The influence of global financial crisis on further retail market development in Serbia is already evident. Having in mind the indisputable needs for all types and kinds of real estates, the question arises: how will this impact reflect in the local market, especially when it comes to further retail development in Serbia.
We were the
witnesses how financial crisis, which started at the end of 2007 in the USA,
soon, spilled over to the European and other global markets, surprising even
biggest pessimists in matter of spreading speed and impact causes. It all began
with a sharp fall of real estate prices in the USA followed by default in mortgage
payments, consequence of inadequately insured loans as a protection to the
creditors, which underestimated the importance of the indemnity needed for such
vast lending. The losses started to multiply and they began to affect an
increasing number of participants on the global financial markets and, in
addition to the real estate business, other industry branches (especially auto
industry) also faced with the slump which first led to the GDP slowdown and
then to recession in many countries. The most developed countries soon reached
a consensus implying that the situation could be over-passed through pumping
additional funds into the economies through various channels and in different
forms, as well as with some other restrictive but also stimulating
measurements.
Serbian
government also took steps in order to maintain financial market liquidity,
although Serbian financial sector didn’t experienced initial loses which were
described above. The participants on the Serbian financial market were not
directly involved in the financial transactions related similar to those which
causes financial crisis in the developed countries. On the other way, it is a
well known fact that Serbian economic stabilization and growth in recent years
was mostly depended, not on the country’s growth in production, but on foreign
funds and direct investments, which number seriously declined nowadays. What
happened is that funds available to Serbia declined due to the
developed markets’ illiquidity. Loan instruments were the first that felt the
impact, both from the banks whose founders are in developed countries as well
as those taken by Serbian companies directly from foreign banks. In odder
words, loans are almost impossible to get and became more expensive with high
interest rates. Furthermore, the inflow
of direct foreign investments is decreased or at least slowed down, with
foreign investors being more cautious when deciding on investing in Serbia.
Also, excess spending will not be able to cover by foreign investments and
funds anymore, so the government is faced to decrease the spending in an organized
way, in order to prevent drastic inflation and devaluation of the national
currency. All this will, doubtless, lead to employment cuts, decrease in
household income, inflation increase and less purchase power, which is directly
related to the real estate industry, especially retail sector. Prognosis – not
good.
Although Real
Estate industry in Serbia
suffered no radical changes due to World financial crises yet, real impact with
its consequences is still to come, as described above. Current situation would
be best described as following; what started will be finished, all the rest is
postponed. In odder words, in a short term period, development activity will be
at least slowed down, but on a mid and long term period, Serbia will maintain
the most interesting emerging market for real estate development, especially in
retail sector.
Situation in Belgrade
Belgrade, as a capital
city with almost two million inhabitants, offers a great potential to the
retail developments. Due to the sudden recognition of the Belgrade market potential among the local and
foreign shopping center’s operators, the market competition is about to rise on
the mid-term period, positioning retail real estate as currently most effective
market segment in real estate industry. Still, Belgrade has the lowest stock of shopping
centers in the SEE (population/stock ratio) with around 230,000 sq m of GBA,
because major retail concept is still to be found as shops and outlets in main
pedestrian and shopping streets – Knez Mihailova and Terazije Street and Kralja Aleksandra Boulevard. Although
shopping habits and concepts are quickly changing, just few adequate shopping
center concept is to be found in the capital – Merkator, Delta City and Zira
Shopping mall as most representative, with impressive vacancy rate close to 0%
as a proof of unused Belgrade potential. Also, big expectance in retail
development is waiting for completion of RK “Beograd” department store chain
refurbishment, with 230,000 sq m of space around Serbia
and approx. 76,000 sq m of retail space in Belgrade top locations. This chain was bought
by Verano/MIG Group in 2007, and by now, they’ve opened 3 units in Belgrade; at Dusanovac
municipality, Zemun municipality and Terazije
Street. List of major shopping centers are listed
below:
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On the other
hand, Belgrade
faced a real boom in development of retail Big-Boxes concept, reaching total
stock of around 110,000 sq m, with major retailers listed below:
Although the
effects of the crises are becoming more and more obvious in Serbia, rental
prices are stable in Belgrade, with recorded down – fall of some 10% for
secondary streets and hypermarkets, so now the asking price for secondary
streets, like Kralja Aleksandra Boulevard, ranges from EUR 40 – 100 per sq m/month
and for hypermarket ranges from EUR 7 – 10 per sq m/month. On the other hand,
rental levels for shopping malls are stable and ranges from EUR 20 – 80 per sq
m/month and finally, more expensive locations represents high streets, like
Knez Mihailova and Terazije Street, with rents from EUR 120 to even 200 per sq
m/month. Best example on overpriced rents as well as selling prices is sale of
“Jugoexport” outlet in 2007, area of 361 sq m for unbelievably EUR 15 million,
or EUR 42,000 per sqm?!
Major opening for
2009 is Usce Shopping Mall, with GBA area of 130,000 sq m, which will increase
total shopping mall stock and presence of new international brands on our
market. This will also increase competition on the market, which will still not
be enough to satisfy the need for new developments on other Belgrade locations and for decrease of rents.
Present market situation can be therefore characterized as controlled market environment where a low
number of shopping
center projects can
dictate their own terms/conditions of tenant’s entrance and
rent levels. This project will be also the only one of its kind developed in
years to come, for that other announced projects are currently postponed or
delayed, such as Plaza Centers in Visnjica and Kneza Milosa Street, Delta
Planet at Autokomanda, Immocenter in Cerak municipality, Old Mlin project near
Belgrade’s fair etc.
In other Serbian
cities situation is similar; great demand for all retail concepts, lack of
international well-known retailers, brands and typical shopping mall concepts.
Novi
Sad
Novi
Sad,
as second largest city in Serbia,
records growth in retail development in recent years and represents most
interesting for investors after Belgrade.
Biggest shopping center in Novi Sad is Mercator,
opened in 2007, area of 36,000 sq m and is only shopping mall concept in Novi Sad, but there are
also Big-Box concepts, such as Rodic (16,500 sqm), Merkur (9,600 sq), Metro
(5,800 sqm), Agrokor (4,500 sqm) and Tus (3,000 sqm). Rents are highest at high
street locations, ranging from EUR 40 – 100 per sq m/month, while at shopping
centers these levels range from EUR 20 – 60 per sq m/month. Announced shopping
mall projects in Novi Sad are Park City,
area of 12,000 sq m from investor Vondel Capital and shopping center in
industrial zone, area of 39,000 sq m announced from the investor Ocean
Atlantic Int.
Kragujevac
After Zastava
Automobili signed partnership with FIAT Group in 2008, Kragujevac became more interesting for investors.
City authorities quickly developed investment
initiative strategy, mostly through establishing industrial zones in order to
attract foreign investors to satisfy shopping needs for around 200,000
inhabitants. Retailers like Mercator (30,000 sq m) and Metro (10,000 sq m)
already developed their facilities. Announced projects for city of Kragujevac are shopping
mall with area of 60,000 sq m which will be developed by Austrian company
Supernova, but the biggest project which already started construction is Plaza
Shopping Mall area of 80,000 sqm, by Israeli Plaza Company.
Subotica
Advantage of it
geographic position and closeness to the border with Hungary,
Croatia and Romania, Subotica
to become one of the most interesting areas for retail development. Unlike
other cities, in comparing with the population, Subotica has quite developed
retail system, with constructed units like Idea (4,500 sq m), Rodic (12,000 sq
m), KTC Subotica (6,000 sq m), Tus (3,000 sqm) and Galleria shopping center as
typical shopping mall concept with area of 11,000 sq m. Biggest project in
Subotica is construction of GTC Shopping mall area of 60,000 sq m, which is
announced to be completed in 2010.
Niš
The biggest city
on the south of Serbia is Nis with population of
250,000 inhabitants. That is one of the most undeveloped regarding modern
retail concept outlets. Biggest and only shopping center in Nis is Mercator
with area of 32,000 sqm, which brought to the south of Serbia many well known
international brands, while presence of retail Big-Box concept is more, but
again, not enough developed with Metro (6,200 sq m) and Tempo (10,000 sq m)
outlets. Biggest investment that is under construction is Nis Shopping Center
development, with area of 16,000 sqm by MPC Properties and TPC shopping center
area of 11,000 sq m located in main pedestrian Obrenovica Street. Rents ranges from EUR
30 – 80 per sq m/month in high street locations, while in shopping centers
these levels ranges from EUR 15 – 50 per sq m/month, which presents an increase
of some 10% comparing last year.
Instead of conclusion
As seen from
above, in past 3 years Serbia faced a real retail development boom, as both
domestic and foreign investors indentified our country as most emerging market
in SEE, with main characteristic of great demand, low vacancy rates and stable
rents. Serbian authorities also identified this real estate sector as important
factor in economy stabilization and growth, for that they enable great number
of new working places and causes fall in goods prices, which is of essentially
importance for low purchasing power of Serbian household, especially in smaller
cities . Almost every city in Serbia
has developed new industrial zones as first step in stimulating investors for
entering the market. Also, long expected real estate Laws and regulations are
to be adopted in this year, which will imply on favoring investor rights on
construction land, ownership types, construction permits issuing conditions and
deadlines. But, will it be enough to overpass the global financial market
crises? Are these measurements came a little bit too late? In my opinion, it
will irrevocably come to the slowdown in real estate development, especially in
retail sector, as all participants on the financial market in Serbia will be more cautious in
approving loans, which will be more and more unfavorable to the developers. On
the other hand, many tenants will determinate their lease contracts, especially
in smaller cities and especially less known and developed brands, which will
lead to growth in vacancy rates and to
slight down – fall in rents. These are all the reasons why many announced
projects will wait for better times, especially new retailers which have
announcing their entrance quite for some time, like IKEA, SPAR, OBI etc. But,
on the mid-term period, Serbia
and especially Belgrade
will remain a great opportunity for retailers. Especially for those which
doesn’t look at the crises as danger but as an opportunity.
Srđan Runjevac
Valuation Adviser
Danos & Associates Serbia
In alliance with BNP Paribas RE
srdjan.runjevac@danos.rs
www.danos.rs
