Real estate market & trends Belgrade 2011, Serbia

Market & Trends

Outlook

Belgrade | 1H 2010

Belgrade | 2H 2010

Real Estate

Belgrade | 1H 2011

For further market information, please contact

Zana Sipovac

Head of Valuation and Investment Advisory

[email protected]

Mitar Bulatovic

Head of Commercial Brokerage Services

[email protected]

T + 381 11 26 32 300

F + 381 11 32 84 647

17, Cara Urosa Street - Belgrade

[email protected]

www.leroy.rs

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COPYRIGHT © LEROY REALTY CONSULTANTS 2011. All rights reserved. No part of this report must not be copied or transmitted without written

permission of LeRoy.

Real Estate Market & Trends Outlook | 1

ECONOMY OUTLOOK 2

OFFICE MARKET & TRENDS 4

Supply

Demand 5

Vacancy 6

Rents 6

Pipeline 7

Forecast 7

RETAIL MARKET & TRENDS 9

Supply 9

Demand 9

Vacancy 10

Rents 10

Pipeline & Announced 11

Forecast 11

INDUSTRIAL MARKET & TRENDS 13

Supply 13

Demand 14

Vacancy 14

Rents 14

Pipeline & Forecast 15

RESIDENTIAL MARKET & TRENDS 18

Supply 18

Demand 19

Pricing 19

Developed & Under construction 19

Announced

Forecast 19

Table – Economy indicators

Chart – Belgrade office stock

Chart – Belgrade office delivery, semiannual

Chart – Belgrade office vacancy rates

Chart – Average rent levels

Chart – Office yields

Table – New office deliveries & pipeline projects

Chart – Structure of retail sale in Serbia

Chart – Shopping center stock in Belgrade

Chart – Big-box stock in Serbia & Belgrade

Table – New retail deliveries

Table – New high street tenants

Chart – Prime rents in Belgrade

Chart – Shopping center rents in Belgrade

Chart – Indicative retail yields

Table – Projects under construction

Chart – Modern industrial & logistics stock in Serbia

Chart – Modern logistics stock in Serbia

Chart – Industrial & logistics construction permits issued

in Serbia

Chart – Industrial & logistics construction permits issued

in Belgrade

Chart – Modern warehouse rents in Belgrade&wider area

Chart – Number of constructed apartments in Serbia &

Belgrade

Chart – Number of constructed apartments in Belgrade

municipalities

Chart – Structure of new apartments in Belgrade

Chart – Residential construction permits issued in Serbia &

Belgrade

Chart – Residential construction permits issued in Belgrade

municipalities

Table – New residential deliveries & under construction

Chart – Average asking prices in Belgrade municipalities

Chart – Average asking rents in Belgrade municipalities

Table of Contents

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Since the beginning of the year, the Serbian

government has faced significant structural

problems related to a rising inflation, unemployment

and the budget deficit. The unsuccessful

privatization of the national telecommunication

company “Telecom Serbia” has increased the

problem of the budget deficit.

Serbia’s rating according to Dun&Bradstreet has

maintained its moderate risk DB4d, where the

potential medium-term threat is the budget issue.

The strict austerity measures necessary for structural reforms of the

budget system are not likely in pre-election year. Therefore, the

rising budget deficit is planned to be overcome by the issuance of

euro bonds (EUR 500 millions) and through the commercial loan

with the guarantee of the World Bank (USD 400 millions).

According to the Statistical office of the Republic of Serbia, GDP

growth in the first quarter of 2011 was 3.4% compared to the same

period last year. The highest growth has been recorded in the

following sectors: transport (9.8%), electricity and gas supply (7.5%),

manufacturing (6.2%), financial and insurance (6.2%), while the

largest decline has been in the construction sector (2.9%).

Industrial production continued with growth and in June recorded

3.3% increase compared to the same period last year. In January-June

2011 industrial production rose by 4.8% compared to the same

period in 2010. In June 2011 the highest growth was recorded in the

mining sector (17.8%), then the sector of energy and gas (13.3%) and

manufacturing (0.5%).

Decline in the construction industry recorded in the Q1 2011 (2.9%)

has been reduced compared to 2010. Recovery in the construction

industry depends greatly on the government initiative to start major

infrastructural developments.

Since the start of recession, the biggest challenge has been to stop

negative trends in the labor market. Labor force survey from April

indicates the unemployment rate of 22.2%, which is a 3% increase

since October. Stabilization of the labor market has not been reached

yet, and this problem will continue to be the biggest challenge

through 2011.

The inflation in June 2011 amounted to -0.3%, while the year-on-year

growth amounted to 12.7%. Decrease of inflation pressures can be

explained by slowdown of food prices growth. However, the

inflation in 2011 is expected to reach a double digit level (10.3%),

which is well above the projected level (6%). Meanwhile, as a

response to rising inflationary pressures, the National Bank of Serbia

tightened monetary policy and the reference rate in June amounted

to 12%.

Retail prices of goods and services in June decreased by 0.3%,

compared to the previous month. In June 2011, the retail prices were

higher by 12.7% than in the same period in 2010. Retail turnover in

June 2011 decreased by 16% in constant prices compared to June

2010.

The average net salary in Serbia in June 2011 was RSD 39,322, which

is an increase of 2.1% in real terms compared to June 2010.

Considering the period January-June 2011, the average net salary

decreased by 2.2% in real terms compared to the same period last

year.

In the field of European integration, despite certain issues regarding

the Kosovo question, the EU candidate status will probably be

granted to Serbia by the end of current year. This improvement in the

field of European integration will certainly affect the economic

prospects of the country.

New estimates for net FDI in 2011 are USD 2 billion, which is far

from the projected level of USD 4 billion. The reduced level of net

FDI can be explained by the unsuccessful privatization of majority

stakes of the national telecommunication company “Telekom

Serbia”. In the first six months of 2011, the largest investment was the

acquisition of the local retail chain “Maxi” by the Belgian “Delhaize

Group” for the amount of EUR 930 million. The largest FDI inflow in

2011 is expected in the retail and manufacturing sectors.

Economy

Outlook

1H

2011


Forecast

Inflation will continue to be the biggest challenge in 2011. The

estimated inflation of 4.5% with deviation of 1.5% has already

exceeded.

According to "Dun & Bradstreet”, the increase of food prices and

unfreezing of salaries and pensions in the public sector will

increase inflationary pressure in 2011; the increase of the budget

deficit is a potential medium-term threat for the country rating.

The projected GDP growth in 2011 is 3%. According to the IMF

forecast, a strong GDP growth is expected from 2012, indicating 4.5%

growth in 2012 and 5.5% in 2013. However, estimated growth is

likely to be lower than expected.

Considering the real estate industry in Serbia in the light of current

economy, the industry will continue to downsize in 2011. Despite

negative tendencies, retail takes the lead in the sector rankings. The

reduction in the lending capacity of banks in real estate continues to

put a limit on the number of potential investors.

Indicators 2008 2009 2010 2011F 2012F

GDP (EUR bn) 32.7 28.9 28.6 33.5 37.3

GDP per capita (EUR) 4,443 3,943 3,917 4,607 5,150

GDP (constant prices yoy %) 3.8 -3.5 1.8 2.7 3.5

CPI (average, yoy %) 11.7 8.4 6.3 12.5 7.9

Central bank reference rate 17.80 9.50 11.50 9.50 8.50

Monthly wage, nominal (EUR) 560 470 462 526 574

Unenmployment rate (%) 13.7 16.1 20.0 19.5 18.8

Budget balance/GDP (%) -2.6 -4.5 -4.7 -4.5 -3.9

Current account balance (EUR bn) -7.1 -2.1 -2.1 -2.8 -2.9

Current account balance (% of GDP) -21.6 -7.2 -7.3 -8.3 -7.8

Net FDI (EUR bn) 1.8 1.4 0.9 2.0 2.0

FDI (% of GDP) 5.6 4.8 3.0 6.0 5.4

Gross foreign debt (EUR bn) 21.8 22.8 23.8 26.0 29.0

Gross foreign debt (% of GDP) 66.7 78.9 83.3 77.7 77.8

Exchange rate to EUR avg 81.49 94.05 103.12 101.00 101.50

Source: UniCredit Research


After a large increase in vacancy rates in the first

half of 2010 coupled with substantially depressed

tenant demand, performances of the office market

remained subdued. Occupier activity and rent levels

are fairly stable compared to year-end.

Slow growth prospects and instability in the labor

market together with rising unemployment, question

the time of office market recovery. The postponed

new supply brought certain stabilization, but we are

cautious as demand is still low as well as

predictability of the economic environment. In the

last 12 months the market has experienced zero

delivery.

Supply

As relatively immature, the office market in Belgrade was

characterized by average delivery of 60,000 sq m of GLA, which

affected a comparably low vacancy levels during the period of 2003-

2009. Many speculative developments were commenced during the

economic expansion in 2007-2008. The highest delivery of 70,000 sq

m of GLA was recorded in the second half of 2008 causing, for the

first time, a double digit vacancy level for the new class A

developments.

The first half of 2010 saw a record level of 80,000 sq m of GLA of

contemporary office space with the delivery of a few large scale

developments both in the class A and class B segment, bringing the

total office inventory (class A&B) to 610,000 sq m of GLA, which is

15% growth in total stock. Office deliveries scheduled for the second

half of 2010 have been postponed.

The new class A developments delivered in 2010 amounted to 50,000

sq m of GLA, while the class B amounted to 30,000 sq m of GLA. All

new developments are located in the area of New Belgrade (CBD –

57% and Wider Center – 43%).

After a period of intensive supply, the last 12 months have brought a

reversal. The supply pipeline has been postponed while new

speculative construction is almost suspended. Therefore, in the last

12 months the market has experienced zero delivery.

The postponed projects, currently under construction, will bring

additionally 53,000 sq m of GLA of speculative space. However, it is

still uncertain when these buildings will be introduced to the market.

Development completions are expected to be low over the next two

years. With limited new supply and moderate demand we will see

slow but steady absorption of the vacant space in the next period.

Belgrade office stock

Source: LeRoy Research

0

100,000

200,000

300,000

400,000

500,000

600,000

2004 2005 2006 2007 2008 2009 2010 1H

2011

Sq

m o

f G

LA

Total Class A Class B


Belgrade office delivery, semiannual

0

10,000

20,000

30,000

40,000

50,000

2H

2007

1H

2008

2H

2008

1H

2009

2H

2009

1H

2010

2H

2010

1H

2011

Sq

m o

f G

LA

Total Class A Class B

Office

Market & Trends

1H

2011


Demand

Belgrade office market saw a significant saturation caused by

reduction in take-up. The past 6 months have not been easy,

following a similar trend to the previous year with continued

occupier uncertainty and limited market activity. The fundamentals

in the occupier market are weak, particularly because of the high

unemployment rate.

The market activity was mainly supported by small to medium size

transactions, but unlike previous 12 months we noticed increase in

expansionary led requirements. Relocation requirements and lease

renegotiations are still an active segment of demand. In the first six

months of 2011 we noticed stable demand compared to year-end.

Recorded take-up in 1H 2011 is between 18,000 and 21,000 sq m.

The banking sector particularly registered a positive demand and

appeared among larger occupiers in 2010. In the first six months

there has been a change in the structure of demand. Unlike banking

sector that dominated throughout 2010, communication/media, IT

and pharmaceutical/medical sector were the main occupiers in the

first six months of 2011.

A typical demand is oriented to smaller and medium size premises

between 100 and 300 sq m. Almost 70% of all transactions referred to

the surface up to 500 sq m, while only 30% of transactions referred to

the larger space (above 500 sq m). The demand is predominantly

focused on the New Belgrade area, while only 15% of lease

transactions relate to offices in the downtown area.

The recovery in demand will be slow, and rising economy

uncertainty does not contribute to strengthening business

environment. Economic sentiment within the country is still low,

while a potential deepening recession in EU doubts the pace of

recovery. At the local level, the flexibility of landlords, offering more

favorable lease terms, rent free periods or space fit-out, is aimed at

stimulating the demand. Although without the increase in number of

expansionary led requirements, the office market recovery cannot be

expected. Despite the increase of expansionary demand in the last 6

months, the demand level is still historically low and as a result there

still remains unpredictability of the short term trends in the market.

During 2011 companies will continue to look for relocation and this

will generate a larger amount of gross take-up.

Vacancy

A strong pace of new developments delivered in 2010 together with a

decrease in demand and the relatively high ratio of lease renewals,

increased the vacancy to the highest recorded level since 2000. The

majority of vacant space remains within new developments and the

increased vacancy is recorded also within lower quality class B and C

buildings and secondary locations, since many tenants have decided

to relocate.

The new supply of 80,000 sq m of the contemporary class A & B

office space in the first half of 2010, substantially raised the overall

vacancy which amounted to 25% at the year-end. The postponed

delivery of a few projects resulted in slow absorption of the available

office space and the overall vacancy rate decreased by 2% during the

first half of 2011 to 23% (22% class A and 25% class B).

Vacancy rate is still very high and taking into account the current

demand, a considerable drop in the vacancy is not likely during 2011.

On the other hand, we do not expect a further increase in vacancy

rate, since the announced office deliveries for 2011 will probably be

delayed.

Office vacancy rates


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2005 2006 2007 2008 2009 2010 1H 2011

Class A Class B average

Rents

The rents seem to have been mainly stabilized during 2010, with only

slight downward correction of approximately 2%. The headline office

rents for the prime stock have remained stable, while corrections

have occurred for space in the non prime areas. The landlords are

generally reluctant to reduce the rental levels and they are providing

increased tenant incentives to safeguard the rent levels, such as fit-

out contributions and rent free periods. The largest incentives have

been available for large tenants.

The prime class A rents stabilized to EUR 14-15.5 per sq m/month,

while the prime class B rents are EUR 11-12 per sq m/month. The

rental levels in CBD area for the class A space is EUR 13.5-14 per sq

m/month on average, while for the class B premises it is EUR 10.5-11

per sq m/month. The rents in the Wide Center area for the class A

ranges from EUR 12.5-13 per sq/month and for the class B from EUR

10-10.5 per sq m/month.


The average achieved rents are at a slightly lower level.

Average rent levels


5.0

7.0

9.0

11.0

13.0

15.0

17.0

19.0

1H 2007 2H 20071H 20082H 20081H 2009 2H 20091H 20102H 20101H 2011

EU

R/s

q m

/mo

nth

Class A Class B

Office yields


4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2004 2005 2006 2007 2008 2009 2010 1H 2011

Class A Class B

Office yields seem to have bottomed out in 2010, and we noticed

slight downward movement in the first six months of 2011. If the

existing stock remains stable, average rents are not expected to

decline further, especially in the prime office segment. Otherwise,

the prime rents will come under further pressure. The same applies

to yield.

Pipeline

Regarding new deliveries, the current year will indicate the

slowdown of the office market. Two large scale CBD projects,

scheduled for delivery in 2010, have been postponed with the

unknown delivery date. Also, a few smaller projects are close to

completion, but the time of opening is still unknown. About 53,000

sq m of GLA (speculative space) is under construction and expected

for delivery during 2012/13.

The most prominent class A developments expected on the market in

2012/2013 are “Tri Lista Duvana” (8,000 sq m of GLA) located in the

downtown of Belgrade and “B23” (35,000 sq m of GLA) located in

the CBD area of New Belgrade.

Another office development due for completion is Atlas building

(4,000 sq m of GLA) located in the downtown area (Takovska Street).

Raiffeisen Bank started with construction of its office building in

Djordja Stanojevica Street in New Belgrade. Total GLA will be 15,000

sq m. Expected time of delivery is 1H 2012.

The International Falkensteiner Michaeler Group started the

construction of a hotel and office complex in block 11a in New

Belgrade. The four-star hotel (4*) will have 171 rooms and will

occupy the area of 24,000 sq m. The office building will be connected

with hotel and the total GLA will be 6,000 sq m. The expected time of

delivery is the end of 2012 or beginning of 2013.

Intesa Bank announced construction of its office building at the

corner of Mihajla Pupina Boulevard and Tresnjinog cveta Street in

New Belgrade (block 11a). The construction works should be

commenced during 2H 2011 and expected time of completion is the

end of 2013.

Forecast

The lack of new supply together with a weak economic recovery will

stabilize the office market in 2011, but a return to a significant

growth and expansion is unlikely to happen before 2013. Foreign

Direct Investments (FDI) is still relatively quiet, so the demand

expansion is likely to be limited during 2011. Rents are expected to

remain under pressure throughout 2011, but further rent corrections

are not likely. The trend of high ratio of lease renewals is expected to

continue in 2011. Growing uncertainty in the European market will

certainly be transferred to Serbia, further slowing the recovery.

Therefore, expansionary demand will be limited in the second half of

2011.

The reduced office development pipeline during 2012/2013 (30,000-

53,000 sq m of GLA) with improved occupier outlook, would suggest

better absorption of today’s stock and decline in the overall vacancy

rate. This slow recovery combined with the supply slowdown could

set the scene for a slight increase in rents, starting from 2012. The

overall impression is that Belgrade office market shows a good

outlook in the medium run. Pipeline projects:

Project LocationSize (Sqm of

GLA)Investor

Delivery

date

Tri Lista Duvana Downtown 8,000 MPC 2012

Atlas Downtown 4,000 Atlas Group 2011/2012

B 23 New Belgrade 35,000 Verano Group Unknown

Raiffeisen bank New Belgrade 15,000 Raiffeisen bank 2012

Intesa Bank New Belgrade 30,000* Intesa Bank 2013

Falkensteiner building New Belgrade 6,000 Falkensteiner Group 2012/2013


*GBA

Pipeline projects


The second half of 2010 marked the entrance of a few

new brands in high street locations which slowly re-

absorbed vacant premises and indicated on a healthy

increase of occupier activity. However, the beginning

of 2011 brought the stabilization of demand.

Vacancy in the prime locations remains scarce. In

contrast, vacancy in secondary locations is rising.

Downward pressure on rents continued in the first

half of 2011 and overall rental growth remained

negative. Supermarket chains are still dominant

players in the retail segment.

Growth of unemployment has continued in the first six months of

2011 and together with consumer price growth led to a further

decrease of consumer expenditure. According to the data published

by the Statistical Office of the Republic of Serbia, the retail trade

turnover in Serbia in June 2011, declined by 16% in constant prices

compared to the same period in 2010. For the period January-June

2011, the retail trade turnover declined by 13% in constant prices,

compared to the same period last year. Unemployment rate

increased 3% in six month period and amounted to a total of 22.2% in

April 2011.

Structure of retail sales in Serbia, 1Q 2011

Source: Statistical Office of the Republic of Serbia

42.3%

4.4%4.6%4.2%3.9%

9.1%

3.5%

0.9%

16.4%

10.7%

Food & non-alcoholic

beveragesTobacco & alcoholic

beveragesClothing & footwear

Furniture & household

equipmentHealth care

Transport &

CommunicationsRecreation & Culture

Education

Household utilities &

Fuels

The structure of retail sales indicates the changing structure of

personal consumption in Serbia. The share of basic food items and

overheads within the structure has increased, while the share of

other items has mainly been reduced (compared to data from

December 2010). These changes can be explained by the continuous

weakening of the purchasing power.

All these negative tendencies will keep consumer spending

restricted, until real economy prospects recover. The most active

segment will be retail warehouses dominated by supermarket

developments.

Supply

After a visible slowdown in 2010, Serbian market has seen a slow

supply recovery in 1H 2011. A dominant market segment throughout

2010 was retail warehousing (big-box developments), while new

shopping center developments were mainly postponed. After a

period of delay, 1H 2011 witnessed several new deliveries in Serbia

and Belgrade.

With only 100 sq m of modern shopping center space per 1,000

inhabitants, Belgrade is still an attractive market for various retailers

looking for expansion within the region. The overall new supply (all

retail segments) in Belgrade in 1H 2011 was app. 30,000 sq m of GLA

which is an increase of cca 20% compared to 2H 2010; while in other

cities in Serbia it was app. 45,000 sq m of GLA which is a similar

level as 2H 2010.

Supermarket chains are still the most common developments and

significant transactions have taken place in this segment in 1H 2011.

The largest transaction occurred in the first quarter of 2011 when

Belgian supermarket chain – “Delhaize Group” took over the local

chain “Maxi”. The current market share of this chain is 22% in Serbia

and 37% in Belgrade. The total value of transaction is cca EUR 930

million.

In April 2011, Croatian chain “Idea” took over Slovenian chain “Tus”

with 7 supermarkets. Also, Slovenian “Mercator” announced a

possible takeover of the local supermarket chains: “Familija” and

“Jabuka”.

Retail

Market & Trends

1H

2011


Apart from “Delhaize”, in the first quarter 2011, German discount

retailer “Lidl” announced its market entry. Considering all these

recent changes, we can conclude that Serbian retail market is

preparing for another stage of market competition and going toward

more open and mature phase.

Expansion of supermarket chains was similar to the previous year.

The Slovenian “Mercator” had the largest expansion. They opened

two “Roda Cash & Carry” in Mladenovac and Smederevo, “Roda

Center” in Vrbas and two “Roda” supermarkets in Smederevska

Palanka and Velika Plana. With acquisition of the business system

“Coka” in August 2010 they received 22 buildings and cca 12.000 sq

m. In 2011 Mercator announced opening of “Roda Center” in

Jagodina and Krusevac. The market share of Mercator is cca 10%.

The German chain “Metro Cash & Carry” opened their seventh

overall, but the third hypermarket in Belgrade. The hypermarket is

located in Vidikovac area – Ibarska Road and the opening was in

June 2011.

The Croatian chain “Idea” opened supermarkets “Idea Super” in

Belgrade, Novi Sad, Jagodina and Kragujevac. They opened small

format markets (200-600 sq m) in Belgrade, Zemun, Novi Sad,

Topola, Cacak, Svilajnac.

The Greek chain “Veropoulos” opened a hypermarket in Vojvode

Stepe Street, Belgrade, in April 2011.

Shopping center developments were more active in 2011. In March,

the shopping center “Forum” was opened in Nis pedestrian zone. A

month later, the shopping center “Mladenovac”, known as “TCM”,

was opened in Mladenovac. In June, “Roda center” was opened in

Vrbas. The second stage of the retail park “AVIV” was opened in

Pancevo in June 2011.

The only shopping center delivered in 1Q 2011 in Belgrade is the

neighborhood center in Vozdovac area – called “Pasino brdo center”.

Danish chain “JYSK”, which sells “everything for the home”, entered

the market in 2011. The first store they opened in Subotica in April,

while in June they opened its second store in the retail park “AVIV”

in Pancevo.

After a period of stagnation, newcomers started to appear on the

market, which can be a good example to other retailers. 1H 2011 was

characterized by the entry of new supermarket chains: “Delhaize”

and “Lidl” and a slow revival of shopping center developments. A

lot of announced projects are still waiting for commencement of

construction. The developers are faced with a problem of securing

project financing, which will further reduce the market activity.

Shopping center stock in Belgrade


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 1H

2011

Sq

m o

f G

LA

*without Belgrade

Big-box stock in Serbia & Belgrade


0

100,000

200,000

300,000

400,000

500,000

2004 2005 2006 2007 2008 2009 2010 1H

2011

Sq

m o

f G

BA

Serbia* Belgrade

Belgrade

The modern shopping center stock is being supplemented with a

new development bringing total stock to 160,000 sq m of GLA.

Neighborhood shopping center “Pasino Brdo” in Vozdovac was

opened in the first quarter of 2011 bringing 6,500 sq m of GLA. The

tenants are: Roda supermarket, Chacarel perfumery, XXL Design,

café, etc. The investor is the local company Novi Dom.

In April 2011, the Greek chain “Veropoulos” opened its fourth

hypermarket in Belgrade with 7,000 sq m of GLA. The market Vero is

located in Vojvode Stepe Street, in Vozdovac municipality.

The Croatian chain “Idea” continued its expansion in Belgrade and

Serbia by acquisition of “Tus” supermarket chain. In April 2011 they

opened a renovated supermarket (ex Tus supermarket) in block 62,

New Belgrade and small markets in New Belgrade, Zemun,

Cukarica, Zvezdara (350 – 650 sq m).

The German chain “Metro Cash & Carry” opened the third

hypermarket in Belgrade in June. The building is located along

Ibarska Road in Vidikovac area and consists of 13,500 sq m of GLA.

The French DIY chain “Mr. Bricolage” continued expansion and the

opening of their first store in Belgrade in the shopping center ”Pasino

brdo” (3,000 sq m) is expected soon.


Serbia

The Croatian chain “Idea” continued expansion in 1H 2011. They

opened the supermarkets “Idea Super” in Jagodina (1,500 sq m),

Kragujevac (1,500 sq m) and Novi Sad (1,500 sq m) in April, and

small markets (200-600 sq m) in Novi Sad, Topola, Cacak, Svilajnac.

The Slovenian “Mercator” opened “Roda Cash & Carry” in

Mladenovac (4,500 sq m) in April and Smederevo (2,500 sq m) in

May 2011. They opened “Roda” supermarket in Smederevska

Palanka (1,400 sq m) in March. In June, “Roda center” (5,000 sq m)

was opened in Vrbas. A new store concept, a super market and

technique center was introduced in January in Velika Plana and

Smederevo.

The shopping center “Forum” (10,000 sq m of GLA) in Nis pedestrian

zone was opened in March 2011. The entire property consists of

17,000 sq m which is structured as a retail and office space. The retail

space occupies the ground floor and two floors. Another two floors

are designed as office space (7,000 sq m of GLA). The tenants are:

New Yorker, Peacocks, Deichmann, Replay, Guess, Camper,

Timberland, Liu Jo, etc. The investor is the local - Fashion Company.

In April, the shopping center “TCM” was opened in Mladenovac,

(8,800 sq m of GLA). The tenants are: Roda supermarket, New

Yorker, Takko, Deichmann, Sport Vision, Dexi Co kids, etc. The

investor is the Croatian company RIMC.

The second stage of the retail park “AVIV” (8,000 sq m of GLA) in

Pancevo was opened in June. The tenants are: New Yorker, Takko,

Peacocks, Tref sport, Deichmann, etc. The investor is the Israeli

company Aviv Arlon.

Danish chain “JYSK”, which sells “everything for the home”, opened

the first store (800-1,200 sq m on average) in Subotica in April, while

in June they opened their second store (800-1,200 sq m on average) in

the retail park “AVIV” in Pancevo.

Demand

The first half of 2011 continued the slow pace of recovery. The

retailers are still very cautious regarding expansion and many of

them have adopted more feasible and reasonable investment

strategies.

Many new retailers started to think strategically and seize good

opportunities under favorable terms. Anchor retailers are active in

the market, but they continue to ask for incentives from the investors

to enter new projects, such as rent free period, space fit-out, etc.

Despite the reduced demand, vacancy is low since the market is still

far from saturation. The shopping center stock of only 100 sq m per

1,000 inhabitants indicates that Belgrade retail market is substantially

undersupplied compared to the region, which is an explanation of

certain market stability.

A demand for shopping centers & high street begins to reappear

slowly and is mainly driven by international fashion operators.

Vacancy in the prime locations remained moderate, but secondary

locations have experienced increase of vacant units. Also, a demand

for large units is more constrained, usually leading to their long

vacancy.

A trend of changing tenants continued through 2011 influencing the

increase of vacant units that had been unoccupied for more than 4

months. High Street locations witnessed slight slowdown with

opening of a few new stores as well as relocation of the few existing

tenants. New brands such as “Sephora”, “Lush” and “Evro Giunti”

opened in Knez Mihajlova Street and “Laguna” reopened in Kralja

Milana Street.

New openings are expected in Knez Mihajlova Street soon, such as

the first “GAP” store.

Tenant Type Location/Street Opening date

Sephora Perfumery Knez Mihajlova St. May-11

Lush Perfumery Knez Mihajlova St. June-11

Evro Giunti Bookstore Knez Mihajlova St. June-11

Laguna Bookstore Kralja Milana St. 2011

GAP Fashion Knez Mihajlova St. Announced


New high street openings

The demand in the retail warehousing segment is rather stable, but

more focused on Belgrade. Retailers in the food segment are the most

active. A few international as well as local chains have recognized

the market moment and started further expansion, such as the Greek

“Veropulos”, the German “Metro Cash & Carry”, the Croatian

“Idea”, the Slovenian “Mercator” and the French “Interex”.

Project Location TypeSize (Sqm of

GLA)

Delivery

date

Pasino Brdo Vozdovac Shopping center 6,500 1Q 2011

Forum Nis Shopping center 10,000* Mar-11

TCM Mladenovac Shopping center 8,800 Apr-11

Roda Center Vrbas Shopping center 5,000 Jun-11

AVIV retail park Pancevo Retail park 8,000** Jun-11

JYSK Subotica Everything for the home 800-1,200*** Apr-11

JYSK Pancevo Everything for the home 800-1,200*** Jun-11

Metro Cash & Carry Vidikovac Hypermarket 13,500 Jun-11

Vero Vozdovac Hypermarket 7,000 Apr-11

Idea Super New Belgrade Supermarket 1,500 Apr-11

Idea Super Jagodina Supermarket 1,500 Apr-11

Idea Super Kragujevac Supermarket 1,500 Apr-11

Idea Super Novi Sad Supermarket 1,500 Apr-11

Roda Cash & Carry Mladenovac Supermarket 4,500 Apr-11

Roda Cash & Carry Smederevo Supermarket 2,500 May-11

Roda Sm. Palanka Supermarket 1,400 Mar-11

Mr. Bricolage Vozdovac DIY 3,000 Pipeline


* 7,000 sq m is office space

** the second stage

***typical size of JYSK retail space

New retail deliveries


Many new retailers have announced their market entry during 2011-

2013, such as the French chain “Carrefour”, the Swedish “Ikea” and

the German DIY chain “OBI”. Demand is dominantly focused on

Belgrade market, while expansion to secondary cities is still cautious.

However, expected improvement in the economic outlook is

encouraging healthy retailers to continue with their strategic

expansion plans.

The demand for retail space and number of transactions are expected

to increase in 2011. We can expect a healthy level of demand in the

prime locations, while the demand for secondary locations will fall

further. However, the retail market recovery cannot be expected until

the living standard and overall economy has been genuinely

improved, which is not expected in 2011.

Vacancy

The vacancy rate is rather stable and a very low number of

unoccupied units was recorded in prime locations. Secondary

locations recorded rising vacancy. Considerably depressed rents

encouraged new retailers to enter the market pushing the vacancy

rate lower. The overall vacancy (primary and secondary locations) is

approximately 7%.

The main shopping centers serving as dominant retail destination

continue to sustain high occupancy levels. The prime shopping

center vacancy is almost zero, but we noticed the trend of changing

tenants that continued in 2011. Secondary properties recorded an

increase of vacant units. However, this zero vacancy in the prime

properties can be explained by more flexible landlords’ approach, as

well as by the low level of development that has been started over

recent years. Despite the positive movements, we can conclude that

the market has still not done with contraction.

Rents

The retail market continued to experience declining rental rates and

now seem to have bottomed out. Depending on the location, lease

rates dropped 30-55% from the 2008 peak level or 3-5% compared to

the end of 2010. The prime rent in shopping centers has been

following a stabile path, while high street rents experienced certain

corrections.

This downward pressure on lease rates will remain, while the rent

relief and renegotiated leases will continue in the third quarter of

2011. Landlords are forced to offer better commercial conditions such

as contribution on their fit out, length of lease, turnover rent, etc.

Shopping centers rents maintained mostly the similar levels from

EUR 30 to EUR 60 per sq m. Downtown prime street rents (Terazije,

Kralja Milana and Knez Mihajlova Street) have dropped to average

EUR 40 to EUR 90 per sq m, depending mainly on the size and

position of the unit (smaller units maintain higher range of average

rents). Secondary locations rents move between EUR 15 to EUR 40

per sq m on average.

Due to slow economy recovery in 2011, general rental growth is

unlikely. We can expect a gradual rental market recovery from the

second half of 2012, helped by lower vacancy levels.

Prime rents in Belgrade


85.0

50.0

35.0

0

50

100

150

Knez Mihajlova St. Terazije & Kralja

Milana St.

Kralja Aleksandra

Blvd.E

UR

/sq

m/m

on

th

min max average

Shopping center rents in Belgrade


8.5

17.5

27.532.5

50.0

40.0

55.0

32.5

0

10

20

30

40

50

60

70

Hypermarket Anchor

tenants

Mini anchors Inline tenants

(100-200 sq m)

Small inline

tenants

Services Cafes Food court

EU

R/s

q m

/mo

nth

min max average

Indicative retail yields, 1H 2011


0.00%

5.00%

10.00%

High street Shopping center Retail warehouse

8.00%9.00%

9.75%

Pipeline & Announced

New deliveries announced for 2011/2012 indicate a slow market

activity. Many large scale projects announced in Belgrade and other

cities have been postponed with uncertain beginning of construction.


The company “Plaza Centers” reactivated construction of a shopping

mall in Kragujevac which initially started in autumn 2008. The

shopping mall will offer 28,000 sq m of GLA and will contain more

than 100 stores and an entertainment center. The expected time of

completion is 2012.

In 2010, “Delta Holding Company” commenced the construction of

Retail Park in Kragujevac. The development will comprise 23,000 sq

m of GLA and the first stage holding Tempo hypermarket (9,500 sq

m of GLA) was opened in November. The second stage of

construction will be completed during 2011.

“Belgrade Outlet Center” is currently under construction in Indjija

with 30,000 sq m of GLA. The investor is the company “Black Oak

Development” and the expected time of delivery of the first stage

holding 15,000 sq m is postponed for March 2012.

The Israeli company “BIG CEE” commenced in June the preparation

works for development of a shopping center in Novi Sad. The

shopping mall will consist of 30,000 sq m of GLA and will be located

in the industrial zone of Novi Sad. The expected time of completion

is the second half of 2012.

The “AVIV Retail Park” in Pancevo announced construction of the

third stage that will have approximately 10,000 sq m of GLA and the

start of construction is scheduled for the end of 2011. The expected

time of delivery is May 2012. The overall development will contain

30,000 sq m of GLA. The investor of the project is the company “Aviv

Arlon”.

German DIY chain “Bauhaus” announced its entry into the Serbian

market. They signed a contract with the local company Delta Real

Estate to build the first retail outlet in Serbia as a part of a future

retail park with the total area of 70,000 sq m of GLA. The

construction start is scheduled for the beginning of 2012. The

building will have 20,000 sq m of GLA and will be located in Block 53

in New Belgrade. The expected time of completion is the second half

of 2012.

Forecast

Despite the ongoing obstacles, Serbian retail market takes the lead

over other real estate segments. Therefore, we anticipate a slow but

steady improvement in the period to come.

In the short term the market will experience a slowdown, since many

proposed developments cannot secure financing and tenants. The

development pipeline is progressing in 2011/2012 after a period of

stagnation.

The main focus of retailers is still Belgrade where the spending

power is stronger, but there is a re-emerging demand for other cities.

Total retail sales will remain weak in 2011 as the primary catalysis of

spending stays weak, especially job creation. Retailers will lack the

confidence to expand aggressively due to considerable uncertainty

attaching to the short term outlook. However, we expect an increase

in tenant demand for top-quality retail assets, while the difference

between prime and secondary properties will continue to widen.

Very soon we can expect limited opportunities for many new

retailers to secure good units, especially in Belgrade and the problem

could become even higher if the supply of new shopping centers or

other retail formats remains restricted in the future. As a result, the

supply side will be a key driver of rental recovery.

Project Location TypeSize (Sqm of

GLA)

Delivery

date

Plaza Centers Kragujevac Shopping mall 28,000 2012

Delta Park Kragujevac Retail park 23,000* 1H 2011

Belgrade Outlet center Indjija Outlet center 30,000** 1H 2012

BIG CEE Novi Sad Shopping mall 30,000 2H 2012

AVIV retail park Pancevo Retail park 30,000*** Announced

Bauhaus Belgrade DIY 20,000 Announced


* The first stage (hypermatket) was opened in November 2010

** The first stage (15,000 sq m of GLA) will be completed during 2012

*** The third stage (cca 10,000 sq m of GLA) will be completed in 1H 2012

Projects under construction


The logistics market in the first six months of 2011

has not seen improvement despite the modest supply

of new space and stabile vacancy. A slow economic

improvement and a scarce expansion leave little

room for recovery even in 2011.

Positive developments in the segment of industrial

production have yet to translate into a heightened

tenant demand for the industrial and logistics space.

However, widespread movement in the industrial

market will likely not occur until 2012.

The industrial production in Serbia marks a positive development

during 2010-2011 periods. The industrial production recorded the

3.3% increase in June 2011 compared to the same period last year.

Compared to the period January-June 2011/2010, the industrial

production increased by 4.8%.

Future high prospects for industrial/logistics developments can be

explained with a favorable country position on strategic corridors 10

and 7 that connect Western Europe with the Middle East. The

industrial/logistics zones with the highest development potential are

along the highway E-75 and E-70 (Vojvodina Region) and Central

and Southern Serbia (Kragujevac and Nis).

Supply

A new supply of industrial & logistics space continued weak

performance during 2010-2011, with improved prospects in

industrial segment in the first 6 months of 2011. The number of

issued construction permits in Serbia for industrial & logistics

developments in 2010 decreased by 31% compared to 2009.

Therefore, the overall stock will remain relatively stable in 2010/2011

and speculative developments are still missing from the market. The

total stock of the modern logistics space in Serbia is 640,000 sq m,

while the stock of the modern industrial space is 1,200,000 sq m.

During 2009, a new supply in the wider Belgrade area contracted to

app. 30,000 sq m compared to the previous annual average of 60,000

sq m. Similar level of construction continued through 2010. New

development still remains subdued at less than 50% of peak levels.

The overall new logistic/industrial stock in Serbia increased by

350,000 sq m or 23% in 2010. Persistently tight financing conditions,

a mediocre demand and a fragile outlook, as well as falling rents and

high yields, are making new developments difficult to justify. The

estimated stock of contemporary logistic/industrial space in Belgrade

wider area is 360,000-390,000 sq m, which indicates a relatively low

development level of this market segment.

Developers were faced with difficulties in obtaining finance and

unsecured leasing prospects, which kept new completions low

during 2010. However, growth prospects are already visible in

industrial sector especially in central and southern region.

Industrial

Market & Trends 1H

2011

Modern logistics stock in Serbia


0

100,000

200,000

300,000

400,000

500,000

2005 2006 2007 2008 2009

Sq

m

Total Central Serbia Vojvodina

Modern industrial & logistics stock in Serbia


0

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

2005 2006 2007 2008 2009 2010

Sq

m

Total Industrial Logistics

Residential Market & Trends Outlook | 16

Industrial & logistics construction permts issued in Serbia


0

100

200

300

400

2006 2007 2008 2009 2010

Nu

mb

er o

f p

erm

its

Total Logistics Industrial

Industrial & logistics construction permts issued in Belgrade


0

5

10

15

20

25

30

2006 2007 2008 2009 2010

Nu

mb

er o

f p

erm

its

Total Logistics Industrial

Car installation manufacturer, Korean company “Yura Corporation”,

opened its second factory (20,000 sq m) in June in Nis. The total

investment is EUR 15 million.

The Japanese company “Panasonic” opened its factory (18,000 sq m)

in January in Svilajnac. The factory will produce energy efficient

electronic components. The total investment is EUR 15 million.

New infrastructural developments, such as the construction of the

new part of Corridor 10 (Horgos – Novi Sad); the highway Batocina –

Kragujevac; the construction of the Ring road in Belgrade and the

construction of a new Bridge over the Sava River will provide better

conditions for logistic developments. Many new developments can

be expected along the highway E-75 and E-70 (Zemun, Surcin,

Dobanovci, Simanovci, Krnjesevci area) and Belgrade Ring Road.

Local and international developers have already acquired large land

plots along the main corridors, and within industrial locations in

Belgrade and other Serbian cities. Most of these (announced)

developments have been postponed for a while and we can expect a

strong pipeline in years to come.

Demand

After a considerable decrease in occupier demand, we noticed certain

market stabilization, but the ratio of new leases is still low. Occupiers

are mainly focusing on modern space offering the adequate ceiling

height, a wide manipulation area, a flexible layout and a good road

connection. The demand is mainly generated by automotive,

distribution, pharmaceutical and FMCG companies and average

space requirements are between 1,000 and 3,000 sq m. The highest

demand is still focused on locations along the highway E-70 and E-

75.

The slow economic recovery and rising industrial production

stabilized property performance in the first half of 2011 but positive

effect on the market is yet to be witnessed.

Vacancy

Despite the decline in development activity and scarce speculative

completions in 2009-2011 period, the lower demand created an

increase in vacancy. Since the occupier demand is focused primarily

on the modern stock, the majority of vacant space is concentrated in

old buildings. The estimated vacancy in wider Belgrade area is

between 10-12%. Due to the low level of new supply, the vacancy

rate is expected to decline.

Rents

Asking rental rates decreased 20% to 30% on average compared to

the peak level (2008). The rents have stabilized in 2011 and we do not

expect further rental pressures especially if we consider the reduced

new supply.


Modern warehouse rents in Belgrade & wider area

4.1

3.0

2.5 2.5

3.5

3.03.3

0.0

1.0

2.0

3.0

4.0

5.0

Zemun Dobanovci Pecinci St. Pazova Krnjaca Lestane Downtown

EU

R/s

q m

/mo

nth

min max average

The rental levels for contemporary warehouses depend on location

and the highest rents are recorded in New Belgrade and Zemun area

between EUR 4 and EUR 4.5 per sq m per month. The modern

logistics space in the wider area (Dobanovci, Pecinci, Stara Pazova) is


in the range from EUR 2 to EUR 3 per sq m per month. Along

Pancevo Road new warehouses achieve rents from EUR 3 to EUR 4

per sq m per month.

The rental levels for old warehousing facilities also depend on

location, but are generally in the range between EUR 1 and EUR 2.5

per sq m per month. The highest rental range is recorded in the

downtown area (old facilities) from EUR 2 to EUR 4 per sq m per

month, while newer and better maintained facilities range from EUR

4 to UR 4.5 per sq m per month.

Due to the constrained new supply, we will see further balancing of

supply and demand levels, and therefore a possibility for a moderate

rent increase in 2012.

Pipeline & Forecast

The north section of corridor 10 that will connect Novi Sad and

Horgos (Hungarian border) and Beska Bridge will be opened by the

end of September 2011. The deadline for completion of the southern

part of the corridor 10 is 2014. The highway that will connect

Kragujevac and Batocina will be developed by June 2012. With

strategic infrastructure developments, especially the corridor 10,

Serbia will strengthen its position on European logistic map.

Many proposed developments have been postponed with uncertain

time of commencement. Improving macroeconomics will support

occupier demand over the medium term.

The investment of the Italian company “Fiat” into automotive

industry generated more demand for industrial premises in central

and southern Serbia. Mass production is announced for spring 2012

and will reinforce development of Kragujevac region.

In June 2011 Fiat’s cooperator companies “Jonson control”, “Promo

magnietto”, “Sigit” and “HTL” started construction of production

halls. They will produce seats, plastic parts and tires and the total

investment is estimated to more than EUR 100 millions. Expected

completion is 1H 2012.

The largest “Fiat” cooperator, the company “Magneti Marelli” from

Italy announced development of its factory in Kragujevac for 2011.

The investment is estimated to EUR 60 million. The other announced

“Magneti Marelli” factory will start in cooperation with “Jonson

control”.

In May 2011, Italian “Benetton” bought the textile factory “Nitex” in

Nis for EUR 3 million. Benetton announced expansion of its activities

in the next four years and plans to invest EUE 43 million.

It is important to note that existing companies in the market have

announced new investments in 2011, such as “US Steel Serbia” (EUR

51 million), “Gazprom Neft” (EUR 450 million), “Fiat” (EUR 600

million), etc. Also, many new foreign companies showed interest for

investing in Serbia. Potential investors are mainly from the

automotive and textile industry.

If these announced investments realized in the announced amount in

2011-2012, the industrial & logistics market will witness a significant

improvement. However, following the previous path of development

we are not expecting considerable changes on the market in the next

6 months. The announced new investments will set the stage for

economic and employment growth, which will drive the

development of industrial & logistics sector in 2012-2013.


Following modest activity during 2010, weak

economic and household conditions depress further

the already volatile housing market in the first half of

2011. The number of housing loans issued in the

first six months was reduced by 18% over the same

period last year.

New measure of the National Bank of Serbia to

increase the mandatory deposits for housing loans to

20% will adversely affect the demand in the second

half of the year. In the short term, the demand and

transaction volumes are not expected to recover

leading the way to another price correction.

Supply

Residential development completions in Belgrade decreased for 12%,

falling from 5,759 apartments in 2009 to 5,048 in 2010. Compared to

previous two years, many new projects are announced and presented

to the public, with expected completion in 2012-2013. However,

development of the economic situation during the year will certainly

determine whether such projects will be implemented within the

prescribed deadlines.

A visible decline in number of completions in 2010 and reduced

number of issued building permits in 2009-2010 period, indicate that

the overall annual delivery in 2011 will be similar with possibility of

lower growth.

As in the past few years, the largest development dynamic in 2011

within the immediate metropolitan area was recorded in Zvezdara,

Vozdovac and Vracar municipalities. The most significant

construction slowdown was noted in New Belgrade (72% decrease)

and Savski Venac (29% decrease).

Number of constructed apartments in Serbia & Belgrade


0

4,000

8,000

12,000

16,000

20,000

2004 2005 2006 2007 2008 2009 2010

16,388 16,41718,162

19,049 19,815 19,103 18,648

4,977

7,292 7,379 7,601 7,3065,759 5,048

Nu

mb

er o

f ap

art

men

ts

Serbia Belgrade

Number of constructed apartments in Belgrade municipalities


0

400

800

1,200

1,600

2,0001,966

935

364600

293432

171 152 77 55

714558

1,011

276

659

313

504

121

214196 237

959

Nu

mb

er o

f ap

artm

ents

2009 2010

Structure of new apartments in Serbia, June 2011


26%

38%

26%

11%

Studio & 1 bdr

2 bdr

3 bdr

4 bdr & larger

Residential

Market & Trends

1H

2011


Many new developments are predominantly small in size with 10-20

apartments on average, lower to mid quality and smaller structure

(30-45 sq m). The structure of new apartments remained almost

unchanged.

2010 statistics confirm a decline in number of issued building permits

of 24% in Belgrade and 25% in Serbia, as a consequence of reduced

demand as well as the introduction of the new Law on Urban

Planning and Development in September 2009. Slower decline

continued in 2011 with 600 permits issued in Serbia in the period

January-April, which is a drop of 9% compared to the same period

last year. It is expected that the number of issued building permits

and building starts will be slightly higher in Q3 2011.


Residential construction permits issued in Serbia & Belgrade

0

2,000

4,000

2006 2007 2008 2009 2010 I-IV 2011

2,129

3,1133,281

2,901

2,184

600566 649 741 620471

Nu

mb

er o

f p

erm

its

Serbia Belgrade

Residential construction permits issued in Belgrade municipalities


0

50

100

150 134

78

23 20 23 2421 17 9 4

110

60

2721

3218

5 7 3 7Nu

mb

er o

f p

erm

its

2009 2010

During the first half of 2011 several large scale developments were

delivered. The second stage of the project “Maxima” in New

Belgrade was completed bringing another 6,000 sq m. In April, the

project “Metropolitan” in Palilula was delivered with 80 apartments.

In Zvezdara area, two projects were completed during the first 6

months. The “Prestige” and “Exclusive” projects delivered new

18,000 sq m of residential space.

We expect further market adjustments in 2011 in terms of supply and

prices. However, the real impact of the crisis on the supply will be

seen during 2011 and we expect that many announced projects will

be delayed as a consequence of unstable demand. The expected

supply in Belgrade is estimated at app. 5,500 units in 2011.

Despite a slight recovery of demand during 2010, the increase in

unemployment registered in Q4 2010 and Q1 2011, and the increased

number of people with the problem of servicing their borrowing

liabilities will keep the demand restricted. A new measure of the

National Bank of Serbia to increase the mandatory deposits for

housing loans to 20% will negatively impact the majority of potential

buyers.

Demand

Economy instability and rising unemployment have an effect on

delaying home purchases, further depressing the medium term

confidence of potential homebuyers. Lower affordability of

mortgages together with the new measures of the National Bank will

further hinder transactions.

Positive market signs recorded through 2010 were short-lived.

According to the statistics, the number of housing loans approved by

the banks in Serbia in the first half of 2011 was reduced by 18%

compared to the same period last year. The total number of

approved loans in 1H 2011 is 3,986.

The number of residential transactions in Belgrade is reduced again,

despite more favorable prices. Most of the active demand was

focused on smaller, mid-end apartments, while the demand for

larger and more luxurious units was significantly reduced. The

similar situation can be also reflected on rental market. The demand

for affordable housing is likely to rise slowly especially for the

government financed program of residential construction.

Economy instability and pressure on limited disposable income

continue to dissuade potential buyers from entering the market.

Pending any significant macroeconomic developments prices can

still decline. Any potential growth is expected to be highly location

and asset specific. Residential segment of the market is heavily

sentiment driven, so improvement can be expected when economic

fundamentals improve. However, in the period to come, the demand

will depend greatly on the government initiatives and buyers’

confidence, while prices increase still cannot be expected.

Pricing

Following a considerable fall, housing prices show relative stability.

The average price decline in the last 30 months is between 25-35%.

The price decline is slowed in 2H 2010, but continued in the first six

months of 2011 with an average correction of 3-4%.


The highest price correction has occurred in the case of low to mid

quality apartments in suburban locations, but a visible correction is

obvious for the apartments in central locations, as well as high-end

projects. In the mid-market segment the highest recorded decrease

was in New Belgrade.

Asking prices for mid quality projects depend mainly on

municipality and micro location, and vary between EUR 1,300 – 1,900

per sq m. High quality development prices are on average EUR 2,200

– 3,000 per sq m.

It should be noted that these price levels rely on the existing offer.

Most of developers/sellers still prefer to keep higher asking prices,

but are more flexible when negotiating with clients. Therefore, the

effective price for a closed transaction can be up to 10-15% lower.

Rental market has also experienced downward trend of demand and

prices. The rent levels have decreased for approximately 30-35%

since the beginning of the crisis. A considerable rent reduction is

especially noted in the mid-market segment and in the segment of

luxury rental homes. Rental decline continued in 1H 2011 and the

average price decrease is 7-8%.

Average asking prices in Belgrade municipalities


2,250 2,200 2,300

1,900

1,500 1,5251,400 1,400

500

1,000

1,500

2,000

2,500

3,000

3,500

EU

R/s

q m

min max average

Average asking rents in Belgrade municipalities


8.3 8.3

10.0

7.36.5

3.0

6.0

9.0

12.0

15.0

Downtown Vracar Dedinje New Belgrade Zvezdara

EU

R/s

q m

min max average

Developed & Under Construction

Several larger projects currently under construction are expected to

be delivered during 2012-2013 period. Most of the developments are

designed for mid-market buyers.

The government strategy for reviving the residential market and

boosting the construction sector includes development of

government financed residential complexes that will meet demand

for the affordable housing. The location is in the area of Vozdovac

(ex military base “4. July”) with the development potential of 4,578

units. The construction of the first phase commenced in February

2011. The first stage is due for completion in spring 2012 and will

bring 1,800 apartments, while 2,235 apartments will have been

developed by the end of 2012. The announced price for the first time

buyers are EUR 1,200 per sq m and shall be exempt from VAT, while

for other buyers the price will be EUR 1,290 per sq m plus VAT.

The preparation works for another large project (mixed use) in block

65, New Belgrade started in March 2011. “West 65” complex will

have an area of 150,000 sq m and will contain 514 apartments and 100

retail units. The first stage of construction should begin soon, while

the entire residential part should have been developed by 2014. The

apartments will be offered to mid-market buyers and the investor of

this project is the company PSP Farman.

Construction of the residential project “Marmil Land” in Vracar area

started in March 2011. The complex will have 3 lamellas with the

total area of 18,000 sq m and will contain 159 apartments and 16

retail units. The investor of this project is the local company Marmil

Inzenjering.

The residential complex “Alpha City” started with construction in

May 2011 in Zivka Davidovica Street, Zvezdara. The complex will

contain 7 lamellas with 299 apartments. The ground floor is intended

for business units. The investor of this project is the company

International Alpha Construction and the expected date of

completion is the end of 2012 or the beginning of 2013.

Project LocationSize (Sqm

of GBA)

No of

unitsDeadline

Maxima Center - I stage New Belgrade 16,000 2H 2010

Maxima Center - II stage New Belgrade 6,000 1H 2011

Metropolitan Palilula 15,000 80 1H 2011

Exclusive Zvezdara 9,000 99 1H 2011

Prestige* Zvezdara 44,000 550 2011-2013

Koling Zeland Dedinje 11,500 73 2012

Maxima Center - III stage*** New Belgrade 20,000 84 2012

Marmil Land Vracar 18,000 159 2012-2013

West 65 New Belgrade 150,000 514 2014

Alpha City Zvezdara 32,000 299 2012-2013

Golf 8** Banovo Brdo 19,000 153 2013


* Fist stage of 9,000 is delivered in 1H 2011

** Fist stage (50 apartments) should be delivered in 1Q 2012

*** III stage contains commercial part

130


Announced

Another possible location for the government financed residential

development is in the settlement “Dr. Ivan Ribar” in New Belgrade.

The preparation of the site and documentation for the construction is

announced for autumn 2011. The complex will bring new 768

apartments in 6 buildings. The announced price is EUR 1,300 per sq

m. Expected time for completion is 2013.

Forecast

Performance of the housing market in 2011 will mainly depend on

the stability of economic outlook, employment and government

measures. There is a modest, visible revival of the residential

investment activity in 2011 despite the low property fundamentals.

Housing market will remain limited, and an excessive construction

activity in 2011 cannot be expected since many developers still have

the “wait-and-see” attitude. However, developers will be ready to

introduce new products once the demand shows stability and steady

revival.

While there are question marks surrounding the short term outlook,

we believe that Belgrade residential market has a strong medium and

long-term perspective for further development. A visible fall in

completions in 2009 and 2010 will continue in 2011 (expected

delivery is app. 5,500 residential units). Despite a significantly

smaller number of construction permits issued in 2009/2010 period,

the construction of the government financed “low cost” apartments

in Vozdovac will maintain the stability of supply and prices. If the

announced construction of apartments in New Belgrade – “Dr. Ivan

Ribar” starts, that is likely to lead to postponement of some projects

that are in the initial stage.

Real estate market & trends Belgrade 2011, Serbia

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