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2010 appears to represent something of a nadir in the fortunes of the Croatian real estate sector after a difficult year in 2009. In our latest round of interviews with in-country sources, which were conducted in mid-2010, we were told that rents had basically stopped falling and are expected to track sideways through 2011. Further, and in spite of the high vacancy rates in the Zagreb office market, there does not appear to have been a sharp downwards move in capital values.

It appears that commercial property rents fell by 10-15% in each of the three main sub-sectors in Zagreb, and by rather more in Split, during 2009. Rents dropped by around 10% in Zadar, a small city where demand and supply of space have generally been well matched.

Crucially, it is difficult to envisage that there will be a sharp recovery in Croatia’s real estate sector. Latest leading indicator data support our view that Croatia is set to post a second consecutive year of negative growth in 2010, with the economy showing little sign of life through to September. While we forecast a return to positive growth in 2011, we expect the economy to expand by only 1.8%, well below pre-crisis levels.

Real wages fell by 2.4% y-o-y in July, their 11th consecutive month of contraction, while the unemployment rate ticked up to 16.9% in September – a five month high. Although retail sales rose by 3.9% y-o-y in August, their best performance since February 2008, this reflects highly favourable base effects (they contracted by 13.4% y-o-y in August 2009) rather than signs of a serious recovery in household spending.

Given that rents and yields appear already to have stopped falling, we are not looking for meaningful changes in either over the next year or so. To the extent that rents do move from late 2011 onwards, we expect that capital values will change similarly. Rental yields in Split and Zagreb should move sideways through the 2011-2014 forecast period. For the time being, we envisage that the same will be true in Zadar, notwithstanding the fact that yields are significantly lower than they are in the other two cities.

The implication of all this is that Croatia is a country where there is unlikely to be substantial supply of new office, retail or industrial space over the coming years. Some of our in-country sources indicated at the beginning of 2010 that projects have already been shelved for lack of interest on the part of investors.

Report Table of Contents:

SWOT Analysis
- Croatia Real Estate/Construction SWOT
- Croatia Political SWOT
- Croatia Economic SWOT
- Croatia Business Environment SWOT
Regional Real Estate Overview
- Table: Central And Eastern European Office Markets At A Glance – Rents, 2009-2011 (EUR per m2 per month)
- Table: Central And Eastern European Retail Markets At A Glance – Rents, 2009-2011 (EUR per m2 per month)
- Table: Central And Eastern European Industrial Markets At A Glance – Rents, 2009-2011 (EUR per m2 per month)
Real Estate Market Overview
- Table: Croatia’s Real Estate Markets – Rentals, 2008 And2009 (US$, msq/month)
- Table: Croatia’s Real Estate Markets – Net Yield, 2008 And 2009 (%)
- Table: Croatia’s Real Estate Markets – Terms Of Contract/Lease
- Table: Croatia’s Real Estate Markets – Available And Vacant Space
Forecast Scenario
- Real Estate Outlook
- Table: Croatia’s Real Estate Markets – Rentals, 2009-2011 (US$, msq/month)
- Table: Croatia Real Estate Markets – Forecast Net Yield, 2008-2015 (%)
Construction And Infrastructure Industry Overview
- Table: Construction And Infrastructure Industry Data
- Croatia’s Macroeconomic Outlook
- Table: Croatia – Economic Activity
Business Environment
- Real Estate/Construction Business Environment Rating
- Table: Europe Real Estate/Construction Business Environment Rating
- Croatia’s RECBER
- Croatia’s Business Environment
- Table: BMI Business And Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: Labour Force Quality
- Table: Annual FDI Inflows Into Central And Eastern Europe And Central Asia
- Table: Trade And Investment Ratings
- Table: Croatia’s Top Export Destinations, 2001-2008 (US$mn)
Company Monitor
- GTC Real Estate
- Konstruktor inzenjering
- Landmark Property Management
- Orco Property Group
- TriGranit Development Corporation
BMI Methodology
- How We Generate Our Industry Forecasts
- Construction Industry
- Bank Lending
- Real Estate/Construction Business Environment Rating
- Table: Weighting Of Indicators
- Project Finance Ratings Indicators
- Table: Design And Construction Phase
- Table: Commissioning And Operating Phase – Commercial Construction
- Table: Commissioning And Operating Phase – Energy And Utilities
- Table: Commissioning And Operating Phase – Transport
- Sources

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With more coastline than any other European country, Croatia real estate is some of the most exquisite real estate in the world–and at some of the lowest prices. But a powerful trend is currently under way. Tourists are returning. Property prices are rising. The future looks bright. Now is the time to pay attention to this market, where you could double or triple the value of your real estate investment dollars in a short (that is, three-to-five-year) window. The long term could be even more promising. Now is the time to stake your investment claim in Croatian real estate.

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It’s possible to buy Croatia properties within Diocletian’s Palace, but a big concern about ancient properties is title: make sure it’s watertight. As a result of the war and years of emigration and subdividing, title can be a serious problem. You don’t want to be later ousted by the relative of a long-gone emigrant. If a property seems suspiciously inexpensive, beware. Apartments in Makarska are assets that are most attractive to visitors Croatia.
Dubrovnik is more beautiful than you can ever imagine, but it’s remarkable that anything remains. For seven months in 1991-1992, it was bombarded relentlessly by Yugoslavian army shelling. They wreaked immense damage, but under a UNESCO reconstruction plan, the city has been meticulously restored. Real estate prices in Dubrovnik increased by 20% to 30% annually, in 2003-2004, while the area saw a 10% to 15% increase in the first half of 2006. Yet even though prices have taken off, property here could still prove a worthwhile investment, for several reasons. First, space in Old Dubrovnik is limited–planners cannot add more buildings to what’s already inside the medieval fortifications. Second, it has become a hot destination–high-end cruise ships dock every day, and tourists are returning to its nearby holiday resorts in force. The Croatian government is intent on marketing this southern part of the country as a top-end destination.