The I&L sector is the least developed CRE sector in Croatia with a limited supply of modern stock. Thus, it has the most upside potential in terms of development and investment activity in the CRE industry.
Croatia has over 1,300 business zones, of which only ca. 450 are currently active. The majority of the supply is located in Zagreb and its surrounding area, followed by Kukuljanovo (Rijeka), Dugopolje (Split) and other larger cities. Demand is strong for logistics stock, especially in the Zagreb and Kukuljanovo zones.
Demand is driven mainly by logistics providers, pharmaceutical and food & beverage distributors, appliance distributors and other consumer goods retailers.
Due to a lack of quality supply, some of the largest companies in Croatia are deciding to build properties for their own use or, to collaborate with a local developer on the construction for long-term lease or forward purchase agreements.
Supply, demand & vacancy
At the end of H1 2020, the total stock of modern industrial space in Zagreb reached 1.06 million m2.Currently, there is no space under construction in Zagreb.
Tenant activities have been stable since the beginning of 2018. The vacancy rate in the capital of Croatia has also remained stable and at the end of H1 2020, it was recorded at just 2.5%.
In H1 2020, prime rental rates remained stable in Zagreb and ranged between EUR 4.5 and 5.5/m2/month.
We are recording the return of developers as a result of accumulated demand, lack of modern supply and the growth of e-commerce. However, speculative development is still at a low level, with new schemes being developed for owner-occupation or as pre-leases.
Major obstacles that could impact the speculative supply are high communal contributions, rising construction costs and the lack of scalable land plots in suitable locations, in addition to the unwillingness to enter the lease risk. On the other hand, cities are competing for new schemes by offering exemption from communal contributions, while the government provides tax exemptions and subsidies for newly created jobs.