Economic slowdown was also drivenby a decrease in loan instrumentsthat became more expensive due tohigh interest rates, as banks becamemore cautious following restrictivemeasures instructed from their HQs.They were also faced with high levelof illiquidity issues and credit repaymentinabilities.In order to lessen the crisis impact,the Serbian government reached anagreement with the InternationalMonetary Fund (IMF) in March2009, for a stand-by credit arrangementin amount of EUR 3 bn, so asto fulfill budget deficit and coverpublic expenditure.SavogradThe main goal during the mid-termperiod is also to keep one-figure inflation,especially since domesticcurrency depreciated to its lowestvalue, as well as achieving positiveGDP in 2010.In 2009, the number of employeesdecreased by 5.1% if compared withthe previous year. Net salaries andwages increased in 2009, in nominalterms, so that, in comparison to2008, they showed growth of 8.5%.In real terms, they decreased by0.1%.BlueCenterB-23| 3 | Market Report 2009 Danos Serbia

RESIDENTIAL MARKET 2H 2009Serbian Residential MarketNumber of constructed apartments in SerbiaThe construction industry in Serbiarecorded a decrease in its activity of19.9% in 2009 due to the global financialcrises. The crisis impact onreal estate industry is also evidentthrough a decreased number of issuedconstruction permits of some16% in 1H 2009 comparing with thesame period in 2008. The number ofconstructed apartments in 2009 ispredicted to be significantly lower incomparison with 2008, which willhalt an increasing construction trendsince 2001.The main characteristics of the residentialmarket in Serbia in 2009 aredecreasing a number of new developments.A delay in issuing of constructionpermits, limited availabilityof project financing options and significantdecrease in demand, whichall led to an almost insignificantnumber of sales transactions in themarket.A major improvement regarding realestate industry in 2009 was the adoptionof new Construction andPlanning Law in August, as an initiativeto attract new and reactivatepresent investors in the market. Majorchanges in the regulations implya possibility of land conversion fromagriculture into construction landand a possibility of full ownershipover construction land instead ofright to use (which is also valid forreal estates gained in a privatisationprocess). The Law also predicts obtaininga location permit within 15Source: Danos, SerbiaNumber of constructed apartments in Serbia, in 000 sq mSource: Danos, SerbiaAverage prices of newly built apartments in 2H 2009, in EUR/sq mSource: Danos, SerbiaDanos SerbiaMarket Report 2009 | 4 |

days and construction permit within8 days.Number of constructed apartments in BelgradeThe Serbian government, togetherwith major construction companies,is about to adopt a mid-term plan onconstruction of “cheap apartments”across Serbia in order to stimulatereal estate industry and improvemarket activities, along with a renewedprocess of reinsuring mortgagesin National Corporation forLoan Insurance, a total amount ofEUR 1.5bn of insured loans.Source: Danos, SerbiaBelgrade Residential MarketNew household construction activityis mostly concentrated in Belgrade,with 24% of issued construction permitsout of the total number in Serbia.However, due to the crisis,Belgrade construction industry recordeda decrease in the number ofissued permits of 2.5% in 2008 comparedto 2007. A decreasing trendcontinued also in January 2009, withonly 80 permits issued in Belgrade,which is 36% less in comparison withthe same period in 2008.The supply of new apartments recordedan increase in 2008. Accordingto the Republic Statistical Office,total number of built apartments in2008 was 7,860 units, which indicatesan increase of 3.3% in comparisonwith 2007. In 1Q 2009 thenumber of newly built apartmentswas 1,078. Largest constructionactivity in 2008 was recorded in themunicipality of New Belgrade with1,896 of newly built apartments,which represents a share of 24%from Belgrade’s total new construction,followed by Zvezdara with 1,272Number of constructed apatments by Belgrade's urban municipalities, in 2008Source: Danos, SerbiaStructure of newly built apartments in Belgrade, in 2008Source: Danos, Serbia| 5 | Market Report 2009 Danos Serbia

Average asking prices in Belgrade in 2H 2009, in EUR/sq mDemand for the apartments in the 1stquarter of 2009 is experiencing arapid slow down compared to 2008.A more conservative lending policyof banks together with increase of interestrates has influenced loweravailability of home mortgages tomost of the buyers. Also, the economicslow down resulted in higherlevel of prudence of potential buyers,together with expectation ofprice reductions.Source: Danos, Serbiaof new apartments, Palilula with 904,Vozdovac with 570 etc.Most of the residential buildings currentlyunder construction are stillsmall in size, and consist between 10and 30 apartments. The largest residentialdevelopments delivered in2009 was the “Belville” project inNew Belgrade with 1,850 apartments,“Park Apartments” project in New Belgradewith 180 apartments and “Savograd”project, also in New Belgrade,with 15,000 sq m of residentialspace. In the beginning of 2010, onemore large project will be deliveredto the market in the city’s downtown- “Galerija Apartments” project, withtotal area of 12,000 sq m.In 2008, the largest share of newapartments were three-room apartmentswith 32%, followed by tworoomapartments recording 29% andone-room apartments with 24% intotal share. It is important to emphasizethat for the first time in severalyears three-room apartments makethe largest share in the total numberof new developments.Low demand dynamics also continuedin the 2nd quarter of 2009, andwere mainly caused by tight creditpolicy and increased caution of thepopulation. Despite the demandtrend, the supply is still low, whichstipulates that newly built apartmentsin prime locations still maintainartificially high prices.Sales prices have experienced decreasedue to economic downturnwhich caused limited offer of housingloans and slowing of market activity.Compared to the price expansion in2008, the whole of 2009 saw a decreasein both demand and prices, especiallyfor mid level apartmentsProjects under constructionVojvode PetkaDanos SerbiaMarket Report 2009 | 6 |

located on the outskirts of the city.Apartment prices have recorded thehighest decrease of some 20% inthe suburban parts of Belgrade,while apartments in the central locationsexperienced a decrease of 10-15% on average. We can further emphasisethat this is the first decreaseof residential prices since 1999.Sale prices range from average€1,100 – 1,300 sq m in the city’speriphery, up to €2,000 - €3,500 inthe city centre and Vracar, and€2,000 - €3,500 in Dedinje, Senjakand central part of New Belgrade.The city centre and Vracar remainthe most exclusive areas. In NewBelgrade, average prices rangebetween €1,500 - €2,500 per sq m,although some location and newlybuilt apartments can achieve evenhigher prices.GruzanskaBelvilleMlatisuminaMekenzijeva| 7 | Market Report 2009 Danos Serbia

perienced a more rapid change of tenantsand this trend has continued in2H 2009. All of these changes willcontribute to further rental reductionsand more flexible lease terms.Downtown Belgrade represents themain shopping and pedestrian zone,with a great number of domestic andforeign brand tenants. For the firsttime in many years demand for highstreet retail units has decreased andavailable retail space appeared. Thehigh street zone experienced a fasterchange of tenants and this trend hascontinued in 2H 2009.Retail warehousing is still an active retailsegment in Belgrade and Serbiawith two openings in Belgrade in 2H2009 (Merkur and Kika). This retailsegment has appeared as dynamicalso in other towns in Serbia. Namely,Interex supermarket chain opened supermarketin Obrenovac (3,500 sq m)while French “Do it yourself” chainDelta CityMr.Bricolage (5,800 sq m) wasopened in November in Nis. Localchain Tempo opened supermarket inCacak (8,000 sq m) while two supermarketsare currently under constructionin Kraljevo and Uzice.Vacancy rate in high streets increaseddue to the crises, since many tenantsfaced financial difficulties caused bydecrease of retail turnover. For thefirst time we have observed that severaltenants vacated premises in bothprime and secondary streets and thatsome were several moths unoccupied.In 2010 the opening of Departmentstore “Beograd” is expected inKnez Mihajlova steet with 5,033 sqm of GBA.It is noted that increased voids inshopping centers have caused landlordsto become more flexible andagree to renegotiate current rents atlower levels. Hence, current marketconditions improve the position oftenants in terms of rental conditions,rent levels and availability of supply.This goes in favor of big retailers andbrands that now have an opportunityto reposition themselves in Belgradeand other bigger cities throught Serbia.Warehouse Retail MarketGraph: High street retail categoriesPipeline Shopping centre stock inBelgrade will remain stable in 2010while new deliveries are expected in2011. There are announcements thatthe Swedish furniture company Ikeawill enter the market in 2010 withdevelopment of the first shoppingDanos SerbiaMarket Report 2009 | 10 |

Selected asking prices for retail premisesSource: Danos, Serbiacenter in Belgrade. Rental levels as aresult of the global financial crisistoll on the real economy, the rentalshave dropped 15-30% on average.Average achieved shopping centersrents are in range of EUR 25-60 persq m.The most expensive rental levels arerecorded in Knez Mihaila Street,with average monthly rents fromEUR 100 – 140 per sq m/month.Secondary street locations recordedrent levels from EUR 30 – 90 per sqm/month, while less attractive locations,mainly in suburban areas, recordedrent levels from EUR 10 -25per sq m/month.UsceIndicative yields for prime street locationsare at around 7% and forshopping mall from 8.5 - 9%.Merkator| 11 | Market Report 2009 Danos Serbia

The highest demand (almost 70% oftotal) is for small and medium officepremises, areas ranging from 200 –1,000 sq m. The decrease in demand,together with announced completionsin 2010, will maintain the downwardpressure on rental levels, butthe pace of decrease is expected tobe lower than in the previous period.Rent levels, in EUR / sq m / monthRental levels continue their decreasingtrend in 2009 due to overall demandcontraction and increase ofavailable office space in the market.Average asking rents for class A officepremises in CDB area are EUR 15-16 per sq m/month, while certain markettransactions indicate an evenlower range. Asking rentals for classB premises are EUR 11-11.5 per sqm/month.In comparison towards the end of2008, there was a downfall in ClassA office rents by 10-15% and approximately10% in Class B office rents.Class AAverage monthly rentals for Class Aoffice premises have a descendingtrend since 2001. In 2008, an averagerental level was EUR 17 per sqm/month, and dropped to EUR 15 persq m/month in 2H 2009. The highestrental levels are recorded in CBDGraph: Average rents by locationSource: Danos, SerbiaArea, where in 2H 2009 averagerents varied between EUR 15 and 17per sq m/month, while rents in WideCenter Area were fluctuating fromEUR 13 to 15 per sq m/month.Class B RentsAverage monthly rentals for Class Boffice premises have the same trend.In 2008, an average rental level wasEUR 12.5 per sq m/month, whichdropped to EUR 11 per sq m/month in2H 2009.Regarding location, the most expensivelocation is CBD Area, where in 2H2009 average rents varied betweenEUR 10.5 and 11.5 per sq m/month,while rents in Wide Center Area werefluctuating from EUR 7 to 9 per sqm/month.Pipeline for the 1H 2010 will be veryextensive, having in mind all of thedeliveries that were under constructionduring 2009. The first class Aoffice delivery in 2010 will be BlueCenter (52,000 sq m), located in theCBD area of New Belgrade – Block26. Opening is set for February andthis project will offer to the market apremium class A building withhighest standards, amenities and services.In 1H 2010 the VIG Plaza (16,000 sqm) project in Block 11a, New Belgrade,will be delivered. Two Class Boffice buildings (34,000 sq m) inBelville will be opened in January2010. At the end of 1H 2010 the deliveryof Tri Lista Duvana (10,500 sqm) project is announced, which is oneof the major class A office developmentsin downtown area.Indicative Yields for Class B Offices inCBD zone are estimated at 10.5%,whereas for Class A Offices are estimatedat 9.5%.Danos SerbiaMarket Report 2009 | 14 |

Yields, in %Source: Danos, SerbiaVig PlazaAirport City| 15 | Market Report 2009Danos Serbia

construction activity in this real estatesegment recorded an increasingconstruction trend in the number offacilities from 14% to 24% per year. In2008, Serbia recorded 640 new industrialand warehouse units, whichrepresents an increase of 12% comparedto 2007.According to the Belgrade Statisticaloffice, in the last few years averageconstruction dynamic of new logisticdevelopments was 30,000 sq m annually.The majority of these developmentsrange in size between 2,000 -15,000 sq m, while very few rangefrom 15,000 sq m and above.Picture: Belgrade Industrial ZonesThe largest supply of modern warehousesis recorded in the wider areaof Belgrade. New supply of logisticspace in 2009 comes from local developersthat built premises mainlyon speculative basis. Estimated totalstock of logistic space in Belgrade isapproximately 300,000 sq m.Belgrade Area Industrial andLogistic ZonesBelgrade’s logistics stock is largelyconcentrated in the popular areas ofZemun and Krnjaca, but also alongthe highway E-70, towards Zagreb,where most developed areas are Simanovci,Dobanovci, and Surcin.During the medium-term, Belgrade’sauthorities plan to establish fourmain industrial/logistics zones withinthe city territory - Surcin, Grocka(100 Ha), Mladenovac (270 Ha) andObrenovac (255 Ha).Currently, the most interesting areasfor investors are in Belgrade’s widerarea towards Vojvodina, such asDobanovci with 3,118 Ha of totalland, Simanovci area of 250 Ha, Staraand Nova Pazova with Krnjesevciarea of 800 Ha, Indija with 382 Ha ofland.Demand has recorded a decrease in2H 2009 , which is reflected by thedecline in the number of inquiriesand size of requested premises. Demandmainly comes from logistic operators,pharmaceutical and retailcompanies. The average size of warehouseinquiries decreased, rangingbetween 1,000 and 3,000 sq m.Pipeline The logistic market experiencedsubstantial changes in 2009due to lack of demand which causedmany developers to postpone theiractivities for an indefinite period.Many proposed logistic developmentsfor 2009-2010 have been haltedand their completion is uncertain.In the following period we can expectthat number of speculative developmentswill remain limited and| 17 | Market Report 2009 Danos Serbia

Rents for Class A in area around and in the city of Belgrade, in EUR/sq m/monththe only developments that will bebased are on built-to-suit option.The largest proposed developmentin 2009 is the logistic and cargocenter in Nis, near to the airport,with a total area of 136,000 sq m,which will be developed in phases.The developer is the Austrian companyEyemaxx. Commencement ofconstruction works is still unknown.Rental Levels and Land PricesSource: Danos, SerbiaRents for Class B in area around and in the city of Belgrade, in EUR/sq m/monthRental levels depend upon manyfactors. A Large number of tenantsare seeking modern and flexiblewarehouse space, with built uptransportation infrastructure on attractivelocations, with ceilingheights 9 - 12 meters, independentpower supply, temperature control,loading docks, ramps etc. These facilitiescould be classified as Class A,and are mostly located in the widerBelgrade area.Source: Danos, SerbiaOn the other hand, Class B industrialand warehouse facilities are mostlyunits located in the boundaries ofthe city of Belgrade, such as areas insurrounding of Pancevacki Bridge,along the Danube River (Viline Vodeand Belgrade’s Port area), but also inwider Belgrade area. Premises arecharacterized as older facilities withpoor equipment, ceilings between 6- 7m of height, without ramps etc.Class A premises recorded a slightdownturn in the rental levels comparingto 2008, but we can still confirmrelative stable prices despitethe crisis. Facilities in less attractivelocations recorded average rangefrom EUR 3 – 5 per sq m/month,Danos SerbiaMarket Report 2009 | 18 |

while modern and equipped facilitiesrange from EUR 4 – 6 per sqm/month.Class B premises recorded averagerental levels from EUR 2.5 – 3.5 persq m/month for less attractive locations,while locations in close Belgradeareas and within the cityboundaries recorded higher averagerental levels from EUR 3 – 4.5 persq m/month.the main characteristic of the industrial/logisticsinvestment market isthat it is still constrained by a lack offacilities and limited speculative construction.Most of the facilities areunder owner occupancy, so very fewtransactions have been recorded inthe open market.The estimated yield ranges from 11 -13%.| 19 | Market Report 2009Danos Serbia

What are your predictions regardingthe prices of real estate in thenext year?I think the entire professional communityunderstands very well thatthe recovery process for the marketwill be long and arduous, and wesee 2010 as the period of stabilizationand synchronization.Realistically speaking, the businessspace sector will bear most of theconsequences of the World FinancialCrisis, but we also expect the banksto finally become more sensitive tothe need for financing developmentprojects, which is crucial in order tomake the first step towards definitivemarket recovery.DANOS SERBIA REFERENCES- Bluehouse Capital Valuation of theoffice building (52,000 sq m) inNew Belgrade and the shoppingmall (43,000 sq m) in Zagreb Croatia- Pakom Feasibility study for themixed use development (12,000 sqm) in block 65, New Belgrade Serbia- Real Estate Housing Feasibilitystudy for mixed use development(3,300 sq m) in Kragujevac Serbia- Carnex Agricultural land portfoliovaluation (3,500 ha) in VojvodinaSerbia- Interex Valuation of portfolio of supermarketsin Serbia and Bosniaand Herzegovina Serbia, Bosnia &Herzegovina- Phoenix Pharma Valuation of pharmaceuticalproduction complex andportfolio of the commercial propertiesin Novi Sad Serbia- Viotros Valuation of the productionfacility (4,000 sq m) in Visegradand apartment in Neum Bosnia &Herzegovina- Delta Maxi Valuation of the supermarketsand the office building inBelgrade Serbia- Hellenic Sugar Feasibility study forthe apartment hotel in Sutomoreand the apartment building inTrpanj Montenegro, Croatia- Tehnocentar Mag Valuation of theretail/commercial complex (4,600sq m) and excess land (2 ha) inNew Belgrade Serbia- Port of Belgrade Valuation of 2warehouses (14,000 sq m) Serbia- MK Group Agricultural land portfoliovaluation (2,500 ha) in Kula Serbia- Beogradski Vunarski Kombinat Valuationof the warehousing facilities(16,600 sq m) in Belgrade Serbia- Vahali Service & Marine Market researchand rent analysis for thecomplex of Belgrade Shipyard Serbia- Bluehouse Capital Valuation of publiccar parks in Rijeka Croatia- VIP (Vojvodina Investment Promotion)Market research for Vojvodinaregion Serbia- EFG Bank Valuation of distressedproperty portfolio Serbia- Aviv Arlon – Retail Park Pancevoand AVIV Gate - Leasing and SalesAgents- Neptun – Leasing Agents for DepartmentStore in Belgrade- MPC Properties – Leasing Agentsfor Knez Mihailova and Tri ListaDuvana- Bluecenter – Leasing Agents forOffice Building- DIS – Expansion Consultants forRetail Chain in Serbia- Eurasian Real Estate – DevelopmentConsultants for Retail ParksThroughout Serbia- TUS Real Estate – Selling Agentsfor Land lots- Dallas Furniture – Leasing Agentsfor Departments Store in Belgrade- Mr. Bricolage - Expansion consultantsfor retail chain in Serbia- Forma Ideale –Leasing agents forSubotica and Pancevo estates- EFG REIC – Leasing agents forTerazije Retail Units- Danex Gradnja – Exclusive SalesAgents for Residential Complex onVracar- Pharmos International PharmacyChain - Expansion Consultants inSerbia- Pluto Capital – Selling and LeasingConsultants| 21 | Market Report 2009Danos Serbia

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