Our exclusive interview with Mia Zečević from Novaston reveals everything you need to know about the current state of the commercial real estate market in Serbia.
The global pandemic and political-economic crisis have had a noticeable effect on the real estate market in Serbia, as seen in many other countries. However, the market has proven to be surprisingly resilient. To gain a better understanding of the shifts and changes that have taken place, we sought the insights of a highly regarded expert in the real estate industry.
Mia Zečević, CEO of Novaston, a top real estate management and consultancy firm in Serbia and the Southeast European region, was gracious enough to offer her expertise. With a portfolio of over 40 office, logistics, residential, and hotel real estate projects under her management, she is well-positioned to provide great insight into the current state of the market.
In this interview we will cover the following questions:
- How has the commercial real estate market changed in Serbia?
- Which real estate segment has the highest growth potential?
- What type of commercial real estate is the most profitable now?
- Which locations are now development hotspots?
- Have rental levels and operational costs changed?
- What are the challenges that investors face now in Serbia?
- What real estate projects is Novaston working on now?
- What are Novaston’s plans for 2023?
Based on your research and experience how has the real estate market in Serbia changed in the past year?
The global pandemic, geopolitical tensions, energy crises, and enormous economic pressures on countries, have made it more difficult for businesses to succeed in the commercial real estate market.
Now, in such an uncertain environment, every new real estate project needs to meet the following criteria:
- Adaptation to change;
- Diversity of content.
The Retail Real Estate Market Slowed Down
The retail real estate market in Serbia has significantly slowed down in the past three years. Retailers have become more cautious with their expansion plans. As a result, we have seen a significantly lower level of new market entries, compared to the period before the pandemic and economic crises.
However, existing retail projects are doing well and many have been expanded with new phases of development. Numerous new retail projects are in the pipeline throughout Serbia, and several large shopping centers are planned to be soon reconstructed in Belgrade. It is also important to note that the development of retail parks remains ahead of shopping centers.
The Office Real Estate Market Blossomed
The office market experienced a huge expansion in Serbia in the past two years. In fact, during this time the country got 236.000 m2 of additional new office space. By the end of the third quarter of 2022, the total supply of modern office space in Belgrade reached approximately 1.254.000 m2, with a current prime yield of 7,5 to 8%.
The major effect that the pandemic had on the office market is that now hybrid projects are the most sought-after. These are projects that can be quickly and easily adapted to changing market needs and trends. They allow flexibility in the division and organization of space. For instance, hybrid projects have raised floorings that allow easy and flexible installation management. This is useful when the space is being divided into new layouts.
Industrial design is also now popular in the office market because it allows flexibility in the management and replacement of machine installations. Buildings are required to offer more natural ventilation and light. While Green Building Certificates are helping developers more than ever to cut down on future energy and operation costs.
Which real estate segment has the highest growth potential now in Serbia?
Logistics Real Estate
The real-estate segment that has the greatest development potential since 2020, is certainly the logistics sector. The spike in demand for logistics space has been influenced by the rise of online shopping and increased complications in goods transportation.
Companies are stocking up more than ever, in order to make sure they have enough supply to operate even during uncertain times. The high demand is reflected by the “pre-lease agreement” trend, where companies are eagerly signing new lease agreements for buildings that are not yet constructed.
Logistics projects are mainly being developed in the surrounding areas of large cities throughout Serbia, especially around Belgrade, Novi Sad, and Niš. In 2022, the total stock of logistics space increased by 16%, compared to the previous year.
The vacancy rate is extremely low for both newly built and existing logistics buildings. The highest demand comes from electronic, automotive, and e-commerce businesses. But, the rental levels remained stable because the increased demand was adequately met with new real estate supply.
What type of real estate would be the most profitable investment in Serbia?
Smart Energy Efficient Properties
The most profitable commercial projects now are those that meet the conditions of the current market. They need to be made for the tenant/user, have a good location, and offer smart solutions in functionality in order to stand out from the competition.
Energetic efficiency has already become an obligation for all commercial properties. Achieving energy independence is a must now due to the rise of energy prices. The good thing is that investment in renewable energy has never been more profitable.
We encourage all of our clients to use renewable energy sources for their business operations, especially by installing solar panels.
Real Estate in Tourist Destinations
Also, investments in real estate projects in seasonal tourist destinations are becoming more popular. These properties can provide a good return on investment, with the help of a professional property management team that can look after the properties all year round.
Which locations are now development hot spots for investors?
Large cities are still attracting interest for all types of real estate.
When it comes to office space, the demand is exclusively concentrated in Belgrade, especially in the Central Business District. There is a constant increase in interest by IT companies for office space in cities like Novi Sad, Niš, and Kragujevac.
More than three-quarters of the newly built real estate is concentrated in the capital, while the rest is mostly in larger city centers across Serbia.
Shopping Centers and Retail Parks
For shopping center developments urban economic centers are still attractive, while for retail parks it is a different story. Retail park developments are best suited for rural locations where there is low competition. But these locations also need to have a good infrastructure connection with larger settlements.
The situation with logistics centers is drastically different. There is a current trend that companies want to relocate or open new logistics centers “in the vicinity” of large cities. These locations offer good transit accessibility and low business costs.
Have rental levels and operation costs changed in 2022 for commercial projects? Do you think there will be a change in 2023?
Retail Properties Experienced the Biggest Hit
The retail segment has been the most affected by the impact of inflation on rental prices and maintenance costs. In 2022, rental prices were increased in the range of 9% to 15%. Maintenance costs, especially energy costs, have increased from 5% upwards. But we expect it to get worse in 2023, with an expected increase of 12% due to the global energy crisis.
On the other hand, the increase in business costs is accompanied by an increase in tenant turnovers. Although this increase in turnovers is not because of higher consumption but rather due to the higher retail prices caused by inflation.
Despite the negative impacts on the retail market, retailers are still showing positive performance records, especially the ones that have stronger online sales channels.
Many international retailers remain cautious in terms of their expansion strategies to new markets. The previous year was also marked by the withdrawal of certain international retail tenants from our market. The most significant withdrawal was C&A. But as their stores in shopping malls were replaced extremely fast by other tenants, it reflects the stability of our market.
Also, the average rent in prime shopping centers increased in the previous year by 12% on average.
Rental Levels Increased for B-Class Office Space
As for office space, there is a noticeable increase in the cost of renting B-class office space in the city center compared to A-class. The extremely low vacancy rate and the high demand for both smaller square footage (from 200 m2) and large square footage (from 5,000 m2) influenced the increase in rental prices.
The large influx of foreign companies, especially from countries affected by the war in Ukraine, had a significant impact on the demand and thus the rental prices.
Operating costs have remained relatively stable. But we expect all costs to increase in 2023, due to the expected rise in energy prices and the increasing rate of inflation on a global scale.
What are the obstacles encountered by investors in Serbia, and how can you assist them?
Serbia is still a market undergoing expansive development. In fact, it is considered to be one of the most attractive markets in the region for foreign investments. This is due to its favorable geopolitical position and a strong orientation toward attracting foreign investments from the European Union and Asia.
Key industries that foreign investors recognize as the most profitable for development in Serbia are automotive, food, electronics, shared services, and ICT services.
The influx of foreign investments is the primary drive for further real estate development. The supply naturally has to continue to grow in order to meet the rising demands for office and logistics space.
Serbia is a tempting market due to its low business costs, cheap labor, and openness to foreign investments. But it also has its negatives, such as complicated and ineffective bureaucratic procedures, or legal uncertainties due to long court procedures.
Thankfully we at Novaston have the knowledge, expertise, and competence to assist foreign investors to overcome all these obstacles.
Which real estate projects are you currently working on?
We are working on projects in the retail, office, logistics, and hotel industry. Our priority is to maintain and optimize the work of our ongoing projects, as well as to expand to new ones.
For instance, our NOVASTON Project Management (NPM) team was engaged in the successful BREEAM certification of STOP SHOP retail parks in Serbia and Croatia. These retail parks are part of the large investment fund of CPI Property Group.
We are also working on the development of the second phase of AVA Shopping Park of IKEA Serbia, which will complete this project as a shopping destination.
Office and Logistics
The office and logistics segment is very important to us, and we are working on several projects. We are finalizing the reconstruction of the Novkabel industrial hall in Novi Sad. The 17,000 m2 industrial hall is being transformed into a modern development center that will house the Schneider Electric Hub. Here it is important to point out that the reconstructed building is in the process of obtaining the Leed Gold certificate. We are making sure that the project is adapted to the employee’s needs and that renewable energy is fully utilized.
Also, our leasing team offers attractive high-tech and functional business premises within the Central Business District, as well as office and warehouse facilities in other parts of Belgrade and throughout Serbia.
Hotel and Residential
As we mentioned above, the development of condominiums and apartment complexes in tourist destinations is a growing trend among investors and buyers. All our mountains and ski resorts are the best examples of these kinds of developments. We are receiving more requests from such investors to help them create strategic sales, marketing, and management plans. For example, we are working on the Woodside complex with 162 apartments on Kopaonik Mountain. On the most beautiful Serbian mountain, we are preparing three more big projects in the hotel industry.
In neighboring Croatia, we shifted our business focus from retail parks to consultancy services for luxury real estate developments. We are working on a luxury real estate resort in Istria, with over 250 apartments and villas. We are also working on elite commercial and residential real estate projects in Rijeka and Rujevica.
What are Novaston’s plans for 2023?
This year, NOVASTON marks a decade of successful operations in Serbia and the region. We have a portfolio of over 40 strategic projects, managing a total of 500,000 m2 for more than 15 foreign and domestic clients.
Today, we have close to 100 employees and have significantly expanded the services we provide. Our services include support in project development, property management services, valuation, mediation in the sale and letting of real estate, and marketing.
We are entering the next decade ambitiously. Our goal is to expand our business in the region, by strategically positioning ourselves in future projects not only as managers but also as business partners and investors.
This is definitely the time to capitalize on the knowledge and use the maximum potential in the current market conditions.