Croatian Property Market continues high Investment Trend in Hotel & Retail Sector

Croatia's luxury residential real estate market is also thriving, fuelled by high demand, tax reforms and strong economic growth. Luxury properties in Croatia are mostly located in Dubrovnik, Istria (such as luxury real estate in the Skiper resort for example), Opatija and on the islands, including Krk, Hvar and Brač, and in well-known seaside resorts.

Prices for a Croatian holiday home start at around 220,000 euros in Dubrovnik and 350,000 euros in Split for a modern, luxury apartment with two bedrooms and good views.

Projects still to be completed include Arqaam Capital and Four Seasons' luxury mixed-use resort located on a prime waterfront stretch of Brizenica Bay on the Island of Hvar, and Dogus Group's Maraska project, which involves the conversion of a brownfield site in Zadar. Here the development includes 115 luxury apartments, as well as an upmarket hotel and retail centre. Pre-sale of these off-plan properties is already under way. The Brizenica Bay resort project will feature a 120-key Four Seasons hotel and 60 luxurious residences. The project is scheduled for completion in 2019.

Foreign demand for luxury residences in Istria tends to come from Austria, Germany and Slovenia, while investors from Czech Republic, Slovakia and Sweden seem to favour Dalmatia instead. Demand, especially for luxury Croatian seaside properties, continues to outstrip available housing stock, despite several large building projects currently in the pipeline. Prices, therefore, continue a robust upwards trend, especially as Croatia's tourism sector is growing rapidly.

Hotel and Retail Investment

The upward trend for this segment of the Croatian real estate market began in 2015, and has seen continued growth through high investment volumes ever since. Yield opportunities, coupled with greater investor confidence and strong economic performance, have seen the hotel and retail sector doing very well indeed.

Croatia benefits from the EU's Cohesion & Competitiveness Programme, which enables the country to spend 6.8 billion euros on projects that aim to reduce differences with other, more developed EU member states during the period 2014 to 2020.

With more funding from the EU still to come forward, there is every chance that Croatia will continue to grow economically, especially since a number of tax reforms, introduced at the end of 2016, will begin to create wealth among lower earners and smaller companies, thus pushing up disposable incomes and personal consumption.

A number of large scale, mix-usage projects across the country also provides investors with excellent opportunities. In Split, the first tower houses in Westgate have provided office space suitable for tenants such as Societe Generale. Tower B's construction began promptly in January this year and is scheduled for completion around Easter 2018. The mixed-use Tower B will become headquarter office space for several IT companies, who between them will eventually employ around 300 people.

Tower B is the tallest hotel complex being built in Croatia, with 27 overground floors and six underground storeys it will rise up 110 metres above sea level. The hotel will contain a conference centre, spa and fitness centre, bars and restaurants, four suites and 189 rooms. Eventually, the whole Westgate complex will employ around 2,000 people.

Croatia Office Space

A-class premises saw the biggest increase last year, with a 40% rise compared to gross take-up in 2015. In Zagreb, some 59,800 square metres of office space was taken up by the IT and Finance sector, and professional services last year. Demand for A-class premises continues to grow in 2017, the most sought-after premises being smaller, below 500 square metres units. High demand and lack of availability have continued to drive rental prices up and the vacancy rate is expected to remain stable for the remainder of 2017.

Rental prices for Zagreb office spaces range from 14.00 to 15.00 euros per square metre per month, with the average price for A-class space hovering around the 12.00 euro mark. Landlords keen to increase their occupancy rate are still offering incentives though, such as rent free periods and a contribution towards fit-out, especially in the lower categories where rents tend to be around 8.00 to 10.00 euros per square metre per month.