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Serbia MarketBeat

Tamara Kostadinovic • 6/29/2021

Office Space, Belgrade 

After healthy growth of 4.2% in 2019, the total annual GDP in 2020, obtained as the sum of four quarters, decreased by 1.0%, when compared to the previous year.  

However, despite the crisis caused by COVID-19 pandemic, Serbia’s economic contraction in 2020 is among the smallest in Europe. Serbia faced the crisis with strong fundamentals and growth momentum as the result of the reform measures taken as of 2014, while the economy and businesses were supported by Government’s financial package during the 2020, so the major drop of employment was avoided.  

According to the latest available data from the Statistical office of the Republic of Serbia, in Q1 2021, real GDP increased by 1.2% in comparison to the corresponding period of the previous year. Furthermore, Serbia’s economy does not rely significantly on high-contact intensive sectors such as tourism, which were hit hard by the pandemic, so IMF projected real GDP growth of 5% in 2021. 

Office Supply & Demand 

The total supply of modern office stock in Belgrade remained unchanged at the level of 1,017,500 sq m of GLA, to be precise app. 766,000 sq m of GLA is speculative/leasable office stock, while app. 251,000 sq m is built for owner-occupation purposes. However, construction activity is high, over 100,000 sq m of office space is expected to be completed by the end of the year, as per current investors plans. Namely, NCR is finishing its 40,000 sq m campus, Delta Group is close to completion of its new headquarters, while the works on B23 office building, that were on hold for several years, are progressing well. 

Additionally, the office market has witnessed several sales transactions in the previous period. Namely, Marera Properties bought BIGZ building, also former Beobanka’s building, known as Brankova office building, was purchased by Astoria Properties, in addition to this, several smaller transactions took place on the market. These office buildings, upon refurbishment, will became a part of the modern office stock. Looking at the office market as a whole, the market is experiencing strong development activity with almost 250,000 square meters in various phases of construction (under construction or renovation), which are planned to be completed by the beginning of 2023 at the latest. In the first three months of 2021, the total take-up was 19,000 sq m, which represents an increase of app. 25% as compared to Q1 2020. 

Office Rents & Vacancy 

The asking rental levels for Class A range between EUR 15-17/sq m/month, while average asking rents of Class B stock amount to EUR 11-13/sq m/month. During the 2020, there was no significant impact on the headline rents, bearing in mind that the investors were applying different pricing strategy for the tenants (i.e., rent-free period to be used earlier than stipulated in lease agreements, a waiver of certain obligations and/or tenant incentives, etc.). Along with new trends in demand, it is expected that further pressure will be put on the effective rental levels in the forthcoming period. 

The lack of new deliveries on the market, which would increase the total office stock, along with a steady demand, reverted the upward trend which was noticeable in the last four quarters, and at the end of Q1 2021, the vacancy rate declined to the level of 8.1%. 

Retail Property Belgrade

Looking at the retail market only, in 2020 the turnover of retail trade in the Republic of Serbia increased by 4.3% at constant prices, compared to 2019. 

Retail Supply & Demand

Belgrade retail market was very active, despite the COVID-19 pandemic. During the year, two western-type shopping centres were opened, enriching Belgrade’s retail offer with additional 136,000 sq m of GLA.  

Consequently, Belgrade’s total modern retail stock reached the level of 534,000 sq m of GLA.  

In Q1 2021, development activity continued, with three projects currently under construction.  

AVA Shopping Park is being developed by IKEA at the same location as IKEA store, PSP Farman is developing Shopping centre within West 65 residential complex and RC Europe is developing Nest Obrenovac Retail Park.  

The Nest Obrenovac is due for opening at the end of May, while other two projects should be opened by the end of the year, and will together bring to the market additional 50,000 sq m of GLA.  

The vacancy rate was usually around 5%, due to the vacant space in smaller-scale retail schemes. With the opening of Galerija Shopping Centre, the vacancy rate on the market grew, as portion of premises remained vacant, planning to be opened during 2021.  

The biggest single transaction on the market in the first quarter, Homemania took 10,000 sq m for its new store at Zmaj Shopping Park.  

Several brands that are already present on the market expanded their operations namely Turkish brand Kigili opened stores in Usce and Rajiceva Shopping Centres, while Aksa opened its new store of approximately 900 sq m in Stadion Shopping Centre. 

Retail Pricing

Unlike most European countries, where only grocery stores and pharmacies operated for the most of the quarter, in Serbia, despite the shortening of working hours in shopping malls, activity continued normally until mid-March, when shopping malls were closed. However, pedestrian zones and retail parks remained open for the entire period.  

All of these influenced investors to apply different pricing strategies, which means the introduction of rents that directly depend on turnover for new leases, the period of non-payment of service charges as a means of lowering effective rents.  

In 2021, it is expected that further pressure will be put on the rent levels, if the situation and measures related to the operation of retail market continue. 

 

Industrial Property, Belgrade 

Despite the current circumstances, Serbia and Belgrade witnessed strong activity in H2 2020, when the large portion of projects initiated in the previous period were completed in the second part of the year. When it comes to Belgrade and industrial zones in its close proximity (Pecinci and Stara Pazova), the overall annual deliveries exceed 140,000 sq m, while additionally, a certain number of old schemes has been acquired and refurbished into modern industrial facilities. Therefore, the total supply of modern industrial space in Belgrade and its vicinity exceeds 2 million sq m at the end of 2020.  When it comes to the demand for industrial space in H2 2020, it was mostly driven by the wholesale, logistics and distribution centers’ tenants, which is in accordance with the rise of e-commerce and retail online sales. Total leasing activity in Belgrade (incl. Pecinci and Stara Pazova) in H2 2020 stands at the similar level as in the first six months of the year, i.e., 50,000 sq m.  A significant interest in the industrial and logistics complexes continued in H2 2020, when Czech developer CTP enlarged its Serbian portfolio by acquisition of 30,000 sq m large warehouse facility LogMaxx Beta from Austrian-based real estate developer Eyemaxx, which makes the industrial market one of the fastest-growing real estate market segments in Serbia. 

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