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Little change expected next year

Posted on april 3, 2014 by S-INVEST OLD USERS in Uncategorized

Translation of an article that appeared in Finance, 17th December 2012

Little change expected next year

Author: Jacqueline Stuart

E: js@sloveniainvest.eu

The real estate market saw little improvement this year. The reasons are more than clear. An unhealthy economic environment, credit crunch and sceptical buyers do not add up to growth or create optimism.

We cannot predict anything optimistic for the coming year. Office, residential and industrial will not see any great change. Perhaps only the owners of some hotels can be optimistic and could see interest from the emerging markets including India and China, but price will be key.

Let’s examine each asset class in turn:

More than quarter of office space in Ljubljana is vacant

There is 27% of vacant office space in Ljubljana, and this is increasing. Negligible foreign direct investment, and a stagnant economy do not create a healthy environment for growth.For every company that approaches us needing additional office space, five more want to downsize.

There is a great deal of movement in the office market at present. Most companies are aware that rents have dropped, and that they can move to superior office premises with better parking opportunities for a lower rent than they are currently paying. Many landlords pay for the fit out for new tenants, and most also offer a rent free period as an incentive. So, there has never been a better time to move office! We can expect even more movement in 2013.

Of the 250,000m2 of space currently available, 190,000m2 is in older buildings, and around 60,000m2 is in new Class A office buildings. This is a huge amount of space in a city the size of Ljubljana, with an estimated take up of only a 40,000m2 per year. It is clear that the newer quality space will fill up at the expense of the older space. We can expect prices in newer buildings to drop slightly, and prices in older buildings to drop significantly. An interesting fact for any Company intending to move is that advertised rents in new buildings can often be discounted considerably. The landlords are unwilling to advertise lower rents as they do not want to upset current tenants who signed leases two or more years ago when rents were higher. However they are aware that the buildings have to be filled up and this will only be possible with lower rents.

Smaller offices are rented out quickly

Most of the planned office projects in Ljubljana will probably never become reality. Although there is a surplus of office around the ring road, there is still a shortage in the centre and there is sufficient demand for one new quality building. However it is unlikely that the achievable rents could support the cost of construction – even in these hard times when the few builders left are desperate for work. It is even less likely that bank finance could be obtained.

One interesting trend is the insatiable demand for tiny office spaces. We were marketing one 300m2 office space on the ring road for a year and a half without success. We convinced the landlord to lower the price slightly and offer the space as 11 individual office suites of between 9m2 and 34m2. 8 were rented out within one month, and 2 more will be occupied before the end of the year. This should probably come as no surprise. Of the 40,379 Companies registered in Ljubljana, 45% have no employees, and a further 30% have between 1 and 19 employees.

Office elsewhere in Slovenia is stagnant. There are no notable projects planned, and nothing that would indicate significant increased demand.


There is little retail space available anywhere in Slovenia with the exception of two newly completed schemes in Maribor and Nova Gorica. Velenje is the only town with significant vacant space, due to overdevelopment and increased unemployment due to Company bankruptcies. There are no new retail developments planned outside Ljubljana at present. Ljubljana has four pipeline schemes but the completion date is uncertain for all. Emonika will bring 55,000m2 of retail space to market. TriGranit, the developers, have been successfully preleasing space for some time, and they are currently at the stage of acquiring building permission. Stožice, with a 55,000m2 retail element, has been built to a shell finish but due to the bankruptcy of the developer, and difficulties in renting out all the space, it cannot be completed for the moment. Spar European Shopping Centres is planning an additional 32,000m2 development in the densely populated area of Šiška, to complement their existing successful Citypark mall. They report that they are expecting a building permit in the near future, however this project has been in planning for over 10 years already. Finally Austrian developer M2 Gruppe plans a 20,000m2 extension to their successful Supernova mall in Rudnik, but this is currently on hold until demand for retail space increases.

Because of the lack of quality retail space in Ljubljana and elsewhere in Slovenia, there is still little vacant space, even although most retailers have experienced a decrease in turnover. As a result there has been no significant change in rents. There are no major new retailers in Slovenia, and only a handful interested in entering the market. Landlords of malls report some tenants in arrears, and we can expect some changes in 2013.

Two large retail investment opportunities were recently offered to market. The Q-Landia portfolio comprises large scale malls and other retail schemes of approximately 200.000 m² GLA. The Owners report that they declined some offers earlier this year and will wait for better market conditions before actively marketing the properties again. Mercator offered two portfolios of real estate worth approximately 250m€ as a sale and leaseback, however this was withdrawn from the market pending a possible sale of the Company. This was the first time that retail investment opportunities in Slovenia have come to market since the Supernova portfolio was sold to Pramerica in three tranches, finalized in 2008. It is not the best time for such deals for a number of reasons including difficulties in obtaining debt, the current economic climate in Slovenia and investors’ focus on core CEE markets such as Poland and Czech Republic.


Industrial is the one asset class that was not overdeveloped in Slovenia during the real estate bubble. As a result, supply and demand is more or less in balance. Although some industries are declining or relocating, others are growing. A case in point is the 29,000m2 industrial site in Črnomelj that was sold earlier this year by Danfoss to Akrapovič. Danfoss shifted production to Slovakia, and Akrapovič will use the facility to increase their output over the next years. There are other similar examples, we sold a 2,000m2 production unit in Koper that belonged to a global chemical manufacturer to a local laundry company that provides services to hotels in Slovenia and Italy. Whilst the industrial market is illiquid, there is always some movement, and 2013 is unlikely to be very different. Around 70% of industrial property in Slovenia is owner occupied, and this is unlikely to change soon.


The residential market is stable, nationally and in the capital. Prices have dropped nationally from a peak of 1,860€/m2 in 2008, to 1,649€/m2 now. Recorded transactions are up slightly at 3,105 to the end of the third quarter, compared with 3,217 in 2011.

In Ljubljana prices have dropped from a peak of 2,740€/m2 in 2008, to 2,321€/m2 now. Recorded transactions are down at 868 to the end of the third quarter, compared with 1,224 in 2011,however the fourth quarter is typically the strongest so it is possible that 2012 might end with a similar number of transactions as the previous year.

There is no reason to believe that things will change radically in 2013.


It is likely that more hotels in Slovenia will be repossessed by banks next year. Others will be put up for sale by the current owners as part of a debt restructuring process. This will present interesting opportunities for foreign investors. However, at this difficult moment in time few hotel developers are expanding their businesses and the buyers will be opportunistic, looking for an exceptionally good deal. Price will be key. We are currently marketing two hotels in Bled, and there has been a good response to a global marketing campaign. Interestingly most enquiries have come from people who are not existing hotel investors, from emerging markets including India and China. The sale of such assets will depend upon bank finance being available, something that is uncertain at present.

Jacqueline Stuart is a Director of S-Invest d.o.o.