In 2023, commercial real estate transactions reached €500 million in Croatia and €70 million in Slovenia. Despite substantial transactions driving growth in Croatia, both countries, especially Slovenia, faced a supply-demand mismatch. Croatia's transaction hubs were the coast and Zagreb, focusing on hotels and offices, while Slovenia saw activity concentrated in Ljubljana, primarily in office assets.
Resilient retail assets like big-boxes and retail parks, featuring blue-chip tenants and long lease agreements (WAULTs), gained attention. The economic situation in Europe, notably in the CEE region and Germany, significantly influences Croatia's real estate market, with historical trends showing delayed impacts.
Looking ahead, market fundamentals in Croatia and Slovenia are expected to remain strong, supported by a stable macroeconomic environment. Despite higher financing costs, regional banks are willing to support projects, with a focus on monitoring inflation rates and expected gradual interest rate decreases at the ECB and Fed by mid-2024. Investor interest depends on market opportunities, with potential price discovery as seller and buyer expectations align. While opportunistic investors may find limited opportunities, significant distressed deals are not expected in the coming year.
The emphasis on ESG criteria and ratings persists, driven by regulatory compliance and tenant demand, offering potential long-term operational expense reductions. In summary, despite the strength of Croatia's and Slovenia’s commercial real estate sectors due to economic recovery, participants should brace for potential fluctuations in 2024. Investor interest remains strong, and new regulations in Croatia empower pension funds for alternative investments, signaling a shift to a mature market phase. Challenges posed by rising interest rates are mitigated by the maintained attractiveness of the spread between government bond yields and commercial real estate yields. While local players like ALFI fund, Trigal, and HOK Insurance are active, global players face limitations due to a lack of sizable opportunities. Sale and leaseback transactions are increasing, providing liquidity for sellers and stable cash flows for buyers amid rising financing costs and inflation pressures.
Source: .https://www.colliers.com/en-hr
