26,907 261,162 Republic Nov 92,178 20,603 112,781 Other 19.0 24.9 23.8 26.8 Countries Dec 65,006 14,154 79,160 Total 100.0 100.0 100.0 100.0 Total 10,515,388 701,106 11,232,900 Source: Montenegro Statistical Office % of Total Nights

Foreign Domestic Total Overnight Stays by Destination: Budva is Montenegro’s Jan 0.6 2.7 0.8 major tourist destination, accounting for around 50.5% of Feb 0.6 2.7 0.8 foreign tourist nights and 48.7% of total tourist nights in Mar 0.7 3.1 0.9 2016, and research estimates that it will stay a hotspot for tourists in the following years. accounts for Apr 1.3 3.2 1.4 16.2% of foreign tourist nights and 18.1% of total tourist May 3.9 4.5 4.0 nights in 2016. Jun 10.6 11.1 10.7 Jul 28.5 19.2 28.0 Tourist Nights 000s by destination Aug 36.1 33.4 35.9 5000 Sep 13.5 11.8 13.5 Oct 2.2 3.7 2.3 Nov 0.8 2.8 1.0 4000 Dec 0.6 1.9 0.7 Total 100.0 100.0 100.0 Source: Montenegro Statistical Office 3000

4338 Prognosis

2000 2923 Montenegro has significant growth potential. GDP grew by 2.1% in 2016 and is forecast by the IMF to grow by 3.6% in 2017. However, the economic outlook is clouded by 1000 1336 uncertainty, particularly in relation to the Euro zone which is the main export market. The rate of growth in the medium to long term will be influenced by progress towards 314 299 344 0 membership of the EU and is dependent on addressing a Budva Herceg Novi Other number of challenges. EBRD and the government have Domestic Foreign identified the following challenges to be addressed:

Source: Montenegro Statistical Office > Diversifying and expanding the economic base through Seasonality: Tourist demand peaks significantly in the increased competitiveness, including targeted support to summer months, reflecting the dominance of beach related SMEs in sectors with growth potential and further tourism. The months between June and September accounted for 89% of tourist nights in 2016. The two peak strengthening of the financial system. months, July and August, accounted for over 64% of tourist > Supporting sustainable tourism, property and associated nights. environmental and infrastructure needs. The tourism sector

is a major potential driver of economic growth. This involves

addressing the lack of institutional and infrastructure, and

5 Research and forecast report Q2 | 2017 | Montenegro | Colliers International avoiding the environmental risks of further tourism Alitalia, Austrian Airlines, Turkish Airlines Ryan Air , Wizz development. Air, Easy Jet and Fly Dubai, Destinations served by scheduled flights are , Frankfurt, Istanbul, London, > Introducing energy security and efficiency, and regional Ljubljana, Paris, Rome, , Vienna, Zurich, Milano, integration of energy markets. Stockholm, Dubai. There are also additional seasonal and charter flights during the summer.

> is located by the coastal road 4 km from Transport Tivat and 25 km southeast of Herceg Novi (via the car ferry linking Kamenari and Lepetane). The airport, which has one , suffers from a challenging approach in some Summary weather conditions because of the topography and cross winds. The refurbished and upgraded terminal has an annual capacity of one million passengers. However, the Montenegro’s small size, geographic location, topography vast majority (over 80%) of passengers arrive in the summer and its strong reliance on tourism and agriculture, increase period when there are seasonal and charter flights from the importance of developing an effective transport system throughout Europe. This results in the passenger terminal that is integrated with those of the nearby countries in the operating at capacity at peak times in the summer. region. > Dubrovnik Airport, located in Croatia 30 km northwest of > Air: Montenegro has a liberal open skies air transport Herceg Novi (where this project is located) is important. policy. The two airports, Podgorica and Tivat, are managed Dubrovnik Airport handled 1.58 million passengers in 2014 by Airports of Montenegro, a state company. Significant (increased from 1.52 million in 2013 and 1.48 million in investment has been made in upgrading the airports, based 2012), which is almost as many as the number of on a strategic master plan formulated in the early 2000s. A passengers handled by Podgorica and Tivat airports new terminal and other upgrading at , and combined. Major airlines and routes at Dubrovnik Airport upgrading of Tivat Airport, were completed in 2006. are summarised in the following table. , the national carrier, commenced operations in 2000. Passengers handled at the two airports, % of % of Airline Routes summarised in the following table, increased by 40% from Passengers Passengers 2008 to 2016. In addition, tourists access Montenegro’s Croatia 24.2 London 13.5 coast via neighbouring airports, particularly via Dubrovnik Airlines Airport in Croatia. EasyJet 10.3 10.2 Norwebian 7.4 Paris 5.8 Podgorica Airport Tivat Airport Air Shuttle Monarch Passengers Passengers 5.9 Manchester 3.5 % Change % Change Airlines 000s 000s Vueling 4.6 Rome 2.9 2010 652 45 542 2 Airlines

2011 612 -6 647 19 Jet2.com 4.4 Dublin 2.8

British 2012 620 1 726 12 4.1 Stockholm 2.6 Airways 2013 681 10 868 20 Austrian 4.0 Helsinki 2.6 Airlines 2014 701 3 911 5 3.9 Barcelona 2.5 2015 748 6 895 -3 Travel 3.0 Frankfurt 2.5 2016 n/a n/a n/a n/a Service Source: Airports of Montenegro Source: Dubrovnik Airport

> Podgorica Airport is located 12 km south of Podgorica > Future Developments: Proposed future airport city centre and 115 km from Herceg Novi. The airport has development in Montenegro is the subject of a master plan two runways, with the main runway used for both civilian covering the period to 2030. Plans include further and military flights. The new terminal (2006) has an annual upgrading and increasing capacity at Podgorica Airport and capacity of 1 million passengers. The old terminal has been Tivat Airport (with a new passenger terminal, increased completely renovated is now used for VIPs and general taxiways and new apron areas). Long term proposals aviation. Scheduled services are operated throughout the include a new operation at in the year by Montenegro Airlines, Adria Airways, , northeast of the country. Upgrading and expansion of

6 Research and forecast report Q2 | 2017 | Montenegro | Colliers International Dubrovnik Airport is ongoing. We understand that a tender district. Even though a few new office buildings are present, for the privatisation of Podgorica and Tivat airports is to be it is unsuitable for investors to develop large office released within the next two months. developments within this area due to smaller land parcels.

> Road: Montenegro’s road network totals 7,000 km, of which 884 km are main and primary roads, 964 km regional and secondary roads, and 5,000 km roads. There is considerable disparity in road conditions between the coastal and mountainous areas. Significant investment is needed in much of the road network, despite improvements in and around Podgorica and some of the most concentrated tourism areas such as Budva.

> Rail: The rail network comprises 428 km of single line track, of which 168 km are electrified. Key sections of the rail network have been rehabilitated and rolling stock upgrading has taken place.

> Sea: Montenegro has three active sea ports: Bar (largest Source: Colliers International Montenegro port in Montenegro that handles both cargo and passengers), Kotor (the main cruise ship port) and Zelenika. Locations of Class A Offices There is also a chain of marinas along the coast. The major marinas include those located at Ulcinj, Bar, Budva, Tivat, Kotor, Zelenika and Herceg Novi.

> Transport Strategy: Montenegro’s strategy is to integrate its transport network into the regional transport network, to improve communications with neighbouring countries. Road network proposals include implementation two major highway corridors: the Bar to Boljare highway (to connect to Belgrade and pan European road networks) and the E65/E80 (from Italy, via , Croatia, , Montenegro and Albania to Greece). Rail network proposals include upgrading the rail infrastructure between Bar Port and Belgrade. Other road and rail projects of strategic importance are aimed at Source: Colliers International Montenegro improve links with Albania and Croatia. However, there is uncertainty over the financing of these major projects.

Modern Class A office buildings include Europoint, Normal Tower, Capital Plaza, Cijeva Komerc/Societe General Office Market headquarter, Celebic Business Center. Demand Summary Demand is driven by new companies, expansion of those The core of business activity is located in Podgorica, already present on the market, as well as companies therefore it represents a business hub of Montenegro. currently occupying lower standard offices. Currently, Podgorica’s Central Business District (CBD) is The majority of demand will continue to come from located on and around the which is international and local companies that are actively looking to commonly referred to as Vektra Square after the relocate from older and lower standard office buildings to construction of the first major development, Vektra business newer and modern buildings. center. The secondary business district of Podgorica is located east of the Roman Square, towards the city center. This area has historically been called “Across the Morača“, originally a residential suburb with uniform high-rise apartment buildings. The city center and its neighboring areas are also considered to be the secondary business

7 Research and forecast report Q2 | 2017 | Montenegro | Colliers International the vacancy rate is expected to stabilize at a level of 10 - Modern Office Building Stock 12%. Project Business District GLA Asking Rental Price Ex Hypo Alphe Central 4,500 2 Adria Bank Project Business District Rent EUR/m Kroling Central 3,000 Capital Plaza* Central 15-20 Building between Normal Tower* Central 17 Central 4,500 T-HB Europoint* Central 16 “Professor’s Central 3,000 Building” Čelebić Building Secondary 16 Cijevna Komerc Central 5,500 BusinessCity Central 15 Čelebić Normal Tower Central 6,000 Cijevna Komerc Secondary 17 Europoint Central 8,895 Source: Colliers Montenegro *Additional service charges not included

Capital Plaza Central 14,500

Universal Capital Yields Secondary 6,000 Bank

Hidromol Secondary 3,000 Lack of comparable evidence and a limited amount of deals has been experienced during the previous months. Hence, Palada Secondary 1,000 there is uncertainty regarding yield rates for the office premises in the area. However according to experts opinion, Šofranac Secondary 1,100 prime yields are estimated at around 9 % - 10%. Čelebić Building Secondary 6,000 Business City Central 5,610 Pipeline and Prognosis Čelebić

Total 72.605 Project Business City by investor Čelebić will bring new Source: Colliers international Montenegro 5,610 m2 of office space and 5,900 m2 of shopping center, with 140 parking places. Besides this, Normal Company is Rents bringing into the market in 2017 additional 5000 m2 of A class office space in the area across river Morača, next to Rental levels for modern office space in Podgorica range hotel Podgorica. Due to the new supply and lower demand between 15 – 20 EUR/m²/month. Class A office buildings for the A class office space we are expecting further that are situated in prestigious locations with high foot and decrease of rents in the next year. vehicle traffic can achieve rental prices up to 18 EUR/m²/month. For lower quality office space, rental levels vary between 10 – 14 EUR/m²/month. The range of the rental prices for office space units in prime downtown streets Residential Market and around the Roman Square which are located within residential projects is between 10 – 15 EUR/m²/month, depending on the age, size, condition and visibility of the Summary unit. Office units which are part of residential buildings that are not visible from the main streets, or are not located The economic and financial crisis caused a decline in along the Petra Cetinjskog Boulevard, usually command residential sales in the last few years. This has led to a lower rental prices of approximately 5 – 7 EUR/m²/month. surplus of the number of apartment units that have been developed and are available throughout Montenegro. New Class A office stock supply in first half of 2017 in Moreover, the disruption of relations between Russia and Podgorica amounted to approximately 5,610 m² of gross Ukraine has further negatively affected the real leasable area. This new stock relates the completion of the estate market causing very poor sales last year. Russians Čelebic Business City Center. Erste Bank bought four floors and Ukrainian citizens accounted for more that 70 percent of of approximately 930 m2, each. This makes more than 50% residential purchases on the coast in recent years. However, GLA. 2016 marked the return of British tourists and a number of However, during first half of 2017 the demand for office other investors from Ex Yu countries, , western and space in Podgorica had significantly increased compared to northern Europe who chose Montenegro as a second home the previous periods. The net leased area of the above destination. Slower recovery is expected as the market is mentioned projects amounts to approximately 7000m2.The still heavily reliant on Russian tourists as well as Eastern vacancy rate in Podgorica is around 15%. Once these new European travelers whose numbers are declining and a developments have been properly absorbed by the market, large number of Western European travelers cannot replace the reduced number of Russian buyers from previous years.

8 Research and forecast report Q2 | 2017 | Montenegro | Colliers International The most successful projects in Podgorica are located in the Major Projects area of ex-factory Radoje Dakic in the area so called City Quart. Celebic and Zetagradnja construction companies finished a The Montenegrin coast, with five trade ports: Bar, Tivat, new phase of twelve buildings and most of the apartments Herceg Novi, Kotor and Zelenika, is important economic are sold. The City Quart is located in the vicinity of Delta location. It also has affordable tax policy, with possibility of City, which is one of the most attractive locations for exemption for a period longer than 10 years. However, the inhabitants. According to investor’s statistics, selling Government of Montenegro adopted the “Program of dynamics is stronger than expected, and one apartment is incentives for business development” with the intention to sold every 2 days. increase capital investment from domestic and foreign investors. Business zones are promulgated by the eight local governments, including Budva, Herceg Novi, Sales Prices Podgorica. Therefore investors have the opportunity to invest under favorable terms.

The average sales price of the residential units per m² in Montenegro in Q4 2016 was at the level of 957 EUR/m², in Porto Montenegro accordance with official statistics, and represets an decrease in comparison to the same period last year (by Porto Montenegro is one of the Mediterranean’s leading about 12.5%). Prices have since improved, with a reported luxury yacht homeport, with residential and business 2 average price of 1,102 EUR/m for Q2 2017. The most premises.It is already recognised as one of the most expensive town in Montenegro is curently Bar, overtaking luxurious marina in the world. Residential complex of Porto 2 Budva at an average price of 1,461 EUR/m in Q2. The Montenegro Marina currently consists of 7 buildings. One of average price per m² in Podgorica in Q2 was around 1,116 the important benefit which Porto Montenegro offers to its EUR/m², in Budva 1258 EUR/m² and in Niksic 550 EUR/m². users is tax and duty-free fuel. Apartments of size between 50 m² and 60 m² were most attractive and best sold in 2016. The construction of the first phase of complex, a luxury hotel/residential development Regent Pool club has been Average Sales Prices (EUR) finished in June 2017 and take over procedure of the (Q2 2016 - Q2 2017) apartments is finished in July. This phase includes 62 1,200 apartment units from 74 m2 to 344 m2, with secured 1,000 underground parking places. The next phase of 800 approximately 130 branded residencies will start with construction in September 2017. The average achived 600 prices in this building were around 6.800 EUR/m2 and 400 around 70% of the apartments are sold. Russia and post- 200 Soviet states make for 30% of properties bought, former 0 Yugoslav countries including Montenegro 30%, while CEE, 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 Western Europe, Northern Europe, GCC and USA make for Montenegro Podgorica 40%.

Source: Colliers International Montenegro

The real estate market of Montenegro experienced highest Russia, post- level of construction activity during the previous years on the 40% 30% Soviet states coastal region and in capital city of Podgorica. Coastal region is recognized as the most attractive part of the country for the FDI, due to its position, natural beauty and Former Yugoslav countries, incl. potential. Domestic investors with biggest impact on the Montenegro Montenegrin construction market were companies Čelebić and Zetagradnja and they were investing mostly in CEE, Western Podgorica region. The most attractive investment Europe, GCC, USA destination in Montenegro in 2016 and Q2 2017 were: Budva , , Petrovac, Dobre 30% Vode, Utjeha, and Herceg Novi.

Source: Colliers International Montenegro

9 Research and forecast report Q2 | 2017 | Montenegro | Colliers International

Luštica Bay Portonovi

Luštice Bay is an investment worth 1.1 billion EUR, and it is Porto Novi is a pipeline project, by the investors. undertaken by the Swiss - Egyptian company “Orascom Construction work has begun two years ago and first phase Development”. The first phase of 10 buildings with 70 units of 122 apartments and 12 villas is almost done including is succesfuly finished and all partments . The price of marina with 238 berths and will be delivered till the end of residence unit was between 4,200 – 4,900 EUR/m2. Under the 2017. The project will offer One&Only hotel with 110 construction are Marina apartments, with total 200 luxurious rooms, apartments and villas. One&Only resorts apartments, Chedi condo hotel with 110 rooms from which already excist in Dubai, Mexico, Bahamas and South Africa, 50 units are sold and Centrale with approximately and the investor saw an opportunity in the Montenegrian 180 apartments . The asking prices in Marina apartments coast. The future project will be positioned in , near are between 5,300 – 6,500 EUR/m2 and around 90% of the Herceg Novi, on the 60 hectar of land. The date of final apartments are sold.The delivery date of marina apartments completion of the project is scheduled for 2020 year. The is July 2018. Centrale is offering much more affordable asking prices are ranging between 5,000 up to 14,000 product wit the price range from 2,300-2,500 EUR/m2. 50% EUR/m2. of the apartments are sold already. The delivery date of Centrale is July 2019.The structure of buyers is presented in the following chart:

Source: Colliers International Montenegro Dukley Gardens

Buyers of Luštice Bay residential complex are sorted into A luxury complex of residences Dukley Garden was five groups. The biggest stake of the total amount of buyers completed 2015. It is located on peninsula of Zavala, in city belong to countries in Western Balkan ( Serbian, Croatia, of Budva and comprises od total 202 units. It is still left Bosnia and Herzegovina, Montenegro ). In the second around 20 units and asking prices ranges from 5,000 to group of buyers is Russia, while the significant part are 7,500 EUR/m2. Swiss and Middle East. Based on the fact that investor is Swiss - Egiptian company, it is natural that the first buyers Buyers of Dukley Garden residential complex are mainly were from these two countries. It is planned that the project from Russia (70%). Other buyers are mostly from Ukraine, will comprise seven hotels, two marinas, a spa and wellness France and UK. The structure of the origin of buyers is center, a sport centres and other amenities. presented in the following chart:

10 Research and forecast report Q2 | 2017 | Montenegro | Colliers International Rents & Vacancy Rate

The average rental price in the largest shopping center in Podgorica is approximately 22 EUR/m²/monthly. In the second largest shopping center it is estimated at 15 EUR/m²/monthly. In the “Bazar”, a relatively smaller shopping center in Blok V, the range of achieved rental prices is between 7 and 12 EUR/m². Specific to this shopping center is that more than 50% of the retail space is sold to the local retailers. In the shopping Source: Colliers International Montenegro center City Mall it is estimated at 12 EUR/m²/monthly. In the shopping center The Capital Plaza it is estimated at 15 EUR/m²/monthly. The table below indicates the net rental levels within the shopping centers, depending on size and Retail Market position within the shopping center. As a result of market non-transparency, rental level breakdown by tenant Supply and Demand category represent approximations.

Even though Podgorica is a small capital compared to Food court neighboring capitals in the region, its retail segment is quite expansive. If the relationship between population and the Inline tenants (small shops) gross leasable area of existing shopping centers is observed Inline tenants (120-200m2) Podgorica has more than adequate modern retail space. At Mini Tenants the beginning of 2017, small neighboring shopping center Forum on the Stari Aerodrom has been opened with a total Anchor Tenants size of a 1,600m2 GLA. There are in total 17 stores with 70 Hypermarkets parking spaces. According to the most recent available data, Podgorica has a population of about 187,085 inhabitants €0 €10 €20 €30 €40 and an area of 60.000 m² GLA of shopping centers, which Source: Colliers International Montenegro results in a shopping center ratio of 304 m² per 1,000 inhabitants. Pipeline and Prognosis

Key Retail Figures – Podgorica Project GLA Opening Date Local investor “Montenegropromet” announced plan to start with construction of shopping center in Zlatica in Podgorica Delta City 24,000 2008 in Q4 of 2017 with total GLA of 4,400m2 and 130 parking Mall of Montenegro 15,000 2010 spaces. Till the end of the year we are expecting small Bazar 8,000 2012 decrease of the rent levels up to 10% and similar occupancy Capital Plaza 10,000 2015 rates with the first Q2 . City Mall 5,000 2016

Forum 1,600 2017 Source: Colliers International Montenegro

7.8% 2.5% Delta City

37.7% Mall of 15.7% Montenegro Bazar

Capital Plaza

12.6% City Mall

Forum 23.6%

Source: Colliers International Montenegro

11 Research and forecast report Q2 | 2017 | Montenegro | Colliers International

w Contact: Milovan Novakovic MRICS 554 offices in Managing Director [email protected]

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Copyright © 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 12 Research and forecast report Q2 | 2017 | Montenegro | Colliers International