MARKET OVERVIEW REPORT BOSNIA AND HERZEGOVINA 2018 OVERVIEW & 2019 FORECAST MARKET OVERVIEW REPORT BOSNIA AND HERZEGOVINA 2018 AND Q1 2019 Summary Recent Trends Market Prognosis The highest development activity in 2018 was recorded in the hotel We see retail and HTL as the most active sectors and retail sector. No new significant developments were delivered to in terms of development volumes in the coming the office market in the past year, but the investment volume was the year. Road and air infrastructure expansion in highest in this segment. pipeline will attract new investments, especially in HTL and industrial/logistics market, while private Banks have continued freeing up capital and cleaning their balance consumption increase should encourage retail sheets by disposing of NPL portfolios secured by mortgages on development in smaller BiH cities. properties of low quality, but a large amount of industrial/logistics and office buildings are still locked as distressed assets. Economic Overview Summary & Prognosis The economy of Bosnia and Herzegovina (BiH) recorded a 3.2% yoy Economic Growth (GDP, %) GDP growth in Q3 2018 compared to the same quarter of the previous year. The slightly faster GDP growth is based on revival of exports in 3,2 steel, energy and other heavy industries, as well as in growing sectors such as tourism and trade. On the other hand, the economy in BiH is 3,0 3,0 3,0 3,0 heavily dependent on external funding for the chronic budget and 2,9 2,9 account deficits. The inflation rate in Bosnia and Herzegovina was recorded at 0.1% in November 2018. However, it is projected to grow at a stable 2.0% rate by 2021. The number of employed persons in October 2018 amounted to 815k, which represents a 2.2% yoy growth, while number of unemployed persons was recorded at 437k in the same month (8.5% yoy drop). Nevertheless, according to Labour Force Survey, the number of unemployed persons is much lower, estimated at 211k in 2017 in Unemployment rate (% of active comparison with 475k of registered unemployed persons. The reason population) for such discrepancy is grey economy and low transparency on labour market. 43% 41% 38% Moody’s credit rating for BiH stands at B3 with stable outlook for three 36% 35% 35% 35% consecutive Reports since July 2012. Standard & Poor’s credit rating changed in March 2019 from B with stable outlook to B with positive outlook. The mentioned credit ratings are 5 grades below investment level. Fitch credit rating agency doesn’t cover BiH. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Bosnia and Herzegovina thus having a big impact on the country's borrowing costs. BiH GDP growth forecast is set at 3.0% trend by 2019 due to rising exports, low inflationary pressure and increase in private consumption. Inflation (CPI, %) 2018 has shown to be a good year for Bosnia and Herzegovina, as 2,0 1,7 FDI amounted to 2.5% of GDP, the highest percentage since 2015. 1,4 Expectations about two upcoming years are high and are mostly 1,2 1,1 based on the successfulness of 2018, so in 2019 and 2020, FDI are expected to reach 2.9% and 3.1% respectively. -1,0 -1,1 Further opportunities for improvement which should be solved in order to stabilize GDP growth in the long run are: political fragility based on ethnic tensions, structural weaknesses and bureaucratic barriers. Average gross earnings (€/month) Private consumption (% yoy) 3,2 3,1 3,3 704 1,8 2,2 674 1,2 658 659 658 658 664 2012 2013 2014 2015 2016 2017 2018 Source: Colliers International on Oxford Economics Source: Agency for statistics of Bosnia and Herzegovina 2 Market overview | 2018 | Bosnia and Herzegovina | Colliers International Office Market Supply & Demand Pipeline Office stock in BiH is mostly located in Sarajevo, the capital of BiH, Three office buildings are currently in pipeline, all where majority of international companies have their headquarters. of them brownfield projects which were not in use Significant stock is also located in Banja Luka, the capital of Republika since construction: Srpska entity and in Zenica, Tuzla, Bijeljina and Mostar, cities with more than 100,000 residents. Government of Federation of Bosnia acquired an 8,829 m² unfinished office building “Glass Current office class "A" and class "B" stock in Sarajevo amounts to bank” in Mostar in 2017 and is planning to around 100,000 m² GLA (gross leasable area). Of this, class "A" office relocate in it after the reconstruction. space accounts for 70% and class "B" and "B+" account for the remaining 33%. Croatian IT company Infobip plans to expand their office premises in Sarajevo to 5,000 m² The market has dozens of smaller office buildings that were built by or (HC 500). The company opened a new office in for businesses who prefer to own property. Some of these include Tuzla in Q1 2019. insurance companies, banks, telecommunications and construction companies, IT industry businesses, etc. The demand for office buildings comes primarily from numerous government institutions due to complex BiH government system, Sarajevo office market key figures 2018 banks, insurance companies and other global corporations present in BiH. IT and domestic start-up companies continue to record growth in Total stock in m² 120.000 m² demand structure. The most demanded are "A" class office premises. "A" class buildings stock 80.000 m² There is a lack of premises with floor area above 1,000 m². Therefore, the companies such as banks and government offices, which have a "B" class buildings stock 40.000 m² need for large office space, decide to buy or build their own buildings. Vacancy <15% On the other hand, there are numerous vacant office premises on secondary locations. Average Monthly Rent A class €12-€18/m² One of the last completed projects is a residential and commercial Average Monthly Rent B class €9-€13/m² "high class" building – Bau-Herc. It is located on the crossroad of Source: Colliers International Hiseta and Kotromanovićeva ulica, close to the Sarajevo City Centre. The object has a surface of 6,300 m². The construction works started in 2014 and finished at the end of 2017. Rents & Vacancy rate Employed persons per category The monthly rents range between 12 and 18 EUR/m²/month for class 22.000 "A" office space and between 9 and 13 EUR/m²/month for class "B" 20.000 office premises. The monthly rent in Sarajevo suburban areas ranges between 5 and 9 EUR/m²/month. The rents in office sector remain 18.000 stable in 2018. 16.000 Total average vacancy of Class "A" buildings ranges between 10% 14.000 and 20%. Estimated average vacancy in "B" class buildings stands 12.000 between 5% and 15%. Prognosis Information and communication Financial and insurance activities Both rental levels and vacancy rate are expected to remain stable during the next year. We expect that Middle East and Turkish Source: Colliers International on Agency for statistics investors, as well as government institutions and local investors will of Bosnia and Herzegovina continue with investment and development activities. 3 Market overview | 2018 | Bosnia and Herzegovina | Colliers International Retail Market Supply & Demand Shopping centre stock 150.000 1.000 Improved macroeconomic indicators such as GDP and wage growth have positively affected the retail sector of BiH and Sarajevo. 120.000 800 BiH retail market consists of contemporary shopping centres with 90.000 600 international brands, located in bigger cities and local owner-occupied 60.000 400 department stores that are a combination of F&B, fashion, furniture and DIY stores, located in both bigger and smaller cities. 30.000 200 Serbian company, Delta Holding, opened the largest shopping centre 0 0 in Banja Luka, Delta Planet in March 2019. The investment in 62,500 m² shopping centre was estimated at €70m. Swedish H&M and Polish LPP clothing brands entered the BiH retail market by opening their first stores in Delta Planet. GBA (m²) Shopping Centre stock m²/capita (right side) Desigual clothing brand entered the BiH retail market in August 2018 with its first store on the Sarajevo high street, while UK clothing brand Source: Colliers International Superdry opened its first store in BiH in Sarajevo City Center in September 2018 and afterwards in Delta Planet in March 2019. Rents & Vacancy rate The outcome of Agrokor insolvency procedure has changed the order of top retailers on BiH market. After surpassing Konzum in 2016, The monthly weighted average rent ranges from domestic retailer Bingo continued to strengthen its leading position on €10 to €25 per m² depending on each modern BiH market. Konzum on the other hand experienced stagnation in centre. In addition to base rent some tenants revenue and income decline. (usually the anchor tenants) pay the turnover rent. Year 2018 was very active with openings of two shopping centres and Average vacancy rate in the modern shopping several new big-box developments in secondary and tertiary cities. centres is below 10%. Vacancy rate in other Bingo is the most active retailer and is expected to open its 200th store centres is much higher. in BiH in 2019. Prime shopping centres in BiH Retail developments in 2018 Monthly rent/m² per category (range) Name Investor, Country City Type GBA (m²) Sports Delta Planet Delta Holding, Serbia Banja Luka shopping mall 62,500 Restaurants and caffe Bingo Bingo, BiH Živinice big-box 15,000 Paper and Book Bingo Bingo, BiH Šamac big-box 14,000 Leather and Shoes Bingo Bingo, BiH Jajce big-box 13,000 Household and Electro Furtuna City Leburić komerc, BiH Prnjavor shopping mall 12,400 Food and Tobacco Source:source: ColliersColliers InternationalInternational Fashion Beauty and Health 0 10 20 30 Pipeline Source: Colliers International Similar to new developments, pipeline is also dominated by Bingo which is building a large big-box in Maglaj and will extend its newly opened big-box in Živinice and turn it into a shopping centre.