2012 Research Forcast Report Eastern Europe

2012 Eastern Europe Real Estate Review
Accelerating success.
Fluent in
Real Estate
Representative Transactions in 2011
Almaty Northwood Investors Sahaviriya Steel Group Plc

Baku EuR 300,000,000 uSD 680,000,000
Acquisition and financing of a 30,000 sq.m. Acquisition of Tata Steel’s steelmaking
Barcelona office building located in La Défense plant located in Redcar, Teesside
Beijing
France United Kingdom
Berlin
Accession Fund Sicav Heitman European Property
Bratislava EuR 308,000,000 Partners IV
Brussels Refinancing of Accession Fund Value Confidential
sub-portfolio of 9 office buildings and 1 logistics park Acquisition of an office building in Capital Partner’s
Bucharest located in Central and Eastern Europe Metropolis mixed-use project located in Moscow
Budapest Poland, Czech Republic, Hungary, Romania Russia
Frankfurt Unibail-Rodamco Panattoni

EuR 475,000,000 Germany Management GmbH
Hong Kong Acquisition of GTC’s 50% stake in the Galeria Value Confidential
Istanbul Mokotow shopping centre located in Warsaw Development and lease of a 16,000 sq.m. logistics
centre located in Schwäbisch Gmünd, Germany
Kyiv Poland Germany
London
Tristan Capital Partners Li & Fung Limited
Madrid AEW Europe Value Confidential
EuR 300,000,000
Moscow Approximately 500,000 square foot office lease for
LF USA’s new US headquarters
Acquisition from VGP N.V. of an 80% stake in
New York 6 industrial parks located in the Prague region in the Empire State Building
Czech Republic USA

Paris
UFG Real Estate AIRE GmbH & Co. KGaA
Prague
Value Confidential Value Confidential
Shanghai Acquisition of two office buildings and Sale of the 118,000 sq.m. APP logistics park
one shopping centre located in Moscow located in Bratislava
St Petersburg
Warsaw Russia Slovakia
www.salans.com
CONTENTS
REGIONAL 4 GREECE 58 RUSSIA – MOSCOW 125
EXECUTIVE SUMMARY 4 EXECUTIVE SUMMARY 59 EXECUTIVE SUMMARY 126
ECONOMIC OVERVIEW 5 ECONOMIC OVERVIEW 60 ECONOMIC OVERVIEW 127
INVESTMENT OVERVIEW 6 INVESTMENT OVERVIEW 61 INVESTMENT OVERVIEW 128
OFFICE MARKET 7 OFFICE MARKET 62 INDUSTRIAL MARKET 130
INDUSTRIAL MARKET 8 RETAIL MARKET 64 OFFICE MARKET 132
RETAIL MARKET 9 RETAIL MARKET 134
HUNGARY 66 HOTEL MARKET 136
ALBANIA 11 EXECUTIVE SUMMARY 67
EXECUTIVE SUMMARY 12 ECONOMIC OVERVIEW 68 RUSSIA – ST PETERSBURG 138
ECONOMIC OVERVIEW 13 INVESTMENT MARKET 70 INVESTMENT OVERVIEW 139
OFFICE MARKET 14 INDUSTRIAL MARKET 71 INDUSTRIAL MARKET 141
RETAIL MARKET 15 OFFICE MARKET 73 OFFICE MARKET 143
ALBANIA – TAX SUMMARY 17 RETAIL MARKET 75 RETAIL MARKET 145
HOTEL MARKET 77 HOTEL MARKET 147
BULGARIA 18 HUNGARY LEGAL OVERVIEW 79 LEGAL OVERVIEW 150
EXECUTIVE SUMMARY 19 HUNGARY TAX SUMMARY 80 RUSSIA – TAX SUMMARY 152
ECONOMIC OVERVIEW 20
INVESTMENT OVERVIEW 21 POLAND 83 SERBIA 157
INDUSTRIAL MARKET 22 EXECUTIVE SUMMARY 84 EXECUTIVE SUMMARY 158
OFFICE MARKET 24 ECONOMIC OVERVIEW 85 ECONOMIC OVERVIEW 159
RETAIL MARKET 26 INVESTMENT MARKET 86 OFFICE MARKET 160
RESIDENTIAL MARKET 28 INDUSTRIAL MARKET 87 RETAIL MARKET 162
BULGARIA - TAX SUMMARY 31 OFFICE MARKET 90 RESIDENTIAL MARKET 164
RETAIL MARKET 92 SERBIA – TAX SUMMARY 167
CROATIA 33 HOTEL MARKET 96
EXECUTIVE SUMMARY 34 LAND 99 SLOVAKIA 168
ECONOMIC OVERVIEW 35 POLAND LEGAL OVERVIEW 101 EXECUTIVE SUMMARY 169
INVESTMENT OVERVIEW 36 POLAND – TAX SUMMARY 102 ECONOMIC OVERVIEW 170
INDUSTRIAL MARKET 37 INVESTMENT OVERVIEW 171
OFFICE MARKET 38 ROMANIA 105 INDUSTRIAL MARKET 172
RETAIL MARKET 39 EXECUTIVE SUMMARY 106 OFFICE MARKET 173
CROATIA – TAX SUMMARY 42 ECONOMIC OVERVIEW 107 RETAIL MARKET 174
INVESTMENT MARKET 108 SLOVAKIA LEGAL OVERVIEW 176
CZECH INDUSTRIAL MARKET 109 SLOVAKIA – TAX SUMMARY 177
REPUBLIC 44 OFFICE MARKET 110
EXECUTIVE SUMMARY 45 RETAIL MARKET – SHOPPING CENTRES 111 UKRAINE 180
ECONOMIC OVERVIEW 46 RETAIL MARKET – RETAIL PARKS 112 EXECUTIVE SUMMARY 181
INVESTMENT MARKET 47 RETAIL MARKET – HIGH STREET 113 ECONOMIC OVERVIEW 182
INDUSTRIAL MARKET 48 HOTEL MARKET 114 INVESTMENT OVERVIEW 183
OFFICE MARKET 50 RESIDENTIAL MARKET 116 INDUSTRIAL MARKET 184
RETAIL MARKET 52 LAND MARKET 118 OFFICE MARKET 186
CZECH REPUBLIC LEGAL OVERVIEW 55 ROMANIA LEGAL OVERVIEW 121 RETAIL MARKET 188
CZECH REPUBLIC – TAX SUMMARY 56 ROMANIA – TAX SUMMARY 123 HOTEL MARKET 190
UKRAINE LEGAL OVERVIEW 193
UKRAINE – TAX SUMMARY 194
3 | COLLIERS INTERNATIONAL
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
MARKET INDICATORS RECENT TRENDS MARKET PROGNOSIS
Economy: The economy continued to Economy: We expect growth forecasts for
OFFICE RENTS recover with all markets positing positive the year to be continually pared back over
Moscow GDP growth over the year. By year-end, the first half of 2012, but not to the extent
Zagreb Athens
however, the impact of Europe’s sovereign which sees GDP growth turn into GDP
Warsaw Belgrade debt crisis started to drag on the economy, declines. The mid-2012 position of the banks
with growth stalling at year-end. and the volume of liquidity in the European
Tirana Bratislava market will be the critical driver of growth
Investment: 2011 marked the second-best over the year. If the banks meet their test
St Pete’s
year for the investment market in eastern successfully, we would expect some market
Bucharest
Europe as volumes exceeded €13 billion. reprieve. Nevertheless there are several
Sofia Budapest Yields hardened over the first part of the structural issues for Europe to contend with
Prague Kiev year before flattening out toward the end. over the coming years which will place a
of H2 2011, with prime yields for office dampener on growth in Europe generally.
Source: Colliers International assets property stabilising at ca. 6.5%,
with prime retail assets down to 6.25%. Investment: As for 2012, we expect
RETAIL RENTS investment turnover to fall back from 2011
St Pete’s Offices: The office market was largely stable levels in response to contractions in economic
Tirana Moscow across the major city markets in the region. growth and the availability of real estate
Sofia Belgrade New completions were down 25% on the debt. We expect bank property lending/
previous year, but gross take-up levels activity throughout 2012 to vary considerably
Bratislava Bucharest increased 40% y-o-y, denoting a increase across the region depending on location and
in market activity from the demand side. product type but to mirror the trends seen in
Budapest That said, the majority of take-up comprised 2011 with investment focussed on the main
Athens
renewals and renegotiations with net take-up markets of Poland and the Czech Republic.
Zagreb Kiev only making up for 40% of total gross take-up.
Warsaw Prague Vacancy rates fell marginally, on average, Offices: Although half of the markets covered
with the greatest falls in Bucharest (20-26%), in this report have a higher pipeline of
Source: Colliers International Belgrade (24-20%) and Moscow (12-10%). projects on the go than completions recorded
in 2011, the overriding feeling of caution in
INDUSTRIAL RENTS Industrial: Although the take up was weaker in the markets coupled with the need for high
Moscow
Bratislava Warsaw
the third quarter, the industrial market shows levels of pre-lets to enable developmenst
signs of recovery. The construction activity to move forward, is likely to minimise new
Zagreb St Pete’s is very weak, but there are several projects completions in 2012. We see no major
which have been pre-leased to be signed. fluctuation in rents over the year ahead, with
Due to lack of speculative developments the only Moscow showing signs of rental growth.
Sofia Belgrade vacancy rate has recorded a decreasing trend.
Industrial: Demand for industrial space is
Prague Bucharest Retail: The retail market in Slovakia comes expected to be increasing in 2011, which
alive but traders are still more cautious. will result in lowering vacancy rate, current
Kiev Budapest
Decline in retail sales is caused by decreasing vacancies are expected to be leased out
Source: Colliers International disposable income and purchasing power by mid 2011. Development of new project
of inhabitants, increasing of unemployment should start in 2011 to satisfy the demand
INVESTMENT YIELDS for industrial premises, but developers
Prague
and insecurity in the labor market. In 2010
Zagreb Athens Slovakia registered approximately 190,000 m² will continue to require signed pre-lease
increase in area of shopping centres, the agreements prior to start of constructions.
Warsaw Belgrade
largest increase in the last 20 years.
Tirana
Retail: Demand is expected to be decreasing
Bratislava
until the market stabilizes, which is
generally expected to happen in 2011. We
Bucharest
St Pete’s expect that the rents will stagnate. Rents of
retail premises in less attractive locations
Sofia Budapest
and/or premises requiring significant
Moscow Kiev
investment shall further decrease.
Source: Colliers International
Increasing
Stable
Decreasing
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Country Figures: Rank by Pop Size SUMMARY PROGNOSIS
Country Population US$ GDP Confidence in Europe’s economic outlook The concern about the shift in lending
per capita
deteriorated to a 2-year low at the end of behaviour does not simply impact real estate
Russia 138,740,000 14,236
2011, as issues concerning Europe’s sovereign lending, it also impacts occupiers. Everybody
Ukraine 45,888,000 3,575
debt crisis and the condition of Europe’s benefits from a properly functioning banking
Poland 38,186,860 14,367 banking sector dragged down the economy. market, without which businesses will
Romania 21,904,551 9,371 struggle to operate let alone grow and
Greece 10,787,690 27,875 The situation was exacerbated by the inability expand. If continued access to the bank
Czech Rep 10,562,214 20,938 of governments to agree on measures funding they rely on - be it in the form of
Hungary 9,979,000 14,403 to alleviate the crisis at the end of the trade credit, overdraft facilities or debt – is
Bulgaria 7,364,570 7,243 year and put the fundamental structural deficient, reductions in credit will in turn
Serbia 7,120,666 6,268 changes in place to ease market tension. curtail demand for commercial space.
Slovakia 5,440,078 18,899 At least the first two months of 2012 saw
Croatia 4,290,612 14,829 the chances of stability improve as the With this in mind, it is worth noting that the
Albania 3,195,000 4,131 German Bundestag agreed to the second European Banking Authority (EBA) ‘re-
Source: FocusEconomics/ IMF/ Colliers International €130 billion rescue package for Athens by capitalisation’ tests look to have been fairly
an overwhelming majority vote. That said, well met by the banks. Colliers estimate of
there is a great deal for Athens and Greece the outstanding capital requirements of the
GDP GROWTH 2012F (BY COUNTRY)
to do over the coming months and years banks is ca. €20 billion, which equates to less
(%)
4 in order to avoid a disorderly default. than 1% of GDP for the countries concerned.
3 This is not an insurmountable target.
2 Despite this positive news, it has come a
1 little too late to prevent negative sentiment While everyone waits for the dust to settle and
0 from embedding itself into the mindsets of the EBA banks tests to be met by mid-year,
-1 many. Equally, German factory orders had however, new bank financing will be limited
-2 dropped by more than they have in almost across the region. As a result, our outlook for
-3
three years which is a negative sign for the year is somewhat bearish, although we do
-4
eastern Europe. As almost every Eastern expect things to improve in the second half of
Hubgary
Ukraine
Russia
ALbania
Serbia
Eastern Europe
Poland
Bulgaria
EU Members
Romania
Slovakia
Slovenia
Czech Republic
Croatia
Grece
European economy has Germany as its major the year depending upon how well and how
trading partner, some more than others. soon banks meet their June EBA targets.
Subsequently we have seen economic As we look further forward it is, however,

Source: IMF/ FocusEconomics/ Colliers International
forecasts pared back over the last four worth reminding ourselves of the growth
months across Europe, reducing the capacity of eastern Europe in general. Over
growth forecasts for the majority of the next two years economic growth in
GDP GROWTH EASTERN EUROPE eastern European economies in 2012. emerging markets worldwide – eastern
VS. WORLD However, GDP forecasts for 2012 are Europe, Latina America and Asia (ex Japan)
15 positive overall – Greece aside - and remain will lead world growth ahead of the more
above average for Europe as a whole. mature economies of western Europe, Japan
10 and the USA. Eastern Europe still has a
One of the most undesirable outputs of the lot to offer, and historically has been very
5
current European sovereign debt crisis has profitable for banks, so the expectation is
0 been the recent withdrawal of bank lending. that lenders will maintain lending operations
In particular the Austrian Banking Authority and eventually expand these over time. In
-5 (ABA) decision in November 2011 to place a simple terms foreign banks cannot afford
moratorium on any new lending in Eastern not to be present in eastern Europe.
-10
European markets, where banks run over a
2009
2010
2011
2012
2013
110% Loan Deposit Ratio (LDR) threshold,

USA Japan
has created one of the biggest negative
Euro Area Asia (ex Japan) impacts across the region, especially in
Latin America Eastern Europe countries where Austrian banks dominate
Source: Focus Economics, Colliers International
foreign lending. This is despite the fact that
the Austrian banks are in relatively good
health, at least according to our analysis.
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures – Eastern Europe SUMMARY Interestingly development land takes a larger
Investment Turnover €13.4 Billion share of the market than normal. If we look
A full analysis of all closed deals in 2011
Prime Office Yields 6.50% in more detail at the intended end-use of this
reinforces just what a strong year it was for
Prime Retail Yields 6.25% land, the largest part is for office development
the investment market in Eastern Europe.
Prime Industrial Yields 7.75% – a sign that investors are forward purchasing
due to the lack of high quality, ‘sustainable’
Source: Colliers International Over €13.2 billion worth of deals were
office stock in the market. Residential use
closed across the *Eastern European region,
also forms a significant part of land acquired
INVESTMENT €VOLUME OVER TIME even higher than the €12 billion initially
for development, particularly in Russia.
(€ MILLION) understood to have transacted as a number
20 of deals got over the line in Poland and
18 PROGNOSIS
16 Russia during the last month of the year.
14 This certifies 2011 as the second best year As for 2012, we expect investment turnover
12 for investment volumes after 2007 when to fall back from 2011 levels in response to
10
8 ca. €18 billion worth of deals transacted. contractions in economic growth and the
6 availability of real estate debt. We expect
4 The majority of deals were closed in the bank property lending/activity throughout
2
0 larger more liquid markets of Russia, 2012 to vary considerably across the region
Poland and the Czech Republic which depending on location and product type
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
accounted for 75% of all transactions in but to mirror the trends seen in 2011 with
the region. The €4.2 million worth of deals investment focussed on the main markets
INVESTMENT VOLUME (BY COUNTRY) transacted in Moscow is the highest ever of Poland and the Czech Republic.
1% 1%
volume of deals in the Russian capital.
2% 1% For the last eighteen months Colliers has
4%
The CA Immo portfolio which transacted highlighted that 2012 would be the year
5% when distressed sales come to market,
for €1.5 billion in Q1 2011 accounted for
40%
12% around 12% of the total investment pie, which if at all. A combination of regulatory
includes a number of assets in Poland, the and market pressure, plus changes to
Czech Republic, Hungary, Slovakia, Romania senior management within the banks,
and the Ukraine. The remaining market share could finally remove the ‘pray and delay’
comprises deals in Hungary, Slovakia, the legacy of the previous property boom.
14% Ukraine, Bulgaria, Romania and Croatia.
This could be a great year for those waiting
20% If we analyse deals by sector, it is clear to in the wings with equity seeking the right
see the extent to which retail dominated the opportunities. We also expect to see an
Russia Poland Czech
Republic investment landscape accounting for over one increase in hybrid forms of deal-making,
Multi-Country Hungary
Slovakia third (36%) of all investment activity, which is such as an increase in joint venture (JV
Ukraine Bulgaria close to the sectors historical average. Offices partnerships), a softer form of managing
Croatia
Romania fell behind, accounting for only 22% of all the ‘need to sell’ via the use of alternative
transactions, which is lower than the market forms of equity and mezzanine financing.
norm of closer to one third of the market. This has already emerged in some
markets in the region such as Romania.
INVESTMENT VOLUME (BY SECTOR)
That said, offices accounted for a high
0%
0% proportion of the assets within the multi-use
4% portfolios which were traded, notably the CA
7%
Immo portfolio, but overall the office sector
35% traded lower than expected. In part this is
9%
the result of low office completion rates
and pipelines over recent years. Equally,
9%
the lack of investment grade, high quality,
‘sustainably rated’ stock in the sector could
be to the detriment of it’s trading figures.
13%
22%
Retail Office
Multi-use Portfolio Development Land
Hotel Industrial
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | OFFICE MARKET
OFFICE MARKET
SUPPLY VACANCY/AVAILABILITY
2011 DEVELOPMENT COMPLETIONS
In total, the volume of 2011 office development In light of new completionsa added relative to
800
completions for the eastern European actual net take-up figures there was limited
700 region was 25% down on 2010 levels. change to overall vacancy and availablity
600 Of the 2.049 million m² which was built, levls. The vacancy rate for Eastern Europe
500 almost half of this amount came out of showed almost no change (on average)
400 the ground in Moscow (750,000 m² ) and falling by 0.6% overall. The biggest changes
300 Warsaw (260,000 m²). The remaining to vacancy rates across the region were
200
volume of completions was quite evenly in Bucharest, where vacancy fell from ca.
100
0
spread across the other major city markets, 21-16%, in Belgrade – from ca. 24-20% and
led by Sofia (184,000 m²), St. Petersburg in Moscow and St Petersburg, where rates
Moscow
Warsaw
Sofia
St Pete’s
Poland Regional
Kiev
Bucharest
Prague
Budapest
Athens
Zagreb
Bratislava
(139,000 m²) and Kiev (130,000 m²). fell from 12-10% and 17-14% respectively.
Between 86,000-114,000 m² was delivered RENTS

Source: Colliers International in each of Prague, Budapest, Bucharest
Prime rents changed in eight of the thirteen
and Athens. Only a minimal amount of
GROSS & NET TAKE-UP (M²) 2011 markets across the region. Moscow witnessed
new space emerged in Zagreb (40,000
the highest rental increases of +8.48%,
2 500 m² ) and Bratislava (20,000 m²). No new
followed by Warsaw +5.12%, Bratislava
space was completed in either Belgrade
2 000 +4.09% and Kiev +3.13%. Rents fell in Sofia
or Tirana. The main regional cittes of
by -8.6%. -7.41% in Zagreb, -6.67% in Athens
1 500 Poland, however, combined to provide an
and a minimal -0.71% in St Petersburg.
additional 138,000 m² of new office space.
1 000
PROGNOSIS
Year-on-year only three markets withnessed
500
an increase in deliveries relative to 2010. Although half of the markets covered in this
0
They were Warsaw, Kiev and St. Petersburg. report have a higher pipeline of projects on
the go than completions recorded in 2011, the
Moscow
Warsaw
Poland Regional
Budapest
Prague
Bucharest
Kiev
St Peter’s
Sofia
Bratislava
Athens
Zagreb
Belgrade
TIrana
DEMAND overriding feeling of caution in the markets

coupled with the need for high levels of pre-
Whilst new supply was down y-o-y gross
lets to enable developmenst to move forward,
take-up actually increased by ca. 1.2 million
Take-Up Net Take-Up is likely to minimise new completions in 2012.
m². The majority of this increase was in
Moscow which saw take-up rise by 460,000
As a result, the mid-term balance of supply
m² followed by Poland with 392,000 m²
VACANT STOCK Y-O-Y (M²) 2010-2011 and demand is likely to be kept in check with
(225,000 m² in Warswa and 167,000 m²
100 only Sofia suffering from an over-supply
in the regional cities). Therewere also big
of stock in the market, even though a high
50 increases in Budapest (113,000 m²) and
proportion of this availability is situated
0 Prague (111,000 m²) which represented 40%
within a few, largely vacanct developments.
and 52% y-o-y increases respectively.
-50 In light of this we see no major fluctuation
in rents over the year ahead, with only
-100 Equally proportionate perspective Sofia
Moscow showing signs of rental growth.
-150
saw the largest increase at 253% y-o-y
(86,000 m²) followed by Zagreb at 100%
Sofia
Bratislava
Zagreb
Kiev
Belgrade
Warsaw
Tirana
Budapest
Bucha-
rest
St Pete’s
Prague
Moscow
y-o-y growth (20,000 m²). There were

declines in take-up for Athens (-18,000
m² ) and Bratislava (–70,000 m²).
2011 MID-TERM AVAILABILITY
(NUMBER OF YEARS) Overall, despite take-up rising by 40% to
12 4.315 million m² only ca. 40% of this figure
10 represents net take-up at 1.89 million m².
8
6
4
2
0
Warsaw
Bratislava
Moscow
Prague
Zagreb
Bucharest
Budapest
Kiev
St Pete’s
Sofia
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | INDUSTRIAL MARKET
INDUSTRIAL MARKET
SUPPLY & DEMAND VACANCY/AVAILABILITY
2011 STOCK LEVELS (THOUSANDS)
8 18%
The industrial/logistics market is the most Markets can be grouped into three categories
7 16% responsive of all the sectors to changes according to their vacancy rate. The low
6 14% in demand. Given the manufacturing/ vacancy group which support renewed
5
12% industrial driven nature of the majority development activity and some rental
10% of eastern European economies it is also increases include Moscow, with a very low
4
8%
3 the first property sector to respond to any vacancy rate of 1.2%, followed by Slovakia
6%
2 4%
uplift or decline in economic output. It is (5.27%), St Petersburg (6.5%) , the
1 2% very much a demand-driven real estate Czech Republic (7.7%) and Greece (9%).
0 0% sector, particularly in eastern Europe.
At the other end of the scale, the tenants
Hungary
Moscow
Greece
Poland
Bulgaria
Czech Republic
Slivakia
Ukraine
St Pete’s
Romania
Croatia
In addition, the logistics sector also has markets, are Hungary and Bulgaria at
a significant influence on the demand for vacancy levels of 20% and 24% respectively.
Total Stock logistics/warehousing space above and The middle ranking, more stable rental
y-o-y (%) beyond the typical ‘organic needs’ of national- markets are Croatia (11%), Poland
Source: Colliers International based occupiers. In particular, logistics (11.4%), Romania and Ukraine (17%).
operators which are active on a regional
TAKE-UP VS. VACANCY pan-European scale are increasingly able RENTS
2.0 50%
to shift their operations further east due to
Rents rarely shift by any significant degree
improvements in infrastructure. The likelihood
in the logistics sector, with the highest
1.5
40% that consumer demand and manufacturing
rents payable in the larger markets of
30%
growth will increase at a faster rate in eastern
Moscow, St Pete’s and Poland, ranging from
1.0 Europe, relative to western Europe, also
€10.5 - 6 m²/pcm, with rents in the smaller
20% means that many parts of eastern Europe
markets ranging from €4-5 m²/pcm.
0.5
10%
will become logical locations for major pan-
European logistics and distribution operations.
0 0% PROGNOSIS
Hungary
Poland
Moscow
Czech Republic
Ukraine
Slovakia
St Pete’s
Romania
Croatia
Greece
Bulgaria
For now however, three markets continue to The fact that vacancy now stands at 5.27%
dominate the logistics landscape across the in Slovakia suggests that the market has
Take-Up region, namely Poland, Moscow and the Czech become a popular market for occupiers. This
Vacancy Rate Republic. Interestingly, however, there was a could be a sign that logistics operators are
significant difference in demand activity over gradually diversifying south from a more
2011 in these three markets, year-on-year: saturated Czech logistics market into new
2011 INDUSTRIAL PRIME RENTS territory, from where they can continue to
(€M2/PCM) There was very little change to take-up in support their pan-regional customer base.
12 Moscow which although growing by 50,000
10 m², this only represents a 5% increase in As we wrote in last years’ report, although
demand, much in line with GDP growth – road will remain the dominant form for
8
Moscow logistics for now appears to be a the distribution of goods across Europe,
6 very retail/consumer demand driven market. the shift from road to rail in particular
4 suggests that logistics providers and
2
Take-up in Poland grew vastly, increasing manufacturers will be able to move to lower
by 22% from 1.4 m² million in 2010 to 1.8 cost locations further south and east in
0
m² million in 2011, driven by a combination Europe, notably those which are ‘on the
Hungary
Slovakia
Bulgaria
Czech Republic
Romania
Greece
Croatia
Ukraine
Poland
St Pete’s
Moscow
of manufacturing and consumer demand. main rail grid’. As global trade grows and
the main concentrations reach capacity,
In the Czech Republic, however, take-up this may happen sooner rather than later.
shrank by ca. 20%, falling from 980,000 m²
in 2010 to 817,000 m² in 2011. Interestingly,
take-up in Slovakia grew for the first time in a
number of years by a significant 75%, rising
to 205,700 m² in 2011 from only 58,200 m² in
2010. Vacancy rates in Slovakia had fallen to
ca. 7.4% as of end 2010, making this market
an interesting prospect for developers.
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE | RETAIL MARKET
RETAIL MARKET
SUPPLY In the more mature locations, such as
2011 RETAIL STOCK (MILLION M2) Prague, despite a lack of new space being
4 The shopping centre stock in eastern Europe
built a number of major shopping centres
increased by 862,110 m² in 2011 and was
are going through refurbishment plans,
3 mainly driven by completions in Warsaw
some including store expansions. The
(272,000 m²), St. Petersburg (199,670
2 modifications are being put in place in order
m²) and Moscow (117,740 m²). The other
to improve the market offer of the shopping
markets contributed to the remaining 30%
1 centres to match consumer demand and
of these new completions, aside from
retain their market position. There is a
Belgrade and Prague where no new retail
0 increasing threat to shopping centres from
shopping centres were added over the year.
the growth in e-retailing, which has begun
Moscow
St Pete’s
Budapest
Warsaw
Bucharest
Prague
Kiev
Sofia
Zagreb
Bratislava
Athens
Tirana
Belgrade
the penetrate the Czech retail market.

Leaving Prague and Belgrade aside,
proportionately the majority of the eastern
Traditional In terms of retail demand categories, the
European capitals stocked up their markets
Specialized segment showing the strongest growth
by a minimal 2-5%. Only four markets
Source: Colliers International belonged to food retailers, which either
witnessed an increase of their total shopping
consolidated or grew in all the major cities.
centre stock of around 10% or higher, with
2011 RETAIL PRIME RENTS €M2/PCM /
Warsaw posting the highest increase in supply
Y-O-Y CHANGE IN RENTS RENTS
(20.33%), followed by Tirana (16.16%), St.
250 50%
Peteresburg (9.61%) and Athens (9.23%). The y-o-y changes in the prime rents for
200
25%
shopping centres differ strongly, with Kiev
Nevertheless, Moscow (3,704,410 m²) and showing the highest increase in rents of
150
0% St. Petersburg (2,077,000 m²) remain the (+)17.4%, predominantly due to virtually zero
100 dominant markets by size, followed by Warsaw vacancy in the market. At the other end of
-25% (1,338,000 m²) and Budapest (1,58,956 m²). the scale is Athens, which unsurprisingly
50
saw rents fall by 50% over the year.
0 -50% DEMAND The following cities also experienced a
drop in prime rents, notably Sofia with a
Moscow
Kiev
St Pete’s
Prague
Warsaw
Bucharest
Budapest
Belgrade
Bratislava
Tiarna
Sofia
Athens
Zagreb
The major demand trends seen in 2011 are

decrease of (-)15.63% followed by Warsaw
dominated by the impact of the financial crisis,
(-13.92%) and Bratislava (-8.57%).
2010
with limited growth in retailer demand. Whilst
2011 this is a common theme, there was a strong
The remaining markets saw no, or
y-o-y degree of diversity. In Warsaw and Zagreb, for
little change in prime rents.
Source: Colliers International example, international brands entered these
markets for the first time, illustrating their
TOTAL SHOPPING CENTRE PIPELINE PROGNOSIS
trust in the growth of these trading areas.
(THOUSAND M2) Overall a 15% increase in retail shopping
600 60% On the other hand, some of the other centre stock is planned for delivery
500 eastern European capitals struggled across the region, but with significant
400 40% with decreasing demand, such as in variations. Sofia, Kiev and Zagreb will see
Budapest and Tirana where a number the largest increase, proportionately, but
300
of existing players exited the market. as the detailed analysis of each market
200 20% highlights there is a high probability that
100 There was a general shift from a strong the majority of new space planned for
0 0% high street focus to relocate stores to completion in 2012 will be delayed until the
shopping centres, depending on the economic situation in Europe stabilises.
Moscow
Sofia
St Pete’s
Kiev
Bratislava
Zagreb
Bucharest
Budapest
Warsaw
Prague
Belgrade
Athens
Tirana
segment of the retailer, as luxury brands

still prefer prime high street locations.
Pipeline
% Increase in stock
RESEARCH & FORECAST REPORT | 2012 | EASTERN EUROPE |
COLLIERS RESEARCH
512 offices in Colliers Research Services Group is recognised as a knowledge leader in the commercial
real estate industry, providing clients with valuable market intelligence to support
61 countries on business decisions. Colliers research analysts provide multi-level support across all
property types, ranging from data collection to comprehensive market analysis.
6 continents Across the CEE-SEE-Russia region of EMEA, Colliers researchers regularly collect and update
United States: 125 data on key real estate metrics, set to consistent definitions. This information is constantly
Canada: 38 managed using databases, enabling staff to readily produce analysis on key regional markets
Latin America: 18 including supply, demand, absorption, pricing and transaction data on capital markets and the
Asia Pacific: 214 office, industrial and retail sector. In most CEE-SEE-Russian markets, the office definitions
EMEA: 117 used are consistent with those set out by the CEE Research Forum – an umbrella group, of
• $1.5 billion in annual revenue which Colliers is a founding member - established to ensure consistent research methodologies
• 978.6
are used, bringing greater transparency and reliability to the analysis of real estate markets in
million square feet under
management
the region. Definitions of the key metrics used in our regular reports are highlighted below.
• Over 12,500 professionals KEY METRIC DEFINITIONS
Prime Headline Capital Value (derived): This is a calculation of market value derived
from the annual prime headline rent divided by the prime (net initial) yield.
Prime Net Initial Yield: The yield an investor is prepared to pay to buy a Grade A building,
fully-let to high quality tenants at an open market rental value in a prime location.
Lease terms should be commensurate with the market. As a calculation Net Initial
Yield = first years’ net income/purchase price (prior to deducting fees and taxes).
Prime Headline Rent: Represents the top open-market tier of rent that could be expected
Damian Harrington, MRICS; MSc
for a unit of standard size commensurate with demand, of the highest quality and
Regional Director - Research & Consulting
CEE Investment Services
specification in the best location in the market at the survey date. This should reflect
Eastern Europe Regional Team the level at which relevant transactions are being completed at the time but need not
be exactly identical to any of them, particularly if deal flow is very limited or made
Colliers International up of unusual one-off deals. If there are no relevant transactions during the survey
Galerie Mysak period, the quoted figure will be more hypothetical, based on expert opinion of market
Vodickova 710/31
conditions, but the same criteria on building size and specification will apply.
Prague 1, 11000
Czech Republic Prime Net Effective Rent: Prime Net Effective Rent is the lowest rent payable, based on
a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
TEL +420 226 537 624
either the rent-free period or fit-out contribution available at the time of the survey date.
FAX +420 226 013 579
EMAIL damian.harrington@colliers.com
Average Headline Rent: Average Headline Rent represents the average open-market tier of
rent that could be expected for a unit of standard size commensurate with demand, based on
a blend of Grade A and B space across a range of locations in the market at the survey date.
Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
Space Under Active Construction: Represents the total amount of gross leasable floor
space of properties where construction has commenced on a new development or in
existing properties where a major refurbishment/renovation is ongoing at the survey date.
Space Under Construction – Inactive: Represents the total amount of gross leasable floor
space of properties where construction had started/where a major refurbishment/renovation
Juliane Priesemeister, MSc
was ongoing, but activity has since stopped for a period of three months or longer.
Regional Research Analyst
CEE Investment Services | Eastern Europe Vacant Space: The total gross leasable floor space in existing properties that meet the
DIR +420 226 537 655 Competitive Stock definition, which is physically vacant and being actively marketed
MOB +420 739 009 945 at the survey date. Space should be available for immediate occupation.
EMAIL juliane.priesemeister@colliers.com
Take-up: In our calculation of take-up, gross take-up accounts for all occupational
market activity including renegotiations , renewals and sale-and-leasebacks. Net take-
The information contained herein has been obtained
from sources deemed reliable. While every reasonable
up includes new leases and pre-leases only, although it will often include relocations.
effort has been made to ensure its accuracy, we cannot
guarantee it.
No responsibility is assumed for any inaccuracies.
Readers are encouraged to consult their
professional advisors prior to acting on any
of the material contained in this report.
RESEARCH & FORECAST REPORT | 2012 | ALBANIA
ALBANIA
RESEARCH & FORECAST REPORT | 2012 | ALBANIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
RECENT TRENDS MARKET PROGNOSIS
Economy: The Albanian economy grew Economy: Based on the latest IMF forecast,
at a slower pace in 2011 than forecast by Albania’s economy is expected to grow
the government and the banks. According faster than its neighbouring countries in
to INSTAT, by the end of 2011, the inflation 2012. The expected 3.5% growth rate is
rate reached its lowest point in the last healthy taking into consideration the crisis
decade, a reflection of the economy’s and problems in the European economy.
adjustment to lower levels of demand.
Office: The delay of the construction of
Office: The vacancy rate decreased slightly Tirana Business Park will postpone the
to 10% in H2 2011, in comparison to the first pre-announced increase in office stock
half of the year. Rental rates remained high which will eventually impact office rental
but stable especially in the main business prices that are expected to remain stable or
towers. Office demand stayed strong, slightly decrease in the business centres.
but high rental prices pushed businesses
to look for alternative solutions such as Retail: New demand was absorbed by
TRENDS 2012 relocating to more affordable premise. the opening of TEG in Q4 2011. Thus, no
significant increase in demand is foreseen
Retail: Activity prevailed in the retail sector in 2012, with activity driven by renewals
GDP GROWTH in H2 2011. In November, 41,200 m2 were and one-off transactions. Due to the
added to the traditional shopping centre significant increase of retail stock, we
PRIME stock with the opening of Tiran East Gate, expect a slight decrease in both shopping
PRIME
OFFICE RENTS the largest shopping centre in Albania. On centre and high street rental prices.
YIELDS
the other hand, the well known DIY German
chain, Praktiker, closed its only presence in
Albania thereby decreasing the specialized
shopping centre stock by 11,000 m2. The retail
market experienced a slight decrease in the
vacancy rate (in Q2 2011) which reached
10.7%. Rental prices remained constant
and decreased in secondary locations. High
TRANSACTION PRIME SC street and secondary stores reported a drop
VOLUMES RETAIL RENTS in retail sales and high turnover of shops.
Increasing
Stable
Decreasing
RESEARCH & FORECAST REPORT | 2012 | ALBANIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY The latest data on foreign direct investment
2010 2011 2012 (FDI), published by the Bank of Albania,
According to the latest IMF World Economic
GDP % 3.50 2.50 3.50 showed that by the end of Q3 2011, FDI
Outlook, Albanians economic real growth
CPI % 3.60 3.90 3.55 accounted for €430 million, or 52% of
slowed down while reaching an estimated
Unemployment % 12.50 11.50 11.00 the 2010 FDI total. No major investments
2.5% in 2011 compared to 3.5% registered
or privatisation occurred in Q4 2011.
Source: IMF/CIA World Fact Book/FocusEconomics in 2010, meaning Albania ranks highly
On a quarterly basis, Q1 2011 registered
Population 3 195 000 among SEE countries, sharing second
the lowest FDI levels at €42 million in
Top 3 Cities 616 784 19.30% position with Bulgaria. In terms of quarterly
comparison to FDI levels in Q2 and Q3 2011.
Tirana 421 286 13.19% figures, there was a 1.8% increase in
Duress 115 550 3.62% Q3 2011 in comparison to Q2 2011.
PROGNOSIS
Vlore 79 948 2.50%
Source: IMF/CIA World Fact Book/FocusEconomics Based on the latest data (Q3 2011) from According to the IMF, Albania’s
the national statistical office (INSTAT), economic growth is expected to
Economic Make-up
the industries that experienced higher grow at a projected rate of 3.5%.
Sector GDP Labour
growth rates in comparison to Q3 2010
Agriculture 21.00% 58.00%
included: Transport (19.7%), trade (6.2%), The IMF predicts a stronger ratio of
Industry 19.00% 23.00%
industry (4.8%) and construction (0.3%). investments to GDP at an increase
Services 60.00% 19.00%
On the other hand, industries with negative of 0.7% which will bring the total
Source: IMF/CIA World Fact Book/FocusEconomics
growth included: other services (-3.3%), investments to a GDP ratio of 25.7%.
postal and communication (-0.5 %).
The unemployment rate is expected
CPI, GDP & UNEMPLOYMENT According to INSTAT, the 2011 inflation rate to decrease again in 2012.
16
was 1.7% compared to a 1.9% rate in 2010.
14
The prices of goods and services followed
12
10
the decline of overall national economic
8
activities. The index group of goods titled
6
“transport” registered the highest price
4 increase at 5.4%, followed by “health” (4.2%)
2 and “alcoholic beverages and tobacco” (3.4%).
0
Albania’s modest economic growth
2007
2008
2009
2010
2011
had a positive impact on the country’s

CPI unemployment rate, which has continuously
decreased since 2009. According to the IMF’s
Unemployment
estimation, in 2011 the unemployment rate
Real GDP was 11.5% which is 1% lower than 2010 and
Source: INSTAT, IMF`s WEO, October 2011 1.6% lower than 2009’s unemployment rate.
FDI ANNUALLY (IN MILLION EURO) Investments as a percentage of GDP

continued trending downward, but at lower
900 rates of decline witnessed between 2009
800 and 2010. In 2011, the investment/GDP ratio
700
was estimated at 25% versus 25.9% (2010)
600
500 and 29% (2009). It should be mentioned
400 here that the peak in investments was
300 mainly caused by the public investment that
200 resulted from the general election in 2009.
100
0
2008
2009
2010
2011*
Source: Bank of Albania, INSTAT
RESEARCH & FORECAST REPORT | 2012 | ALBANIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Tirana SUPPLY VACANCY/AVAILABILITY
Total Stock 63,400 m2 The Tirana office market is composed Office vacancy rates decreased to 10%
Take-up 10,260 m2 of 13 Grade A, B+ and B office buildings (6,300 m2) in H2 2011, down from 11%
Vacancy 10% which were developed over the past 15 (7,000 m2) in H1 2011. The decrease was
Prime Headline Rent €24.5 m2 / pcm years. Several businesses have taken to attributed to the take-up of Grade A office
Average Headline Rent €15.5 m2 / pcm renting space in converted offices housed space down to 4,830 m2 in H2 2011 compared
Source: Colliers International in residential buildings as there is a lack to 5,430 m2 in the previous half of 2011.
of office space with quality amenities at
CHANGE IN STOCK OVER TIME affordable rental rates in the Tirana market. Vacancy rates in the city centre registered
(THOUSAND) at 10% during H2 2011 whereas vacancy
70
Despite the expectation of new office rates in the inner city equalled 7.8%.
60 developments, the total office stock in Tirana
50 remains unchanged at 63,400 m2 GLA. RENTS
40 No new supply was added to the office
In H2 2011, the rental rates in most Tirana
30 inventory in H2 2011. The most recent office
office buildings remained constant at H1 2011
20 development occurred back in H2 2009.
levels and saw only minimal fluctuations.
10
0 Approximately 54% of total office stock
Prime headline rents in the city centre
(34,300 m2) was classified as Grade A office
2005
2006
2007
2008
2009
2010
H1 2011
H2 2011
and inner city registered €24.5 m2/

space, while the remainder (29,100 m2)
pcm and €17 m2/pcm respectively.
Source: Colliers International Research was a mix of both, Grade B+ and Grade B.
Rents for buildings in prime locations
experienced a slight increase in 2011.
The development pipeline totaled 26,600
TOTAL STOCK/ NEW COMPLETIONS BY
m2, out of which only 9,000 m2 of office
LOCATION (THOUSAND) PROGNOSIS
space was actively under construction.
60
No Grade A or Grade B office buildings
50 DEMAND will come to market in 2012. Thus, it is
40 expected that the vacancy rates will decrease
In 2011, several businesses considered
slightly mirroring natural office demand.
30 relocation. These tenants were looking
20 for alternative office space in built-to-suit
Monthly average rental rates will remain
10
developments or in converted office space
unchanged in 2012, but may experience
in residential buildings with lower rents.
0 a slight decrease in business centres
that have higher vacancy rates given the
2007
2008
2009 H1
2009 H2
2010 H1
2010 H2
2011 H1
2011 H2
Interest for office space from foreign

trend to occupy office space in outer city
companies focused on outer city
Stock CIty Center Stock Inner City locations. For lower quality offices located
locations due to the area’s affordable
at the Tirana-Durres highway, prices are
Completions City Completions Inner City rental rates and ample parking space.
Center expected to decrease due to renewals
Source: Colliers International Research
and new stock entering that area.
In H2 2011, the quantity of subleased office
space increased, particularly in prime
locations that had vacancy rates close to 0%.
RESEARCH & FORECAST REPORT | 2012 | ALBANIA | RETAIL MARKET
RETAIL MARKET
Key Retail Figures –Tirana OVERVIEW RENTS/VACANCY
Total Shopping Centre The retail market saw the addition of the In H2 2011, rental rates in the retail sector
186,900m
Stock
largest shopping centre, Tirana East Gate decreased, particularly in secondary retail
Prime Headline SC Rent €33 m2/pcm
(TEG), increasing the traditional shopping locations with higher vacancy rates.
Prime Headline centre stock to 158,000 m2 in H2 2011.
€45 m2/pcm
High Street Rent
Prime headline rents in traditional
The new supply was rapidly occupied by shopping centres were €33 m2 /pcm and
new brands entering the market such as €45 m2 /pcm in high street locations.
CHANGE IN STOCK/ NEW SUPPLY Carrefour, the second largest retail chain
OVER TIME (THOUSAND) in the world, Greece’s largest toy retailer The total vacancy rate in traditional shopping
180 Jumbo Kids and Sprider – that used the centre stock remained low, between
160 opening to enter the Albanian market. 0.1% in premium locations and 10.7% in
140 secondary retail streets as of H2 2011.
120 SUPPLY
100
80 PROGNOSIS
During H2 2011, with the opening of
60
Tirana’s East Gate, 41,200 m2 was added The opening of Tirana East Gate
40
20 to the retail inventory in Tirana thereby will affect the vacancy rates of retail
0 increasing the total traditional shopping properties in the city which are expected
centre stock to 158,000 m2. Additionally to increase slightly in the upcoming year
2006
2007
2008
2009 H1
2009 H2
2010 H1
2010 H2
2011 H1
120 H2
during H2 2011, the German DIY chain, especially in secondary locations.

Praktiker, closed its business in Albania,
New Development Completion Stock thus decreasing the specialised shopping New demand has already been absorbed
Total Traditional Stock centre stock by 11,000 m2, leaving the GLA by the opening of TEG in Q4 2011. Thus,
Source: Colliers International Research of specialised retail space to 28,900 m2. no significant increase in demand is
foreseen in 2012 and will only be driven by
TOTAL SHOPPING CENTRE STOCK 6,300 m2 of retail space was under renewals or one-off transactions tenants.
- TIRANA (THOUSAND) construction in the country.
200 Rental rates in both high street and shopping
180 DEMAND centres are expected to remain stable with
160
minor fluctuations for selective deals.
140 Limited consumer purchasing power, coupled
120
100
with the opening of Tirana East Gate shopping
80 centre had a direct impact on street retailers,
60 resulting in a sales decrease of 20% to
40
20 30% in comparison to retail sales in H2
0 2010 and thereby moved the demand from
high streets towards shopping centres.
2005
2006
2007
2008
2009
2010
H1 2011
H2
2011
Specialized SC Nevertheless tenant’s still prefer high

Traditional SC streets as a target location although
Source: Colliers International Research they are now actively demanding space
in traditional shopping centres.
TOTAL TRADITIONAL
STOCK/ VACANCY RATE (THOUSAND)
180 16%
160 14%
140 12%
120 10%
100
8%
80
60 6%
40 4%
20 2%
0 0%
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Total SC
Vacancy
Source: Colliers International Research
RESEARCH & FORECAST REPORT | 2012 | ALBANIA
COLLIERS RESEARCH
which Colliers is a founding member - established to ensure consistent research methodologies
• $1.5 billion in annual revenue are used, bringing greater transparency and reliability to the analysis of real estate markets in
• 978.6 million square feet under the region. Definitions of the key metrics used in our regular reports are highlighted below.
management KEY METRIC DEFINITIONS
• Over 12,500 professionals
ALBANIA:
the level at which relevant transactions are being completed at the time but need not
up of unusual one-off deals. If there are no relevant transactions during the survey
period, the quoted figure will be more hypothetical, based on expert opinion of market
Lira Mura
Prime Net Effective Rent: Prime Net Effective Rent is the lowest rent payable, based on
Colliers International a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
Sky Tower, Suite 141 either the rent-free period or fit-out contribution available at the time of the survey date.
Rr, Deshmoret e 4 Shkurtit Average Headline Rent: Average Headline Rent represents the average open-market tier of
Tirana rent that could be expected for a unit of standard size commensurate with demand, based on
Albania
TEL +355 42 400 471 Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
EMAIL albania@colliers.com
Vacant Space: The total gross leasable floor space in existing properties that meet the
Competitive Stock definition, which is physically vacant and being actively marketed
at the survey date. Space should be available for immediate occupation.
The information contained herein has Take-up: In our calculation of take-up, gross take-up accounts for all occupational
been obtained from sources deemed market activity including renegotiations , renewals and sale-and-leasebacks. Net take-
reliable. While every reasonable effort
has been made to ensure its accuracy, up includes new leases and pre-leases only, although it will often include relocations.
we cannot guarantee it.
No responsibility is assumed for
any inaccuracies. Readers are
encouraged to consult their professional
advisors prior to acting on any of the
material contained in this report.
RESEARCH & FORECAST REPORT | 2012 | ALBANIA | TAX SUMMARY
ALBANIA – TAX SUMMARY

CORPORATE INCOME TAX of stock capital or voting rights of a person real estate. The tax on ownership transfer of
AND CAPITAL GAINS changes more than 25% in number or value. buildings is levied on each square metre and
varies from ALL 100 to ALL 2, 000, depending
From 1 January 2008, corporations conducting Thin Capitalisation
on the district where the real estate is
business in Albania are subject to corporate The thin capitalisation rules apply in Albania if located. The tax on ownership transfer of real
income tax at a flat rate at 10%. Corporate a company’s liabilities exceed four times the estate other than buildings is 2% of the sale
income tax is applied to the accounting amount of its equity (excluding short-term price. The tax is not applicable to individuals
profit after adjustments for tax purposes. loans). In such a case, the interest paid on the subject to personal income tax in Albania.
Capital gains from the sale of real estate exceeded amount is not tax deductible. The
thin capitalisation restrictions do not apply Donors of real estate property to governmental
are included in the taxable income of the
to banks, insurance and leasing companies. authorities, religious institutions or not-
entity and taxed at the 10% rate. The sale
In addition, the interest paid exceeding the for-profit organizations are exempt from
of real estate by individuals is subject to
average annual interest rate of loans published this tax. The tax should be paid by the
personal income tax at a 10% rate on the
by the Bank of Albania is not tax deductible. seller of immovable property before the
capital gain generated (0.5% over the sale
transfer of the real estate is registered
price in case of sale of agricultural land). WITHHOLDING TAX with the Real Estate Register.
Since 1992, Albania has entered into The standard Albanian withholding tax rate is VALUE ADDED TAX (VAT)
agreements with several countries for 10%. The withholding tax rate can be reduced
avoidance of double taxation. As at 1 January by double tax treaties to which Albania is party. A supply of land and a lease of land
2012, 32 double tax treaties with different are considered VAT exempt supply in
countries are in force. A general rule imposed Dividends Albania. The supply of buildings (except
by the tax treaties is that the right to tax Withholding tax on dividends at 10% rate the supply of construction works) is an
the capital gains is conferred to the state of applies on all dividends paid by Albanian exempt supply. The lease of a building is
residence of the seller. However, a number of companies unless a respective double tax treaty an exempt supply except for these cases:
double tax treaties provide a special regime states otherwise. No withholding tax applies if renting for not longer than two months
for capital gains if the shares being sold derive dividends are paid to a tax resident company or
more than 50% of their value directly or partnership subject to corporate income tax in staying in hotels or vacation resorts.
indirectly from real estate. In addition, capital Albania. In addition, the income generated from In addition, based on the by-laws issued
gains are taxed in Albania in case a foreign dividends is not included in the taxable income by the Minister of Finance, entities or
entity or a foreign individual transfers the direct of the tax resident company or partnership. individuals may opt (upon the fulfilment of
ownership over real estate situated in Albania.
Interest and Royalties certain conditions) to categorise their lease
Tax Depreciation supply of buildings as a taxable supply.
Withholding tax at 10% rate applies to
Entities may set depreciation rates for assets interest and royalties paid by Albanian
in accordance with their accounting policies, companies unless a respective double
while under the provisions of the Law on tax treaty states otherwise.
Income Tax, maximum annual rates allowed
for tax purposes are specified according REAL ESTATE TAX
to a separate tax depreciation schedule. Individuals and legal entities that own real
Land is not depreciated for tax purposes. estate property in Albania are subject to tax FOR MORE INFORMATION ON REAL ESTATE
The solid buildings, including investment on real estate. Local taxes on real estate SERVICES IN ALBANIA,
properties, facilities, transmitting devices, consist of the real estate tax on buildings PLEASE CONTACT:
machinery and production equipment and real estate tax on agricultural land. For
which are fixed at the building site are real estate tax on buildings, the tax base Arkadiusz Mierzejewski
depreciated according to the declining balance is the area of the buildings measured in a Partner
method at a depreciation rate of 5%. square metres for each floor of the building
KPMG in Albania
owned (for real estate tax on agricultural
Certain assets incorporated to a building Blvd. “Deshmoret e Kombit”,
land, the tax base is the area of agricultural
can be treated as separate movable assets Twin towers Buildings,
land measured in hectares) and it varies
for tax purposes and therefore can be Tower 1, Floor 13, Ap A1-A4
depending on the district where the building
depreciated over a shorter period. Tirana, Albania
is located. Buildings owned by the state and
Tax Losses local governmental authorities as well as by
T: +355 4 2274 524
religious institutions are exempt from this tax.
Tax losses can be carried forward over three +355 4 2274 534
tax periods. They can be offset against the REAL ESTATE TRANSFER TAX E: arekmierzejewski@kpmg.com
positive financial result after tax adjustment www.kpmg.al
The tax is applicable in case of transfer of
for the respective tax period according to the ownership right on buildings and other real
“first loss before the last one” principle. A tax estate properties. The tax is payable by the
loss cannot be carried forward if the ownership entity that transfers the ownership of the
RESEARCH & FORECAST REPORT | 2012 | BULGARIA
BULGARIA
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: Bulgaria showed Economy: The economic situation will remain
signs of improvement, economic relatively stable in 2012, with mild economic
growth and stability in 2011. growth driven by stronger Bulgarian exports.
Industrial: The total stock of speculative Industrial: Bulgaria will continue to attract
logistics and industrial space in Sofia international companies and develop
expanded by 8% in 2011, whereas new as an industrial outsourcing destination
deliveries accounted for approximately thanks to its EU membership. Similarly,
40,000 m2. Demand was driven mainly Bulgaria’s industrial sector benefits
by food and non-food retail chains, 3PL from having very low taxes compared
logistics operators and distributors of to other European countries, low overall
pharmaceutical products. A new trend costs, and a good geographic location.
emerged where international automotive and
electronics companies have chosen Bulgaria Office: No new major projects are
as a production outsourcing destination. expected to start construction in 2012.
TRENDS 2012 The vacancy rate will decrease and net
Office: The inventory of office space in Sofia absorption is expected to increase in
GDP GROWTH increased by 12% during H2 2011. Absorption premium Grade A office premises.
PRIME
for 2011 is estimated at 120,000 m2. As a
PRIME
OFFICE RENTS result of competitive rental pricing, more Retail: “Third Wave” shopping centres
YIELDS
companies relocated to higher-class office with targeted opening dates in 2012 and
space or to locations with better accessibility 2013, will continue to differentiate their
and attractiveness. Approximately 300,000 tenant mix and offering in contrast to
m2 of office stock, which represents 19% traditional retail functions. International
of total office space in Sofia, meet Grade A discount operators in fashion, DIY and
standards. This stock is concentrated in 16 the sporting good segment are planning
contemporary office projects in the capital to expand in Bulgaria. Food retailers will
city. High-quality office space can also continue their expansion mainly by opening
TRANSACTION PRIME SC be found in suburban locations, as well as convenience formats in key locations.
VOLUMES RETAIL RENTS in the Central Business District (CBD).
PRIME INDUSTRIAL RENTS Retail: The retail property market remained

unchanged in 2011 as far as new openings
Increasing were concerned. New supply was dominated
Stable
Decreasing
by three schemes under construction: Sofia
Ring Mall, Paradise Centre and Bulgaria
Mall. Cumulatively, the three projects will
come on market in Sofia in 2012/2013
representing approximately 180,000 m2 GLA.
However, the retail schemes with a delivery
timeframe of 2012/ 2013 are facing several
challenges such as determining the structure
and appropriate retail mix of tenants.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY
2010 2011 2012 Bulgaria has fallen victim to the contraction
GDP % 0.15% 2.50% 2.30% in the Eurozone economy which has
CPI % 3.04% 3.75% 2.94% negatively impacted the country’s exports.
Unemployment % 10.30% 10.17% 9.49% Close to 60% of Bulgaria’s exports depend
Source: IMF/CIA World Fact Book/FocusEconomics on Eurozone demand. As the economies
Population 7 364 570 of some of Bulgaria’s trading partners
Top 3 Cities 1 964 614 26.68% improve, particularly Germany, so too
Sofia 1 291 591 17.54% will the health of the local market.
Plovdiv 338 153 4.59%
Varna 334 870 4.55%
Imports may benefit from pent up household
Source: IMF/CIA World Fact Book/FocusEconomics savings banked earlier in the financial
Economic Make-up crisis. Likewise, government efforts to curb
Sector GDP Labour and reduce the country’s current account
Agriculture 5% 7%
deficit will also be a key success factor
Industry 30% 35%
in the improvement of the economy.
Services 65% 58%
Bulgaria’s prudent financial policies
which have brought a certain level of
stability to the market put the country in
KEY MACRO ECONOMICS INDICATORS a more stable position to weather any
15% further potential Eurozone disruptions.
10%
Government funding requirements are
5%
not expected to grow significantly over
0% the next four years. It is also worthy
-5% to note the level of domestic savings
which will serve to further reduce any
-10%
immediate need for government funding.
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Gross domestic product, constant prices

Inflation, average consumer prices
Unemployment rate
Source: IMF; Colliers International
EXTERNAL TRADE PERFORMANCE

30%
20%
10%
0%
-10%
-20%
-30%
-40%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Change in Volume of Exports

Change in Volume of Imports
Current Account Balance as % of GDP
Source: IMF WEO 9/11
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures –Bulgaria SUMMARY PROGNOSIS
Investment Turnover €186 m In 2011, Bulgaria’s real estate investment Interest from investors will remain in
Prime Office Yields 9% transactions reached €186 million, their part due to the overall macroeconomic
Prime Retail Yields 9% highest level to date since 2008. stability of the country. However, due to a
Prime Industrial Yields 11% shortage of sizeable and stable income-
High turnover was achieved due generating assets, turnover in 2012 is
to an improvement of loans terms, not expected to exceed 2011 levels.
INVESTMENT VOLUME (IN € MILLION)
600
the greater availability of stock
and the stabilisation of rents. Yields are expected to remain stable or
500
increase slightly in 2012. As of Jan 2012,
400 The real estate assets most in demand for there were signs of deteriorating loan terms.
300 investment reasons included retail big-boxes However margins between interest rates and
200 and offices. In Sofia, the Mall of Sofia’s yields remain sizeable (300 to 350bps) and
transaction represented approximately 55% with rents at their lowest levels, 2012 should
100
of total investment volumes for 2011. prove to be a wise time for investment.
0
Buyers did face some challenges sourcing

2006
2007
2008
2009
2010
2011

investment grade properties due to a
shortage of stable income-generating
assets in the Bulgarian market.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures – Sofia SUPPLY Some of the most developed industrial
Total Stock 1,629,790 m2 zones in the country are located in the area
The total stock of speculative logistics and
Take-up 13,000 m2 around Plovdiv due to its central location and
industrial space in Sofia expanded by 8%
Vacancy 24% the proximity to the Trakia highway. These
in 2011 as new completions accounted for
Prime Headline Rent €4 m2/pcm industrial zones provide attractive conditions
approximately 40,000 m2. These figures
to companies for establishing production,
Source: Colliers International include speculative and build-to-suit projects,
warehousing and logistics centres. The
as well as premises offered for rent by
area continues to develop, as many of the
CHANGE IN STOCK OVER TIME third-party logistics providers (3PL). The
existing build-to-suit and owner-occupied
(MILLION M2) largest project that was completed in 2011
projects are expanding. Varna and Bourgas
3.0 was a logistic complex in Obelia, adding
are also notable industrial hubs in Bulgaria.
13,000 m2 to the total industrial stock.
2.5 For example, Logistic Park Varna continues
2.0 to attract new tenants and it’s new building,
The construction pipeline for industrial space
A6, has reached more than 50% occupancy.
1.5 remained unchanged during H2 2011. No new
1.0 speculative projects started. Those under
Due to geographic factors such as proximity
construction are expected to increase the
0.5 to the Danube and being a short distance
stock of industrial buildings by approximately
0.0 to Bucharest, Ruse is likely to become
12,900 m2. Due to market conditions investors
the next industrial hub in the country.
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Inc Pipeline
are mainly considering build-to-suit projects,

The first step has already been taken
and are avoiding speculative development.
with the completion of Logistic Park Ruse
Source: Colliers International comprising 13,850 m2 of warehouse space.
International food chains in Bulgaria
generally prefer to build their own
DEMAND
industrial space according to their
specific business requirements, rather Demand during H2 2011 was driven mainly
than renting existing space. by food and non-food retailers, 3PL logistics
operators and distributors of pharmaceutical
T-Market leased their first logistics building products. Generally, the majority of tenant
during H2 2011 in the area of Elin Pelin, inquiries have been for logistics and
occupying 7,000 m2. The area around Elin industrial space in Sofia and Varna. The
Pelin has continued to attract international average size of requested warehouse in
companies as a suitable destination for Sofia was between 800 m2 to 1,000 m2,
build-to-suit projects due to its proximity while in Varna it was about 500 m2.
to the two major highways in Bulgaria.
Industrial demand from international
There was an increase in 3PL activity automotive and electronics companies, who
during H2 2011, mainly due to the increased have chosen Bulgaria as an outsourcing
outsourcing of logistics services. More destination for production has increased.
and more companies are inclined to For example, the Bulgarian-Chinese
outsource their distribution activities, automotive factory in Lovech, which
mainly due to the inherent cost savings. has already started production, and is
expected to produce 1,000 cars per year.
The major difference between Sofia ALC, a privately owned South-African
and the rest of the country is that in the company, specialising in manufacturing
country the dominant type of premises and exporting exclusive automotive leather
are production facilities, whereas in Sofia, interior components to the middle and
warehouse and logistics facilities make luxury automotive sectors, has outsourced
up the majority of industrial stock. production in the region of Musachevo,
occupying 6,000 m2 of industrial space.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | INDUSTRIAL MARKET
VACANCY/AVAILABILITY PROGNOSIS
AVERAGE ASKING RENTS FOR
CONTEMPORARY LOGISTICS SPACE The vacancy rate in the industrial market Bulgaria will continue to attract international
(€/ M2/ PCM) increased slightly in H2 2011 to 24%. This companies and develop itself as an
increase is mainly due to higher percentages industrial out-sourcing destination, thanks
Market Sofia Plovdiv Varna Rousse
of available owner-occupied sublease space. to its EU membership, attractive tax rates,
Prime
4 3 3.8 3.5 The net absorption on the logistics market for low costs and the competitive geographic
Rents
speculative space was 20,000 m2 in H2 2011. location. These factors will continue to
Secondary
2.5 1.8 2 2 facilitate the development of the industrial
Rents
RENTS and logistic market in the country.
Rental levels stabilised during H2 2011. Prime

Rents are expected to remain
VACANCY RATE asking rents in Sofia remained at €4 m2/ pcm.
stable during 2012.
30%
25%
20%
15%
10%
5%
0%
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
PRIME HEADLINE RENT (€/M2)

10
9
8
7
6
5
4
3
2
1
0
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures – Sofia SUPPLY DEMAND
Total Stock 1,538,640 m2 The inventory of office space in Sofia In 2011, absorption totaled 120,000 m2.
Take-up 120,000 m2 increased by 12% during H2 2011 so that Major deals done included the acquisition
Vacancy 25% the total stock of Grade A and Grade B of building E of the European Trade centre
Prime Headline Rent €11 m2/pcm office premises is now 1,538,640 m2. by Piraeus bank. Likewise, Sopharma
Source: Colliers International Company moved to Sopharma Business
In terms of a geographic breakdown, Towers, taking-up approximately 19,000
CHANGE IN STOCK OVER TIME 13% or approximately 200,000 m2 of the m2 of office space. Serdika Offices on
(MILLION M2) total office stock for lease is located in Sitnyakovo Boulevard continued to attract
3.0 Sofia’s Central Business District (CBD), new tenants, such as Osram, Triumph
2.5 while 68% or 1,047,535 m2, is located and Boehringer. The insurance company
in the suburban areas of the capital. Generalli Bulgaria Holding moved into
2.0
Twins Tower located on Nikola Gabrovski
1.5 Boulevard thereby absorbing 2,272 m2.
Grade A office space represents 300,000
1.0 m2, or 19% of overall stock. This stock is
0.5 distributed among 16 contemporary office As a result of competitive rental prices, more
0.0
projects and is located in the capital. companies were able to relocate and trade-up
to higher-class office spaces or locations
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Inc Pipeline
High-quality premises appeared in both with better accessibility and attractiveness.

suburban areas, as well as in the CBD. New
Source: Colliers International Bulgaria suburban projects were built along main Multinational companies from the
traffic routes in Sofia in order to provide pharmaceutical and IT industries remained
ANNUALISED TAKE-UP excellent accessibility. One such example the main drivers of demand. Companies
– MID-YEAR BASIS (THOUSAND M2) includes the Sopharma Business Towers in these industries had both the financial
150
located on Dragan Tsankov Boulevard, means and real estate strategy which
which added 23,000 m2 to the stock of focused on occupying high-quality office
contemporary Grade A office space in Sofia. premises to support their core businesses.
100 Other developments completed during H2
2011 were The Needle, located in the CBD Tenants seeking office space have become
50 (2,500 m2), Vertigo and Astral business more knowledgeable and selective
centres, whose combined area totaled 20,000 with regards to real estate leasing and
m2 of office space in the suburban area. purchasing. Companies realised the
0 importance of selecting accessible locations
Currently, approximately 300,000 m2 of office for its workforce, the impact space has on
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
space is under construction in the pipeline. improved working environments, the benefit
70% of the future supply will be located in of property management services and the
Source: Colliers International Bulgaria
the suburban areas of the city, and only a improvement of on-site or near by amenities.
few of them will meet Grade A standards. The majority of office occupiers prefer to
Compared to the construction pipeline at the lease office space rather than to buy.
end of 2010, the 2011 number has decreased
by half due to completed projects. No new Demand for offices of less than 200 m2
office premises entered the pipeline in 2011. and more than 2,000 m2 is limited.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | OFFICE MARKET
VACANCY/AVAILABILITY RENTS
RENT AND VACANCY MARKET
INDICATORS Overall, office vacancy has increased Rental rates in the city vary depending
€/m 2
30%
slightly from 356,779 m2 during H1 2011 on the location and the quality of the
35 to 387,828 m2 in H2. In percentage terms, office. In the last three years, rents have
25%
30 the 2011 vacancy rate totaled 25.2% in followed a downward trend as office
25 20% Sofia. In the Broad Centre, the vacancy inventory increased. However, average
20 15% rate decreased to approximately 19%, as asking rents remained unchanged during
15 10%
no new office projects came on market the year except for those in CBD projects,
10 last year and absorption increased. where a slight decrease of €1 m2/pcm
5%
5 was registered with Grade A buildings. In
0 0 The vacancy in the CBD has slightly the Broad Centre and suburban areas, the
increased, amounting to 36,374 m2, rents remained stable throughout 2011.
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
mainly due to the completion of new

projects. In the suburban area, the PROGNOSIS
Prime Headline Rent
Average Headline Rent vacancy level remained unchanged.
No major new office projects are
Vacancy Rate
expected to be completed in 2012,
Vacancy rates are anticipated to remain
Source: Colliers International Bulgaria and no major new office premises are
stable or even decrease in 2012. This is a
anticipated to start construction.
result of the diminishing supply of premium,
Grade A office projects which meet the
Vacancy levels will decrease in 2012 and
needs of multinational companies. At the
net absorption is expected to increase mainly
same time, demand is expected to increase.
for premium Grade A office buildings.
Rents will remain stable or even

increase, but only for quality office
space, deserving of a premium price.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | RETAIL MARKET
RETAIL MARKET
Key Retail Figures – Sofia SUPPLY The vacancy rates of retail projects in
Total Shopping secondary cities varies depending on their
619,974 m2 The Sofia retail property market remained
Centre Stock market positioning, achieved market share
unchanged in 2011 as far as new openings
Prime Headline SC and local spending power of the community.
€32 m2/pcm are concerned. This compares starkly
Rent Projects with well-conceived concepts,
to previous years when Bulgaria saw
Prime Headline a proper tenant mix and well-performing
€40 m2/pcm twelve new shopping centres open.
High Street Rent property management teams, enjoy low
Source: Colliers International vacancy rates of around 4%, while other
That said, the first IKEA hypermarket in
malls continue to look for better positioning
Sofia (30,000 m2 total built-up area) took
INVESTMENT VOLUME (IN € MILLION) and continue to absorb vacancy slowly.
place in September 2011. The big-box retail
40%
segment remained the most active player in
35% HIGH STREET
30% the retail market during 2011. In particular,
25% discount retailers capitalised on opportunities During the last couple of years, the extension
20% to proceed with expansion plans. When of Sofia’s second metro line, combined with
15% comparing with the discount retailing sector in a crippling recession, has changed the high
10% the rest of Europe, it is evident that Bulgaria street retail landscape. The vacancy rate
5% is still in its early stages, and significant on Sofia’s high street registered 5%, while
0% development can be anticipated on this replacements decreased from 12% to 8%
front, not only in the food segment, but also on a half-year basis. Vitosha Boulevard saw
Clotjing and footwear
Foods and non-alcoholic beverages
Alcoholic Beverages and tobacco
Housing, water, electricity, gas and other fuels

Furnishing and maintenance of the house
Health
Trabsport
Communication
Recereation, culture and education
Miscellanous goods and services
Taxes
Social insurance contributions
Other expenditure
in fashion, sports and DIY. While the major a vacancy rate of 10% and a replacement
players in the non-food sectors are yet to rate of 10%. The boulevard is expected to
open their first flagship stores, food discount start a gradual recovery with the completion
retailers have already started to position of the new metro radius in July 2012 as
themselves across the market. For example, well as the opening of the archaeological
Lidl opened 10 new stores during H2 2011. findings of the ancient city of Serdika. The
recovery of the high street back to its primary
DEMAND function as a destination for shopping,
culture and socialising will be centred around
2011 demand came mostly from food retailers,
providing customers with an attractive mix
which continued to expand their businesses
of fashion retailers, convenience stores,
in convenience formats. A major factor
Q3 2010 places for food and beverages and leisure.
Q3 2011 driving food retailer expansion is the high
percentage spent on food and non-alcoholic
The High Streets in Varna, Plovdiv and
Source: NSI Bulgaria
beverages in consumer expenditures. The
Bourgas proved to be quite steady during
total expenditure per household member
the past six months. Aside from a slight
during Q3 2011 (BGN 917) increased by 8.6%
movement among occupiers, the level
in relation to the same quarter of 2010.
of vacancy and replacements remained
similar to over the year. Varna registered
Several international retailers also entered the
7% vacancy and 11% replacements. The
market, including the British brand Peacock,
situation in Plovdiv is stable with only 3%
Patrizia Pepe, Pimkie, Calvin Klein and Quiz
vacancy and 4% replacements, while Bourgas
through local or regional franchisees.
had 2% vacancy and 12% replacements.
VACANCY
The average vacancy level at H2 2011 in
the shopping malls in Sofia was around
6%. This represented a slight increase
from H1 2011, when the average vacancy
level was 4%. The Mall, Serdika centre and
the Mall of Sofia enjoyed stability with a
vacancy level in the range of 2% to 3%. The
remaining operational malls registered higher
vacancy rates, and in some cases, vacancy
rates in double digits (Sky City Centre).
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | RETAIL MARKET
RENTS New supply will be dominated by three

PRIME RENTAL RATES (€/M2/PCM) projects under construction: Sofia Ring
Rental levels in shopping centres and
LOCA- Sofia Plovdiv Burgas Varna Mall, Paradise Centre and Bulgaria Mall.
malls remained relatively stable during
TION Cumulatively, the three projects will deliver
the second half of 2011. Rents varied
Shopping 180,000 m2 GLA retail space in Sofia between
depending on the type of retail facility and
Centres 32 20 22 22 2012 and 2013. Striving for a competitive
and Malls its location. Large shopping centres in Sofia,
advantage, each project is adding new
High commanded rents around €32 m2 /pcm,
40 28 22 26 features and points of attraction in order to
Streets while shopping centres in secondary cities
incentivise and entertain consumers over
saw rents range from €20-22 m2/pcm.
Source: Colliers International and above what is expected in a traditional
retail environment. Thereby they use a
High street rents decreased by approximately
variety of leisure amenities, amusement
27% in Sophia. The downward trend
parks, and synergies with retail giants such
has partially been a result of the retail
as the Sofia Ring Mall and new IKEA store.
concentration within malls, which have lured
customers away from the streets and into
Development activity in secondary cities is
the new urban shopping and leisure centres
concentrated in Bourgas, with two projects
over the last couple of years. Additionally,
expected to open in 2012, namely Galleria
rental levels were directly affected by the
Bourgas and The Strand. Galleria Bourgas,
ongoing construction of the metro line under
(GLA 35,000 m2) has managed to attract
Vitosha boulevard and the lack of a clear
major fashion operators and together with
strategic vision of its renovation, effective
the international food and leisure anchors will
planning and successful scheduling.
deliver a classical shopping mall to the market.
PROGNOSIS
The Strand (GLA 30,000 m2) is aiming
The fashion retail market is stirred by the to become the first open-air lifestyle mall
expected opening of H&M in Bulgaria in H1 in Bulgaria, as stated in the developer’s
2012. The entry of such a large multinational communication to the public.
fashion brand to Bulgaria is evidence that the
country represents a good prospect for the Preparing for the upcoming completion of
expansion of fashion brands. H&M has already these projects, some existing operational
secured locations in prime shopping malls in projects have adopted innovative ways to
Sofia, Varna and Burgas and is expected to enrich their retail mix, i.e. adding services
increase its number of stores in these cities. or introducing new entertainment formats.
International discount operators in the fashion, High Street retailing will depend on the
DIY and sports good segments are setting planning, financing and execution of the
plans for expansion in Bulgaria. Food retailers renovation of main pedestrian areas in
will also continue their expansions mainly by order to revive a vibrant and diverse
opening convenience formats in key locations. shopping and recreational experience.
“Third Wave” shopping centres with

openings scheduled for 2012 and 2013,
will continue to differentiate their projects
from traditional retail offerings.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | RESIDENTIAL MARKET
RESIDENTIAL MARKET
SUPPLY compounds could be classified as high–end,
WHICH ARE THE MOST PREFERRED mid-plus and mid residential projects.
RESIDENTIAL PROJECTS AT THE Sofia’s mid–plus and high-end market
MOMENT IN SOFIA? segments currently consists of
The genuine supply of high-end and mid-
5,700 residential units concentrated
60% plus projects is small compared to the overall
in 39 residential projects.
stock on the market, and are considered
50%
niche. The vacancy in this segment in
40% This includes projects consisting of
2011 was approximately 18%, a decrease
more than 50 units (apartments/ row
30% of 2% in comparison to 2010. No new
houses/ single houses), both complete
20% projects entered the high-end and mid-
and in the final stages of development.
10%
plus residential pipeline in 2011. For 2011
the absorption of mid-plus and high-end
0% The map shows the distribution of Sofia’s
residential units was approximately 7% from
residential projects. The majority of offered
Other
Newly built brick residential projects in closed-type complex in Sofia
Newly built brick residential projects in the Sofia suburbs
Newly built brick residential projects in the Sofia central areas
Old built brick residential projects in the Sofia central areas
the vacant stock. This indicated that the

projects are located in the suburbs and villa
current stock is gradually being absorbed
areas of Simeonovo, Dragalevtzi, Boyana,
and the available supply is diminishing.
Malinova Dolina, Manastirski livadi, Kambanite
and also around main boulevards like Cherni
From a mid-term perspective, the investment
Vrah and Simeonovsko shose. For that
and development potential of the residential
reason the Pancherevo neighbourhood, for
market in Sofia remains high. This is due to
example, attracts investors as a potential
the insufficient supply of residential properties
location for large residential projects.
that meet the latest buyers requirements.
Many of the projects are developed as so-
DEMAND
called compounds (or gated communities)
and are located in the outskirts of Sofia along Demand is concentrated primarily for
the main boulevards in the southern part of properties in the southern neighbourhoods
the city. The main advantages of this location of Sofia (including Lozenetz), and at
are the area’s well developed infrastructure, the foot of Vitosha mountain. The most
fast connection to downtown via the ring road common buyer requirement included
and other main arteries; professional property proximity to a main boulevard and fast and
management, the lack of air pollution, traffic convenient access to downtown Sofia.
jams and noise; and proximity to Vitosha
mountain and green recreation areas. Colliers’ Sentiment survey showed that
50% of respondents preferred the newly
Moreover the compounds offer quite a built compound complexes, followed by
specific and outstanding atmosphere complexes with newly built apartments
thanks to other amenities such as a kid’s (32% of respondents). The most important
playground, swimming pool and kindergarten. demand drivers are: neighborhood (56%);
good quality of construction (53%); price
Depending on location, quality of construction, (53%); availability of parking space/garage
infrastructure and the overall environment, (43%) and green areas/parks (42%).
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | RESIDENTIAL MARKET
The graph represents that buyers SALES PRICES

KEY RESIDENTIAL SUCCESS FACTORS.
are becoming more demanding about
100% The asking prices of high-end and mid-
factors affecting quality of life.
plus residential projects remain unchanged
90%
compared to 2010. Asking sales prices
80% In 2011, most of the residential properties in
within the high-end and mid-plus segment
the high-end and mid-plus segment were sold
70% are in a broad range, typically between
completely finished. Moreover most transacted
60% €850 m2 and €1600 m2 (including VAT).
units were spacious apartments with two
50% and three bedrooms and family houses.
The price range for properties in this
40% residential segment vary according to
The Sentiment survey described the typical
30% location, availability of green space, quality
profile of a buyer, as a young Bulgarian
20% of construction and infrastructure. While
between the age of 26 and 45 years old,
inclined toward being price sensitive, buyers
10% working in a middle -management level role
looked for value-added incentives such
0% in IT, the finance sector or as self-employed.
as discounts on notary tax or additional
parking spaces. Actual deals were signed
Neighbourhood / district
Price
Quality of execution
Parking space / garage
Infrastructure / roads
Green areas, kindergarten
Colliers’ internal analysis indicates that

with discounts of approximately 10-15%.
compared to the last two years, more
buyers are likely to use a bank loan as
PROGNOSIS
a source of finance when buying a new
property. Figures show that purchases in Both diminishing supply and increasing
the high–end and mid-plus segment totaled absorption will create a good opportunity
€150,000 or above. This indicates that for new developments in the high–
6 - Most important
the segment is stable and attracts buyers end and mid–plus segment.
5
who are looking for a quality property that
4
meets requirements, despite higher prices. Prices of high-end and mid-plus
3
2
segment properties with good locations
1 - least important With the positive signs for stability and and well developed infrastructure
improvement of the Bulgarian economy, are expected to remain stable.
demand of mid-plus and high-end residential
real estate is more likely to grow. The Demand is expected to continue to
diminishing supply on one hand, and the increase as the global and Bulgarian
increasing absorption on the other, will bring economy gradually recovers.
the market to a gradual supply shortage,
and therefore could create attractive
opportunities for future developers.
RESEARCH & FORECAST REPORT | 2012 | BULGARIA
COLLIERS RESEARCH
BULGARIA: Prime Headline Rent: Represents the top open-market tier of rent that could be expected
Sabina Kravchecnko conditions, but the same criteria on building size and specification will apply.
Colliers International
Business Park Sofia a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
Build. 7B, 2nd floor either the rent-free period or fit-out contribution available at the time of the survey date.
1766 Sofia Average Headline Rent: Average Headline Rent represents the average open-market tier of
Bulgaria rent that could be expected for a unit of standard size commensurate with demand, based on
Tel +359020976090976
FAX +359 2 976 9 977 Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
EMAIL research@colliers.bg
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | TAX SUMMARY
BULGARIA - TAX SUMMARY

GENERAL those held as investment properties is 4%. a specific pre-approval procedure.
Land is not depreciated for tax purposes.
No major changes have been made to
The WHT is generally calculated on a
the Bulgarian Corporate Income Tax Act
Tax Losses gross basis. CITA includes provisions
(CITA) and the Local Taxes and Fees Act
under which foreign recipients of income
(LTFA) as of 1 January 2012. There are A tax loss can be carried forward for five
subject to WHT, tax residents of an EU/
certain amendments to the VAT Act, which years. It can be offset against a positive
EEA member state, are entitled to annual
would concern the real estate sector. tax result for a subsequent tax year.
recalculation of the WHT which has been
levied and paid on a gross basis following
CORPORATE INCOME TAX Thin Capitalisation
a specific procedure. The recalculation is
AND CAPITAL GAINS
Thin capitalisation rules apply in Bulgaria if aimed at equalling out the tax treatment
The Bulgarian Corporate Income Tax Act a company’s liabilities exceed three times between local entities and foreign entities, tax
(CITA) specifies that Bulgarian entities the amount of its equity. Interest expenses residents of an EU/EEA members states.
are subject to 10% corporate income tax are deductible up to an amount equal to
(CIT) on their worldwide income. Foreign the entity’s interest income plus 75% of The WHT due on income realised by foreign
entities are subject to tax only on the the profits before interest and tax. Interest entities from rent/right of use of immovable
profits derived from Bulgarian permanent expenses on bank loans are not subject to thin properties located in the country, should
establishments (including branches) and/ capitalisation, except in some specific cases. be deducted and paid by the local payer
or profits related to disposal of property of the income, provided that the latter is
of such a permanent establishment. TRANSFER PRICING a tax liable person under the CITA.
Transfer pricing rules allow the
The CIT is calculated on the basis of the Interest and Royalty Payments
revenue authorities to adjust tax bases
annual financial result (as per the Income
where transactions are not carried Under the EU Interest and Royalties Directive,
Statement of the entity) adjusted with certain
out on an arm’s length basis. qualifying interest payments and royalty
permanent and temporary tax differences.
payments between associated enterprises,
Under the transfer pricing provisions tax residents in EU member states may be
The income from real estate derived by
the tax base for CIT purposes may exempt from any taxes imposed on those
Bulgarian entities is included in their
be adjusted as well as tax bases for payments in that state, provided that the
annual financial result. The annual
calculating other taxes such as WHT. beneficial owner of the interest or royalties is
accounting financial result is subject to
a company of another EU member state or a
further adjustments for tax purposes.
WITHHOLDING TAX permanent establishment of an EU member
state situated in another EU member state.
The annual CIT liability is determined with the Specific types of income with Bulgarian
annual CIT return. Any outstanding liability source accrued by local tax resident entities
However, a transitional period for the
(off-set with any advance instalments made) in favour of non-resident taxpayers is
application of the Interest and Royalties
should be remitted to the state budget by subject to withholding tax (WHT) provided
Directive was agreed whereby Bulgaria
31 March 2012. The same term applies for that the income is not derived through a
has reserved its right to tax interest and
the submission of the annual CIT return. permanent establishment of non-resident
royalty income arising in the country by
entities in Bulgaria. Such income includes
applying the maximum withholding tax
There are no tax grouping capital gains, rental payments, interests,
rates as follows: 10% for the period until
provisions in Bulgaria. dividends and liquidation quotas, royalties,
31 December 2010, and 5% for the period
technical services (including consultancy
1 January 2011 – 31 December 2014.
Tax Depreciation services), management fees, etc.
Bulgarian tax liable persons should maintain As of 1 January 2011 the WHT rate on such
The standard WHT rate is 10%
a Tax Depreciation Schedule (TDS) where income may be reduced from 10% to 5%
WHT, with 5% WHT applied to
they report all tax depreciable assets. provided that certain conditions specified
dividends and liquidation quotas.
Tax depreciation as per the TDS is to be in the law are simultaneously fulfilled.
reported as a downward adjustment to
Please note that dividends and liquidation
the financial result for tax purposes while LOCAL TAXES AND FEES
quotas distributed by local tax residents to
the accounting depreciation expenses
shareholders’ local entities, as well as foreign The main local taxes and fees in relation
accrued during the year are disallowed
entities that are tax resident in an EU/EEA to the ownership or acquisition of real
for tax purposes and are reported as an
member state are exempt from WHT taxation. estate in Bulgaria include real estate tax,
upward adjustment to the financial result.
garbage collection fee and transfer tax.
WHT rates can be reduced under an
The Bulgarian CITA provides for maximum
effective Double Tax Treaty signed between Real Estate Tax
tax depreciation rates depending on the
Bulgaria and the country of residence of
type of the depreciable asset. The maximum Owners of buildings and land plots situated
the foreign income recipient following
tax depreciation rate for buildings including in Bulgaria as well as acquirers of limited
RESEARCH & FORECAST REPORT | 2012 | BULGARIA | TAX SUMMARY
ownership right over real estate property are plots and old buildings (i.e. buildings for which Neither of the above changes related to the
subject to annual charges for real estate tax. more than 60 months from the issuance of taxable amount will have retroactive effect.
The tax rate of real estate tax varies in the the exploitation permit have expired) as well
range of 0.01% - 0.45%. It is determined at as the transfer of construction rights are There is no VAT grouping in Bulgaria.
a municipal level and may vary from year to considered a VAT exempt supply. However,
year. The taxable base for real estate tax of the seller/lessor has the option to choose to
non-residential property owned by companies treat these supplies a VAT taxable transaction
is the higher amount of the tax valuation and and charge VAT at the rate of 20%.
the book value of the property. The taxable
base for real estate tax of property owned by Until the end of 2011, the supply of
individuals or residential property owned by construction rights could be exempt from
companies is the tax valuation of the property. VAT if the supply takes place before the
completion of the rough construction of FOR MORE INFORMATION ON REAL
Garbage Collection Fee the building. The amendment of the VAT ESTATE SERVICES IN BULGARIA,
law effective from 1 January 2012 limits PLEASE CONTACT:
Generally, garbage collection fee is levied
the exemption by making it possible only
on the book value/cost of the immovable
until the start of the construction process,
property at a rate determined annually by the Kalin Hadjidimov
i.e. up to the date of the building permit.
respective municipality where the property Partner
is located. The rates for the garbage fee may
Uncertainties may arise in cases where no KPMG in Bulgaria
vary significantly between the municipalities.
building permit is issued, or where more than 45/A Bulgaria Boulevard
one building permit is issued for different 1404 Sofia
Transfer Tax
parts of the project, or where the building Bulgaria
Transfer tax is levied when transferring real permit has been cancelled and then reissued.
estate property or limited property right over T: +359 2 9697 700
real estate. The tax rate is in the range of 0.1% Sale of new buildings, plant, machinery, E: khadjidimov@kpmg.com
- 3% levied on the tax base of the property equipment and structures immovably www.kpmg.bg
in cases of acquisition against consideration. fixed to the land is a VAT-taxable
When immovable property is gratuitously supply, subject to 20% VAT.
transferred the tax rate is in the range of
3.3% - 6.6%. The applicable transfer tax rate Taxable amount
is determined by the respective municipality.
The rules pertaining to the taxable amount
of supplies of regulated land plots and new
The tax base upon transfer of real estate
buildings effective until the end of 2011
property or limited property rights over
specify that the taxable amount of these
it is the higher of the following values:
supplies shall not be lower than the cost of
acquisition of the assets. The amendment
>> the
purchase price/a price defined by state
of the VAT law effective from 1 January
ormunicipal authorities and
2012 abolishes this restriction and allows
determining the taxable amount according
>> the tax valuation of the property.
to the contracted price which could be
lower than the cost of acquisition.
The transfer tax is generally paid by the
transferee of the property, unless the
Until the end of 2011 the taxable amount of
parties have agreed differently. In case
supplies performed between related parties
the transferee is not in the country,
was considered to be the open market
the tax is payable by the transferor.
value. As of 1 January 2012 the application
of this rule is restricted and the taxable
VALUE ADDED TAX (VAT)
amount of supplies between related parties
There are certain changes of the will be set to equal the open market value
Bulgarian VAT Act as of 1 January 2012, only in specific cases where either the
which affect the real estate sector. supplier or the recipient do not enjoy the
right to full input VAT deduction. The aim of
VAT exempt and VAT taxable supplies this rule is to prevent related parties from
optimizing their pro-rata VAT deduction
According to the provisions of the Bulgarian by applying non-arm’s length prices.
VAT Act the lease of buildings for residential
purposes, and the sale of unregulated land
RESEARCH & FORECAST REPORT | 2012 | CROATIA
CROATIA
RESEARCH & FORECAST REPORT | 2012 | CROATIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: At the end of 2011, Croatia’s Economy: Croatian economy is expected to
economy marked 0.76% GDP growth. record positive GDP growth rates in 2012,
Wages increased moderately, however, coupled with a reduction in the unemployment
so did unemployment and inflation. rate, lower inflation and a growth in wages.
Investment: Investment volumes in 2011 Investment: Positive changes and

amounted to over €177.5 million. Transactions optimistic investor sentiment are related
contributing to this amount included GSHR to Croatia’s approaching EU accession in
Holding’s sale of Adriatic Luxury Hotels Group 2013 and its newly elected government.
to Mexival (Lukšić Group) for €129 million, Both are expected to increase Croatia’s
Generali Group’s 20% share sale of Grand competitiveness and make the market
Centre office building to Immofinanz for €7.5 more attractive to foreign investors.
million, Hypo Alpe Adria Bank’s sale of one of
thier buildings to Sunce Koncern (undisclosed Industrial: Limited new supply planned for
amount) and Konzum’s transaction involving 2012 is expected to keep industrial rents
TRENDS 2012 three supermarkets valued at €41 million. at current levels in the year ahead.
GDP GROWTH Industrial: The industrial and logistics Offices: An additional 110,430 m2 of
PRIME
market is one of the least developed real office space will come to the market in
PRIME
OFFICE RENTS estate markets in Croatia with moderate 2012. This will cause and increase in
YIELDS
construction activity recorded in 2011. vacancy rates to reach 15%. Overall,
Yearly take-up amounted to 55,000 m2. rents will decrease moderately, with
prime headline rents remaining stable.
Office: Zagreb’s office market is the most
developed property market in Croatia. Retail: An additional 116,000 m2 GLA of
Although office rents decreased and vacancy shopping centre space will come to market
levels increased in 2011, more office stock will in 2012. This increased supply will have
continue to be added in the years to come. a downward pressure on retail rents
TRANSACTION PRIME SC and upward pressure on vacancy levels.
VOLUMES RETAIL RENTS Retail: 2011 was an active retail year for However prime location rents and vacancy
Croatia with seven new shopping centres levels are expected to remain stable.
PRIME INDUSTRIAL RENTS opening nationwide. This brought a total
new supply of over 1 million m2 GLA across
Increasing the country. Investor interest in secondary
Stable
Decreasing
and tertiary locations is still present.
RESEARCH & FORECAST REPORT | 2012 | CROATIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY At the time of writing Croatia had just gone
2010 2011 2012 to the polls to ratify the recent agreement
According to the latest population
GDP % -1.19% 0.76% 0.80% for it to ascend to the European Union in
census from 2011, Croatia had 4,456,096
CPI % 1.05% 3.20% 2.40% 2013. While the EU’s issues with the Euro
inhabitants. 25.8% of the population lived
Unemployment % 12.21% 12.71% 12.21% had caused weakening enthusiasm, a
in Croatia’s three largest cities – Zagreb
66% vote in favour still gave a significant
Source: IMF/CIA World Fact Book/FocusEconomics (18.6%), Split (4.1%) and Rijeka (3%).
majority in support of joining the EU.
Population 4 290 612
Top 3 Cities 979 959 22.84% Croatia recorded GDP growth of 0.76% and
The successful vote now gives Croatia access
Zagreb 686 568 16.00% inflation hit 3.2% as unemployment (ILO
to €245 million of pre-accession funds for
Split 165 893 3.87% standards) amounted to 12.7% in 2011.
2012 and 2013. This represents between
Rijeka 127 498 2.97% 10% and 15% of GDP growth in the next two
Industrial production, while still recording
Source: IMF/CIA World Fact Book/FocusEconomics years, or 0.4% of GDP. The accession funds
negative growth figures, was trending towards
Economic Make-up will positively impact the economy given that
a positive curve. Exports to Italy (19%) and
Sector GDP Labour foreign direct investment (FDI) has fallen from
Germany (11%) have compensated for weak
Agriculture 5.50% 5.00% 6.8% of GDP in 2008 to 1.6% of GDP in 2011.
domestic demand. Retail sales are expected
Industry 25.70% 31.30% to return to pre-crisis levels by 2014.
Services 68.60% 63.60% PROGNOSIS
Croatia’s gross public debt stood at less Predictions place GDP growth at 1.77%
than 30% of GDP in 2008, but it has for 2012 and 2.5% for 2013 while inflation
KEY ECONOMICS INDICATORS increased to just under 50% of GDP as in 2012 is expected to stand at 2.4%,
15% of 2011. Gross public debt is forecast to unemployment is predicted to be 12.2%.
reach a peak of 54% of GDP by 2015. The
10%
spike in public debt was caused by falling FDI levels are expected to increase in 2012,
5% tax receipts as the domestic economy to approximately 5% of GDP by 2016. It is
0% contracted and expanding social security hoped that the recovery in FDI will start to
costs, caused by higher unemployment levels. show the benefits in fiscal stability by 2016.
-5%
-10% Croatia’s new government, elected in the Positive changes and optimistic business
December 2011 parliamentary elections, sentiment are now related to the fast
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
led by the Social Democratic Party (SDP), approaching EU accession and the newly
Inflation, average consumer prices took office in January 2012. Much of related government focused on reforms
Unemployment rate its focus is on fiscal consolidation and which are expected to improve the overall
Source: IMF, Focus economics the reduction of the budget deficit. economic health of the country.
FISCAL BALANCES
10%
5%
0%
-5%
-10%
2008
2009
2010
2011
2012
2013
2014
2015
2016
Current Account Balance as % of GDP

FDI as % of GDP
Structural deficit
Source: IMF, Focus economics
RESEARCH & FORECAST REPORT | 2012 | CROATIA | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures – Croatia SUMMARY PARAMETERS FOR OBTAINING FINANCING
Investment Turnover €178 m In 2011, €177,5 million worth of Loan to value:
Prime Office Yields 9% real estate transactions took place
Prime Retail Yields 8.25% including four significant deals. >R
atios are between 60-70%, with
Prime Industrial Yields 10.25% 30-40% of equity required.
Firstly, GSHR Holding’s sale of Adriatic
Luxury Hotels Group (Hotels Excelsior, > Interest rate basis: 3m EURIBOR
PRIME (NET INITIALLY) YIELDS Bellevue, Palace, Kompas and Grand + 4% - 4.5% margin.
12% Hotel Bonavia) to Mexival (Lukšić Group)
10% for €129 million. This is the largest hotel PROGNOSIS
8% transaction in the last five years.
Investment sentiment for 2012 is likely to
6% be supported by the positive expectations
Generali Group’s sale of a 20% share of Grand
4% of Croatia’s newly elected government
Centre office building (Zagreb) to Immofinanz
which announced fiscal consolidation
2% Group (Austrian property investment
and a decrease in budget spending.
0% company) for €7.5 million, Hypo Alpe Adria
Bank’s sale of one of thier buildings to Sunce
2006
2007
2008
2009
2010
2011
We expect a positive investment climate

Koncern d.d. (undisclosed amount). Finally,
to emerge from the country’s nearing
Office Konzum’s transaction of three supermarkets
accession to the EU with an increase in
Retail in Sesvete, Požega and Delnice to W.P.
investor interest for quality investment
Industrial Carey closed for an estimated €41 million.
products are foreseen for the next year.
Upward yield level adjustments between
A recent shift in investor interest from
INVESTMENT TRANSACTIONS 0.25-0.5% occurred as a spill over effect
office and retail property sectors, towards
2005 – 2011 (€ MILLION) from the uncertainty surrounding the
hotels and the hospitality industry, is also
400 sovereign debt issues of the European Union.
expected to be sustained in 2012.
350
300
250
No significant changes in yield levels
200 are expected in the year ahead.
150
100
50
0
2005
2006
2007
2008
2010
2011
RESEARCH & FORECAST REPORT | 2012 | CROATIA | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Zagreb SUPPLY Demand for modern Grade A industrial
Total Stock 750,000 m2 premises outstrips the supply of these
The industrial and logistics market
Take-up 65,000 m2 properties, especially as the industrial and
is one of the least developed real
Vacancy 11% logistics sector did not keep pace with the
estate markets in Croatia.
Prime Headline Rent €5 m2/pcm rate of expansion of the retail sector over
the past several years, one of the main
Source: Colliers International Zagreb and its surrounding areas operate
drivers of demand for logistics space.
as main centres of national industrial,
COMPLETED LOGISTICS/WAREHOUSE warehouse and logistics activity.
This has created a discrepancy between
PROJECTS - ZAGREB 2011 the actual demand and the existing
Name Location Size At the end of 2011, total industrial
supply of industrial/logistics space.
(m2) supply in Zagreb equalled 750,000 m2.
Ralu Logistika Zitnjak - Zagreb 1,400 31% of the stock was owner-occupied
VACANCY/AVAILABILITY
premises, 50% were spaces constructed
Phase II - Zagreb
Sveta Nedjelja 24,000 between the 1970’s and 1990’s and 19% In 2011, the industrial sector in
Logistics Park
(142,000 m2) of industrial space came and around Zagreb was marked by
Total 25,500
on market between 2007 and 2011. stable vacancy levels of 11%.
Helios Properties Plc’s Zagreb Logistics Available space in modern Grade A logistics
KNOWN TAKE - UP TRANSACTIONS
Park (77,000 m2) and Alca Zagreb d.o.o.’s premises totalled 16,000 m2 made up of space
- ZAGREB 2011
Alca LDC Sveta Helena (17,870 m2) available in the Zagreb Logistics Park (8,000
Name Location Size are currently the only two suppliers of m2) and in Immorent Jastrebarsko (8,000 m2).
(m2)
Grade A logistics premises, bringing total
Zagreb Logistics
Mercator 24,000 modern industrial stock to 95,000 m2. RENTS
Park
Zagreb Logistics 2011 was marked by stagnating prime
Spar
Park
22,000 Total completed industrial stock in Zagreb
rents that amounted to €5 m2/pcm.
in 2011 amounted to 25,500m2, pointing
Zagreb Logistics
Harvey Norman 3,000 to moderate development activity in this
Park Rents for older and refurbished industrial
Lagremax Zitnjak/Zagreb 1,200 sector. Further economic activity, entrance
premises ranged from €3 - 4.5 m2/pcm.
Unspecified transactions 4,800
of new retailers, freight and distribution
Total 55,000
players and Croatia’s accession to the EU
PROGNOSIS
are expected to stimulate the market and
make it more appealing to foreign investors. Immorent, part of Erste Group, commenced
the construction of its first phase (14,000
In the region around Zagreb there m2) of the Immopark Zagreb Logistics Park
are eighteen established, fully with expected completion in May 2012.
functional enterprise zones which
can operate as centres of future Limited, modern industrial stock
industrial/warehouse activity. completions in 2012 will keep prime
rents (which are still above the European
DEMAND average) at their current levels.
Total take-up in 2011 amounted to around
The industrial vacancy rate is
55,000 m2. The most significant and
expected to remain stable.
known industrial transactions from last
year included Mercator (24,000 m2), Spar
(22,000 m2) and Harvey Norman (3,000
m2), which all leased warehouse space in
the Zagreb Logistics Park in Sveta Nedelja.
RESEARCH & FORECAST REPORT | 2012 | CROATIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures – Zagreb SUPPLY RENTS
Total Stock 719,000 m2 In 2011, total office supply in Zagreb Average office rents in Zagreb decreased
Take-up 40,000 m2 amounted to 719,000 m2. between 5.5% to 7% in 2011. Prime
Vacancy 10% headline rents decreased by 3%.
Prime Headline Rent €15 m2/pcm Grade A buildings made up 52% of total
Source: Colliers International supply, Grade B buildings represented 22% Average Grade A and B rents amounted
and Grade B+ buildings totalled 26%. to €14.5-12.20 m2/pcm, respectively.
TOTAL MODERN OFFICE STOCK
– ZAGREB 2011 (THOUSAND) New office completions in 2011 Prime headline rents in Zagreb
800 totalled 40,400 m2 of space over five totalled €15 m2 /pcm.
700 buildings including: IT5 (10,087 m2),
600 Kvaternik Plaza (1,750 m2), Tuškanova PROGNOSIS
500 (3,600 m2), VMD building (1,000 m2)
400 Office activity will pick up greatly due to the
and Green Gold (24,000 m2).
300 expiry of the majority of the five year leases
200 signed during the first development phase
DEMAND
100 of the Zagreb office market back in 2007.
0 Total take-up activity in 2011 amounted to
40,000 m2. In H1 2011 the office market An additional 110,430 m2 of office space
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
witnessed significantly more take-up activity will come to the market in 2012, bringing
Yearly additions (32,500 m2) than in H2 2011 (7,500 m2). total office stock in Zagreb to 830,000 m2.
Stock
Occupiers that leased the largest office New office arrivals in 2012 include Sky
space in 2011 include PBZ (6,000 m2) in Office Tower (37,658 m2), Autohrvatska
Green Gold building, Allianz (7,500 m2) in building (19,840 m2), Conditum office project
VACANT SPACE VACANCY Autohrvatska office building, Večernji List/ (9,510 m2), Projekt Bundek (14,500 m2),
(THOUSAND M2)RATE
Poslovni Dnevnik (4,000 m2) in IT5, Abbot Vrbani office building (6,500 m2), Merkur
12%
80 (2,638 m2) in EPH building and Oikon Osiguranje (6,831 m2), Ban Centar (1,500
70 10% (2,500 m2) in Elektropromet’s building. m2) , Sigma office building (3,300 m2)
60 8% and Poslovni Centar Adris (10,791 m2).
50
6% The majority of take-up activity (52%) was
40
30
realized through relocations, while 38% As a result of the upcoming increase
4%
20 came through preleases, 6% due to lease in supply, vacancy rates in 2012 are
2%
10 extensions and only 4% through new leases. expected to increase to 15%.
0 0%
2005
2006
2007
2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Active developers in the Zagreb office Prime headline rents are

market include PB Grupa (Green Gold expected to remain stable.
Source: Colliers International project), Zagreb Montaža d.d. and
Dalekovod d.d. (Sky Office), IGH Institute An additional 86,000 m2 of office
and Stipić Grupa (Projekt Bundek). space is announced for 2013.
ANNUALISED TAKE UP – ZAGREB
2005 – 2011 (THOUSAND M2)
VACANCY/AVAILABILITY Some of the investors planning office
140
developments in Zagreb include TriGranit
120 The Zagreb office vacancy rate amounted to 10%.
(Arena Centar 40,000 m2), Allegheny
100
Financial (Allegheny Plaza 23,000 m2),
80 Total available stock in Zagreb at the
GTC (Avenue Park 36,500 m2) and HB
60 end of 2011, including vacant stock in
Reavis (‘green’ office building 34,000 m2).
40 existing buildings and available stock in
20
buildings currently under construction,
amounted to around 136,000 m2.
0
2005
2006
2007
2008
2009
2010
2011
Total occupational market activity (Take up)
RESEARCH & FORECAST REPORT | 2012 | CROATIA | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Zagreb OVERVIEW Retail parks and factory outlets are not a
Total Shopping Centre Stock 519,615m2 developed segment in Croatia. However,
2011 was an active year in the retail
Prime Headline SC Rent €25 m2/pcm two Austrian developers, MID Group
sector with the addition of seven new
Prime Headline and m2 Group, have successfully opened
€75 m2/pcm shopping centres opening in Croatia.
High Street Rent eight retail parks in Croatia with further
Source: Colliers International expansion plans in mind. Retail outlets
A shift in developers’ interest towards
currently in Croatia include Outlet Centar
secondary and tertiary retail locations is
NEW SHOPPING CENTRE Sveta Helena and Roses Fashion Outlet,
still present. Croatia’s first ‘green’ shopping
DEVELOPMENTS IN CROATIA - 2011 both located in the vicinity of Zagreb.
centre, which is currently under construction,
Project name Size m2 GLA is looking to obtain a LEED Gold certification.
Zara, H&M, C&A, Sportina Group and
Avenue Mall - Osijek 26,700
New Yorker are one of the most active
Portanova - Osijek 40,240 International retailers continued to
retailers currently on the market.
Supernova - Šibenik 8,000 show interest in the Croatian market
Lumini - Varaždin 33,000 which resulted in a number of foreign
DEMAND
Cvjetni - Zagreb 7,500 brands entering the market in 2011.
Kvaternik Plaza - Zagreb 2,500 International retailers are still the main
Green Gold - Zagreb 14,000 Rents and vacancy levels remained drivers of retail demand in Croatia.
Total 131,940 stable in prime shopping centres
Source: Colliers International Croatia, Zagreb
and high street locations. New brands that entered Croatia’s retail
market in 2011 included H&M (Sweden),
SUPPLY Kentucky Fried Chicken (United States), KIK
TOTAL SHOPPING CENTRE STOCK (Germany) and Harvey Norman (Australia).
At the end of 2011, Croatia had just over
– CROATIA 2011 (,000 M2)
1 million m2 shopping centre GLA. The
1200 Domestic retailers are developing cautiously,
majority of this space (48%) came from
1000 focused predominantly on staying competitive
Zagreb, pointing to an uneven spread
and maintaining a strong customer base.
800 of retail supply across the country.
600
The socioeconomic situation in 2011, marked
New supply in 2011 amounted to 131,940 m2
400 by a decrease of customer purchasing
GLA. Avenue Mall (26,700 m2) and Portanova
200 power and employment uncertainties,
(40,240 m2) shopping centres opened in
0 resulted in reduced customer demand
Osijek, Supernova Centre (8,000 m2) opened
for non-essential retail products.
in Šibenik, Lumini shopping centre (33,000
1999
2000
2002
2003
2006
2007
2008
2009
2010
2011
m2) opened in Varaždin and Cvjetni Trg (7,500

Yearly additions However, the new Croatian government
m2), Kvaternik Plaza (2,500 m2) and a retail
Stock coupled with planned accession to the EU in
component of mixed use Green Gold project
2013 are expected to bring improvements to
(14,000 m2) opened their doors in Zagreb.
the overall economic sentiment in Croatia.
High street locations in Croatia’s major
cities are strong centres of retail activity,
however shopping centres are increasingly
the more attractive shopping destination.
RESEARCH & FORECAST REPORT | 2012 | CROATIA | RETAIL MARKET
VACANCY
NEW SHOPPING CENTRE DEVELOP-
MENTS IN CROATIA’S MAJOR CITIES Prime high street (7%) and shopping centre
vacancy levels (25%) remained stable in 2011.
Project Name Year of Size m2
Opening GLA
City Centre One East 2012 53,000
RENTS
ZTC Rijeka 2012 50,000 Prime shopping centre rents (€25 m2/ pcm)
Požega Shopping
2012 12,882
and high street rents (€75 m2 / pcm)
Centre also remained stable over the year.
Supernova Buzin 2013 80,000
Mall of Split 2013 61,420 PROGNOSIS
City Coloseum 2013 23,176
Histria mall 2013 23,547
An additional 116,000 m2 shopping centre
space will be completed in 2012, an 11%
Zageb Istok / Ikea 2013 90,000
increase to current supply levels, bringing the
394,025
total national supply to 1.1 million m2 GLA.
Notable upcoming shopping centre

developments in 2012 and 2013
include City Centre One East, ZTC
Rijeka, Supernova Buzin, Mall of Split,
Histria Mall and Zagreb Istok/Ikea.
Due to negotiating power shifting to

tenants, 2012 will bring a downward
trend in rents and an increase in vacancy
levels. However, rents and vacancy levels
for prime locations will remain stable.
By 2013 we expect to see further shopping

centre differentiation strategies through
specialisation, architecture, ‘green’
concepts or entertainment concepts.
A move towards energy efficient and

sustainable ‘green’ retail projects is set
to continue as a new way of operating
profitably and being environmentally
responsibly at the same time.
Demand for prime locations and best

properties is expected to remain stable.
RESEARCH & FORECAST REPORT | 2012 | CROATIA
COLLIERS RESEARCH
CROATIA:
Bianca Bortalazzi
Ilica 42 either the rent-free period or fit-out contribution available at the time of the survey date.
Zagreb, 10 000 Average Headline Rent: Average Headline Rent represents the average open-market tier of
Croatia rent that could be expected for a unit of standard size commensurate with demand, based on
TEL +385 1 4886 280
FAX +385 1 4886 290 Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
EMAIL bianca.bortolazzi@colliers.com
RESEARCH & FORECAST REPORT | 2012 | CROATIA | TAX SUMMARY
CROATIA – TAX SUMMARY

GENERAL taxpayers pay monthly advance payments to certain payments made to non-resident
based on the previous year`s annual CPT legal persons (specified interest payments,
The below comments are based on Croatian
return. Any CPT shortfalls at year-end must payments for intellectual property
laws effective as at 1 January 2012.
be self-assessed in the annual CPT return and rights, market research, tax advisory,
paid by the taxpayer by 30 April of the current business advisory and audit services).
All Croatian physical and legal persons have
year for the previous year, by which date
a personal identification number (PIN) and all
the annual CPT return must be submitted. Withholding tax at the rate of 20% applies
business documentation and correspondence
to payments for services made to legal
(including tax returns) must include the PIN.
Any capital gains realised by a company`s persons outside the EU if the legal person
Croatian legal person shareholders on the has its registered seat or place of effective
EU physical and legal persons can freely
sale of the shares in that company are management and supervision in a country
buy real estate in Croatia. Exceptions
included in ordinary income and subject with a CPT rate lower than 12.5% and if
exist and depend on the type of real
to the standard CPT rate of 20%. the country is included in the list published
estate. Other physical and legal persons
by the Croatian Ministry of Finance.
need to apply for a permit from the
Domestic and foreign dividend
Croatian Ministry of Justice before they are
income is not subject to CPT. The withholding tax rate may be
registered as owners in the land registry.
decreased/eliminated pursuant to
Tax losses may be carried forward for an effective double tax treaty.
In June 2011 Croatia successfully completed
a maximum of five years, if certain
accession negotiations with the EU. The
conditions are met, and no tax loss No withholding tax is levied on dividend
estimated accession date is 1 July 2013.
carry back provisions exist. payments, except for dividend payments
Further taxation and legal changes are
made to physical persons out of profits
expected leading up to EU accession.
There are no tax grouping provisions. earned during the period from 1 January
2001 until 31 December 2004.
CORPORATE PROFIT TAX
Anti-avoidance provisions, including detailed
Resident legal persons (legal persons transfer pricing provisions (which require a REAL ESTATE TRANSFER TAX
incorporated in Croatia or legal persons transfer pricing study including benchmarking
Irrecoverable transfer tax at the rate of
whose place of effective management and analyses, for all cross border transactions
5% applies to the transfer of land.
control is in Croatia) are subject to Corporate with related parties and for certain domestic
Profit Tax (CPT) on their worldwide income. transactions with related parties) exist.
For buildings constructed before the
Non–resident legal persons are subject to
VAT law became effective (i.e. before 1
CPT on their Croatian sourced income. TAX DEPRECIATION RATES
January 1998) transfers are subject to
Assets Maximum Annual irrecoverable transfer tax at the rate of 5%.
Accounting profit, adjusted in accordance
accelerated depreciation
with the provisions of the CPT Law, is annual depre- rate (%) For newly constructed buildings (i.e. on
subject to CPT at the rate of 20%. ciation rate or after 1 January 1998) transfers are
(%) 1
subject to VAT at the rate of 23%.
Amongst others, accounting profit Buildings 10 5
needs to be increased for: Equipment, motor
The subsequent transfer of newly constructed
vehicles
buildings is subject to transfer tax at the rate
>> Interest
on loans provided or guaranteed (other than 50 25
personal cars), of 5% if the seller was not able to deduct
by foreign direct shareholders (holding
intangible assets VAT as a tax prepayment when the building
25% or more) where the loan exceeds
Personal cars 2 40 20 was initially purchased by the seller.
four times the capital of that shareholder
(“thin capitalisation” rule); IT equipment and
100 50 Croatian physical persons acquiring their first
mobile phones
Other long-term property as their main residence are exempt
>> Interest
over 7% per annum on loans 20 10
assets from paying property transfer tax (but not VAT,
provided by a foreign related party
if VAT applies), if certain conditions are met.
(“excessive interest rate” rule); and 1 Depreciation expenses can only be calculated on
a straight-line basis and the tax depreciation rate is
Transfer tax exemptions are also available
>> Interestover 7% per annum on loans limited to the accounting depreciation rate.
for the transfer of land or qualifying
provided by a domestic related party, if
buildings located in special state care
one of the parties is in a tax favourable 2 A depreciation expense relating to vessels, aircrafts,
apartments and holiday homes is recognised as an expense areas , if certain conditions are met.
position or has tax losses carried forward
for CPT purposes only if specific conditions are fulfilled.
from previous periods which can be
VALUE ADDED TAX (“VAT”)
utilised in the current tax period.
WITHHOLDING TAX
The standard VAT rate is 23% and
The tax period is the calendar year. CPT Withholding tax at the rate of 15% applies applies to most products and services.
RESEARCH & FORECAST REPORT | 2012 | CROATIA | TAX SUMMARY
A reduced VAT rate of 10% applies to: PERSONAL INCOME TAX (“PIT“)
PIT rates are as follows:
>> Tourist
accommodation services
and related agency fees; and
HRK 0 – HRK 3,600, 12%;
>> Newspapers and magazines issued on a
HRK 3,600 – HRK 10,800, 25%;
daily and periodical basis, with the exception
of newspapers and magazines that consist
above HRK 10,800, 40%.
mainly or entirely of advertisements or
whose main purpose is advertising.
Any capital gains realised by a company`s
Croatian physical person shareholders
A VAT rate of 0% (input VAT recovery
on the sale of the shares in that
possible) applies to bread, milk, educational
company are not subject to taxation.
literature (specified), certain (specified)
medical supplies, scientific magazines and
SOCIAL SECURITY (“S/S“)
film projection services, as well as to exports.
Employees’ pay pension s/s contributions in
Services are taxable in Croatia if they are the amount of 20% of their gross salaries
deemed to be supplied in Croatia. The whilst employers’ in addition to gross salaries
reverse-charge mechanism applies to pay health insurance, unemployment fund
certain services supplied from abroad. and injury at work contributions of 17.2%
based on employees’ gross salaries.
The rules regarding place of supply are
similar to the EU 6th VAT Directive prior to
the implementation of the “VAT package”
applicable in the EU as of 1 January 2011.
The registration threshold is taxable

supplies of HRK 85,000 (approximately
EUR 11,600). Legal persons in Croatia
using financial support from certain pre- FOR MORE INFORMATION ON REAL ESTATE
accession EU funds are entitled to obtain SERVICES IN CROATIA, PLEASE CONTACT:
goods/services without being subject
to VAT, if certain conditions are met.
Paul Suchar
The transfer of newly constructed buildings KPMG Croatia doo
is subject to VAT at the rate of 23%. Physical Eurotower,
persons generally cannot recover VAT; Ivana Lucica 2a,
however, VAT is generally recoverable for 10000, Zagreb
legal persons registered for VAT in Croatia. Croatia
Foreign legal persons may be able to recover T: +385 1 5390 032
VAT, provided relevant conditions are met. M: +385 91 4668 032
E: psuchar@kpmg.com
Foreign legal persons are required to
register for VAT purposes, provided
relevant conditions are met.
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC
CZECH
REPUBLIC
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: The unemployment rate Economy: Czech exports are positioned to
continued to decrease from 7.4% in 2010 benefit from an improving German economy
to 7.1% in 2011. Exports accounted for in late 2012 or early 2013. The unemployment
62% of the country’s GDP. Germany rate is expected to remain stable in 2012 and
made up 32% of Czech exports. decrease to 6.9% in 2013 but not without a
medium term increase as public job cuts are
Offices: 2011 was a record year for gross likely to outweigh private sector job creation.
office take-up with 325,500 m2 being
leased. The bulk of leasing activity occurred Office: Gross office take-up is set to
in Prague 4,5 and 8. There were 12 new slow down from its record year in 2011.
office completions totaling almost 100,000 Speculative and new office development
m2 in 2011, which was double the level of starts are expected to drop in 2012 due
new supply recorded in 2010. Vacancy fell to banking restrictions on development
however prime office rents remained flat. financing and lower occupier demand. New
office construction will only commence once
TRENDS 2012 Industrial: Industrial stock expanded and pre-leases represent 40% to 50% of the
now totals 3.94 million m2. Prime industrial total proposed project or where developers
GDP GROWTH rents remained more or less stable. The are able to fund a large portion of the
manufacturing and logistics sector continued project costs from private equity sources.
PRIME PRIME
OFFICE RENTS expanding, however, the bulk of industrial
YIELDS
transactions across the Czech Republic Industrial: Gross take-up is likely to fall below
were lease renewals and renegotiations. 2011 levels due to concerns over business
orders and economic growth. Occupiers
Retail: There has been limited new retail with larger requirements (10,000 m2 +), are
development and many retailers have facing a narrower choice of immediately
been cautious about expanding their store available space and will therefore have
portfolios. In light of restrained consumer to commit to pre-leases. Vacancy rates
spending, the performance of Czech retail across the Czech Republic should fall
TRANSACTION PRIME SC sector has suffered as of late. However, there further, although prime rents are unlikely
VOLUMES RETAIL RENTS were some encouraging signs in that new to experience strong upward pressure.
retailers entered the market and investors
PRIME INDUSTRIAL RENTS were keen on acquiring good retail assets Retail: Competition for strong retailing
that they believe can deliver strong returns. locations is set to remain healthy. A
Increasing number of new retailers are seeking a
Stable
Decreasing
Investment: A very active 2011, with foothold in the Czech Republic while some
investment transactions totaling more than existing brands will be looking to open
€2.2 billion closing, which was around four further stores. The health of the economy
times higher than the €570 million of deals and job security will nonetheless affect
completed in 2010. Retail malls accounted for consumer spending and retailers will
more than half of all investment activity, while continue having to work harder in order
offices made up a smaller portion largely maintain or increase their turnover levels.
due to the lack of true institutional office
buildings being readily available for purchase. Investment: The Czech Republic will
Prime yields hardened by around 25 bps. continue to be a destination where a
number of investors are keen to acquire
investment property. However, the
challenges of real estate deleveraging,
the increased costs associated with new
senior debt plus the ongoing Euro Zone
uncertainty will undoubtedly have a
dampening affect on investment activity
levels. Further, marginal yield compression
may be achieved but only for the very best
investment assets at selective locations.
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY PROGNOSIS
2010 2011 2012 In 2011, the unemployment rate in The Czech Republic is a relatively stable
GDP % 1.93% -0.26% 0.70% the Czech Republic was 7.1%. economy with a well capitalised and
CPI % 1.50% 1.71% 3.06% regulated banking system. As foreign
Unemployment % 9.6% 8.6% 8.7% According to consensus forecasts banks with a local presence pull back
Source: IMF/CIA World Fact Book/FocusEconomics GDP growth for 2011 was 1.8%. The on lending this year, local banks are in
Population 10 562 214 unemployment rate fell from 7.4-7.1%. a good position to step up lending.
Top 3 Cities 2 071 954 19.62%
Prague 1 300 108 12.31% The capital’s proximity to Germany has Czech exports are positioned to benefit
Brno 450 820 4.27% enabled it to integrate itself into their supply from an improving German economy in late
Ostrava 321 026 3.04% chain. As Germany grows, so does the Czech 2012 or early 2013. However, Germany is
Source: IMF/CIA World Fact Book/FocusEconomics Republic. This trend has given the country expecting a GDP contraction in 2012 to 0.7%,
Economic Make-up one of the highest GDP per capita ratios in which will impact the Czech Republic’s GDP
Sector GDP Labour the region totalling US$25,000 per head at this year. By 2015 exports are expected
Agriculture 2.4% 3.1% purchase price parity. However integration to be 72% of the Czech Republic’s GDP.
Industry 37.6% 38.6% has also made the country more dependant
Services 60.0% 58.3% on the vicissitudes of the German economy. The unemployment rate is expected to
Source: IMF/CIA World Fact Book/FocusEconomics remain stable in 2012 and decrease to
In 2011, exports accounted for 62% of the 6.9% in 2013 but not without a medium
country’s GDP. Germany made up 32% term increase as public job cuts are likely
KEY ECONOMICS INDICATORS
of the Czech export figure meaning that to outweigh private sector job creation.
10%
exports to Germany accounted for just
over 21% of the Czech Republic’s GDP. Industrial production is driven by its
5% German centric export market. After
While industrial production is recovering the re-stocking of inventory between
0% to its pre-crisis level, the same cannot 2009 and 2010 and the austerity dip in
be said for retail sales. Pre-crisis GDP 2012, the Czech Republic’s industrial
-5% was driven by private consumption and production rate will hold steady at 5%.
retail growth surged up until 2008.
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Retail sales are expected to dip again in 2012

Gross domestic product, constant prices In 2011 M1 money supply growth was around due to the slowdown in the German market.
Inflation, average consumer prices 4.5% and private consumption was negative.
Unemployment rate
The continuance of low private consumption,
now compounded by a reduced level of
fixed investment is making the government
KEY INDUSTRIAL RATIOS maintain its levels of public spending. Despite
20%
the forecast of its current account recovery in
10% 2013, public debt will not decrease due to the
lack of structure to reign in public spending.
0%
Constrained consumer demand coupled
-10%
with government cut-backs will keep
-20% economic growth sluggish in 2012 at 0.5% in
comparison to 2011’s GDP growth of 1.8%.
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Volume of imports of goods and services
Volume of exports of goods and services
Industrial Production
Source: CNB, Focus Economics (from 2014)
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | INVESTMENT MARKET
INVESTMENT MARKET
KEY MARKET DATA - Czech Republic SUMMARY sub 6.50%, while prime office yields hardened
Investment Turnover €2.2 billion from 6.75% to 6.50% by the close of 2011.
In 2011, investment transactions totaling more
Prime Office Yield 6.50% This moderate yield compression was a
than €2.2 billion closed in the Czech Republic,
Prime Retail Yield 6.35% reflection of pent-up investor demand and
which was around four times higher than
Prime Industrial Yield 8.00% the appetite of buyers seeking core product.
the €570 million completed in 2010. There
Source: Colliers International was a flurry of activity in H2 2011, with €1.4
they were the first large scale industrial
billion worth of deals closed in this period.
portfolios to sell in the Czech Republic.
PRIME YIELDS
12% Strong fundamentals of the Czech real
Prime yields continued to compress in
estate market and a large number of
10% 2011, following initial positive signs in 2010.
institutional quality investment assets
8% Transactions in the retail sector demonstrated
being marketed for sale helped to
yields of slightly below 6.50%, while prime
6% propel investment activity in 2011
office yields hardened from 6.75% at the
4%
start of the year to 6.50% at the close of
The return of foreign investors to the
2% 2011. This moderate yield compression
market bolstered the already active Czech
0% reflected pent-up buyer demand and the
based investor group that has emerged in
desire of investors to seek prime assets
H1 2000
H1 2001
H1 2002
H1 2003
H1 2004
H1 2005
H1 2006
H1 2007
H1 2008
H1 2009
H1 2010
H1 2011
recent years. The share of total transactions

to add to their real estate portfolios.
by Czech investors decreased to 28%
in 2011 however the absolute volume
Office PROGNOSIS
Retail SC of their investments increased to €570
Industrial million from €390 million in 2010. Investment trading volumes in the coming
year are unlikely to reach the figures posted
Retail malls made up 55% of investment in 2011, even though a range of investment
deals last year. The Olympia shopping funds remain active and a number of
INVESTMENT VOLUME (€ MILLION) mall in Brno was jointly acquired by ECE investment deals (largely offices in Prague)
1500 and Rockspring. Multi Development also are expected to close in H1 2012.
sold two of their malls, i.e. Forum Nova
1200 Karolina Ostrava and Forum Usti nad Labem, The challenges of debt deleveraging
900 which were purchased jointly by Meyer will persist throughout 2012 as banks
Bergman and the Healthcare of Ontario attempt to clean up non-performing loans
600 Pension Plan (HOOPP) for €300 million. in their portfolios. The lack of available
300 senior debt and the additional liquidity
Office investment deals, which typically costs, coupled with the ongoing Eurozone
0
account for the majority of real estate uncertainty will undoubtedly have a negative
H1 2000
H1 2001
H1 2002
H1 2003
H1 2004
H1 2005
H1 2006
H1 2007
H1 2008
H1 2009
H1 2010
H1 2011
investment transactions represented only 22% affect on investment activity levels.

of total investments in 2011. This was due
Source: Colliers International to the fact that only a handful of institutional As a result of the stricter regulations being
office investments were available for imposed on banking groups, we expect to
purchase. Of the office investments that were see more distressed assets come on to the
sold, the largest was Futurama Business Park market in the coming 24 months. Many
Buildings A1 & A2 which were purchased of these opportunities will be discreetly
for €50 million by Invesco Real Estate. and selectively marketed by Czech lenders
and we do not yet expect to see large
The sale of two separate industrial portfolios wholesale loan books being auctioned off.
marked a landmark event as they were the
first large scale industrial portfolios to sell in There is currently sentiment to suggest that
the Czech Republic. Logistics Park VGP CZ yields on a few selective “best in class”
I was acquired by the EPISO fund while the assets in Prague will set a new prime
VGP CZ II portfolio was acquired by Curzon benchmark yield in the period since the
Capital Partners Fund III. In total the lot size start of the global financial crisis. Yields on
of both was €435 million and accounted for most other assets will broadly remain flat
20% of the investment volume in 2011. for 2012 due to investor cautiousness over
the European economic outlook, sovereign
Prime yields continued to compress in 2011, debt challenges and banking liquidity issues.
following the initial positive signs seen
in 2010. Transactions in the retail sector
demonstrated prime yields of slightly
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Czech Republic SUPPLY DEMAND
Total Stock 3,946,500 m2 Industrial stock expanded by 240,000 Total gross take-up in 2011 reached
Take-up 816,800 m2 m2 (to 3.94 million m2) in 2011, a 6% 816,800 m2 which was 17% less than
Vacancy 7.7 % increase (from 3.72 million m2) in stock the 979,000 m2* recorded in 2010.
Prime Headline Rent €4.40 m2/pcm compared to 2010. In H2 2011, industrial
Source: Colliers International space increased by 166,000 m2. The logistics sector accounted for the highest
percentage of gross take-up with a 55%
CHANGE IN STOCK OVER TIME CTP and VGP were the most active developers share, while 28% of total leasing activity
(THOUSAND) in terms of new building completions. came from the manufacturing sector.
4 000
3 900 CTP developed four buildings, Net take-up in 2011 amounted to 420,600
totaling 112,600 m2 in Brno with the m2 which was around half of the gross
3 800
largest measuring 36,500 m2. take-up. In comparison to 2010 figures,
3 700 net and gross take-up decreased
3 600 VGP started construction on a 17,000 by 42% and 17% respectively.
3 500 m2 build-to-suit (BTS) production
facility in Hrádek nad Nisou on the Looking at demand in terms of net take-up,
3 400
Czech Republic´s northern border with the logistics sector represented 44% and the
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Germany and a 13,000 m2 building at manufacturing sector accounted for 36%.

Nýřany close to the city of Pilsen.
Existing Stock (m2) Some notable lease renewals and
New Supply (m2) The three major geographic clusters of Czech renegotiations closed during 2011 including
industrial stock saw a change in their ranking a number of DHL´s leases in Prague.
based on proportion of total stock. Southern These renewals accounted for the three
Moravia accounted for 706,600 m2 and largest industrial transactions in 2011.
TAKE-UP VS. VACANCY overtook Western Bohemia where 575,100
315 000 14% m2 is located. Prague, holds 1.6 million m2 of In terms of developers’ share of deals
270 000 12% the Czech industrial stock and is the region last year, two companies were involved
225 000 10% with the largest share of industrial buildings. in over half of deals completed i.e.
180 000 8% CTP (31%) and Prologis (27%).
135 000 6% Speculative development of industrial space
90 000 4% was rare in 2011 and when it did occur it often *Previously gross take-up for 2010 was reported by Colliers
45 000 2% comprised an adjunct to the construction as 1 million m2. This figure has been revised since adopting
of pre-leased space, e.g. Panattoni Park the Czech Republic Industrial Research Forums’ take-up
0 0%
methodology.
Prague Airport and VGP Park Hradec
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Králové. While examples of pure speculative

development were seen at VGP Park in
Net take-up (m2) Tuchoměřice, Nýřany and Horní Počernice.
Renewals (m2)
Vacancy (%) The odd BTS project also got underway
Source: Colliers International / PRF in Central and Eastern Bohemia for
companies in the manufacturing sector,
as there were no suitable properties
that could meet such demand.
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | INDUSTRIAL MARKET
VACANCY/AVAILABILITY RENTS
STOCK VS. VACANCY
315 000 14% Due to healthy gross take-up in the past two Headline rents remained by and
270 000 12% years across most Czech regions, the average large stable throughout 2011
225 000 10% country vacancy rate dropped to 7.7%. This despite a fall in vacancy rates.
180 000 8% is a decrease of 2.7% from the end of 2010.
135 000 6% The Brno industrial market commanded
90 000 4% Vacancy levels in Prague were 9.5% at the highest rents in the Czech Republic
45 000 2%
year end, which was a slight improvement ranging between €4.30-4.60m2/pcm.
on the H1 2011 figure of 9.9% and 1.6% While in the submarket of Prague-North,
0 0%
less than the 2010 vacancy rate. modern storage facilities could be leased
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
for as low €2.75-3.00 m2/pcm.

In 2011, the largest vacancy rate decline was
Net take-up (m2) seen in Northern Moravia which dropped from Average net effective rents after taking
Renewals (m2) 12.8% to 2.6%, and was helped by Prologis into account leasing incentives were
Vacancy (%) leasing space at Prologis Park Ostrava. around 8-12% lower than the quoted
Source: Colliers International / PRF headline rent (depending on the size of
Eastern Bohemia also registered a large drop the space leased and the lease term).
HEADLINE RENT INDICATIONS in its vacancy from 7.9% down to almost 0%.
REGION RENT LEVEL Headline rents for BTS properties
PRAGUE €2.75-4.40 m2/pcm Southern Moravia was the only region to were generally being agreed in the
PILSEN €3.90-4.20 m2/pcm experience a vacancy rate increase, from range of €4.00-4.50 m2/pcm. In many
BRNO €4.30-4.60 m2/pcm 3.2% (2010) to 4.5% (2011). This increase instances some of the additional fit-outs
OSTRAVA €3.60-4.30 m2/pcm was triggered by the completion of the new required by the occupier were being
industrial space at CTPark Brno II. Overall rentalised if paid for by the developer.
vacancy in this region nevertheless still
remained below the country average. PROGNOSIS
TAKE-UP STRUCTURE In 2012, gross take-up for industrial
The largest cluster of vacant modern
space is likely to be below the 2011
Grade A space was located north of
level due to concerns over business
Prague in Úžice where over 50,000
orders and economic growth.
m2 was available for lease.
Tenants with larger requirements (10,000
49% 51% Other industrial parks that can accommodate
m2+) will face a narrower choice of
occupiers seeking space in excess of 10,000
immediately available space due to
m2, included Business Park Rudná (Prague),
falling vacancy rates and low volumes
Airport Logistics Park (Prague) and CTPark
of new speculative development.
Divišov (at Junction 41 of the D1 Highway).
New demand
At the end of 2011, around 125,000
m2 of space was under construction
Renewals & renegotiations
around the country, the largest being
a 30,000 m2 BTS at Jirny (Prague-
East) for the German retailer Globus.
LARGEST INDUSTRIAL TRANSACTIONS Barring an economic meltdown, vacancy

TENANT PARK DEVELOPER SIZE DEAL rates are set to fall further as current
DHL Prologis Park Prague-Jirny ProLogis 39,366 renewal vacant space leases up and the supply
DHL Prologis Park Prague-Jirny ProLogis 30,619 renewal of new developments fall back.
DHL Prologis Park Prague-Jirny ProLogis 29,058 renewal
Kompan CTPark Brno II. CTP I 24,478 consolidation We expect around 160-180,000 m2 of
Honeywell Industrial Park Brno Heitman 24,230 renewal new industrial space to come through the
VF Corporation PointPark Prague D8 Pointpark Properties 21,443 renewal Czech development pipeline in 2012.
Loxxess CTPark Bor CTP 16,688 expansion
PST CLC CTPark Pohorelice CTP 16,308 pre-let
Loxxess CTPark Bor CTP 15,645 renewal
Schenker PointPark Prague D1 Pointpark Properties 15,276 renewal
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Prague SUPPLY Active business sectors in office take-up
Total Stock 2,800,466 m² included Professional Services (23%),
In 2011, the office stock in Prague increased
Take-up 325,564 m2 Banking, Insurance and Investment (18%), IT
by 100,000 m2 to reach 2.8 million m2.
Vacancy 12.01 % & Telecoms (12%) and Manufacturing (9%).
Grade A space accounted for 69% of the
Prime Headline Rent € 20-21 m2 /pcm office stock and Grade B represented 31%.
70% of office leasing transactions
Source: Colliers International / PRF
took place in Prague 4, 5 and 8.
12 new office buildings were completed
CHANGE IN STOCK OVER TIME during 2011 and together totaled
The largest office transactions of 2011
(THOUSAND) almost 100,000 m2. This was double
included UniCredit Bank (26,680 m2)
2850 the new supply recorded in 2010.
at Filadelfia - BB Centrum in Prague 4,
2800 Komerční Banka (15,236 m2) at City West
46% of any newly developed office
- Building A2 in Prague 5 and PwC (11,924
2750 space was either pre-leased or
m2) at City Green Court in Prague 4.
2700
pre-sold before completion.
VACANCY / AVAILABILITY
2650 The largest office projects in 2011
2600
included: Main Point Karlín in Prague 8 After two years of sluggish take-up, Prague’s
(25,700 m2), Harfa Office Park in Prague office vacancy rate decreased from 13.2% to
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
9 (19,600 m2), Phase II of Futurama 12% by the end 2011. However, this figure was
Business Park in Prague 8 (16,042 m2) slightly misleading when viewed in isolation
Total Stock (m2) and Qubix in Prague 4 (11,700 m2). as there were large variances between the
New Supply (m2) individual Prague office sub-markets.
Source: Colliers International / PRF 13 projects totaling 127,400 m2 of
new office development were under Prague 5’s vacancy rate was 6.8% and
construction in 2011, most of which should remained low due to limited new office
KEY OFFICE TRANSACTIONS
be completed by the end of 2012. supply and healthy take-up. Vacancy
TENANT BUILDING m2 TRANS- levels in Prague 4 fell to 7.7% from
ACTION
TYPE Speculative development of office projects 11.9% and Prague 6´s vacancy rate
BB
in Prague diminished substantially due to the decreased to 20.8% from 25.2%.
UniCredit Reloca- challenges of obtaining development financing.
Centrum 26,680
Bank tion Prague 7 (25.1%) and Prague 9 (30.2%)
Filadelfia
Komercni City West Reloca- In 2011, Futurama Phase II received had relatively high vacancy rates compared
15,236 a BREEAM certification and Main with the office stock in those individual
banka A2 tion
City Green Reloca- Point Karlín and Qubix are seeking to districts. Prague 9´s vacancy rate increased
PwC 11,924
Court tion attain LEED Platinum certification. significantly, however this was due to the
Palmovka Reloca- completion of Harfa Office Park (19,600
Metrostav 10,817
Park II tion DEMAND m2), which has been slow to lease up.
Supreme
Renego- 2011 was a record year for gross office-
Audit Tokovo 10,200 Prague 2 also experienced an increase in
tiation take-up, reaching 325,500 m2. This
Office its vacancy rate from 8% to 13.2% which
Renego- increase represented a 51% growth
Deloitte Nile House 9,000 was due to the relocation of tenants from
tiation compared to 2010’s total of 215,000 m2.
Prague 2 to other districts in the city.
Business
T-Sys- Renego-
Centurm 6,447 Looking closer at office demand, net take-
tems tiation
Vysehrad up accounted for 39% with the remainder
Renego- of office leasing activity comprising
Accenture The Park 6,393
tiation renegotiations and relocations.
SAP Avenir
Renego-
Business Business 6,139
tiation
Services Park
Reloca-
Seznam. Palac tion /
6,000
cz Krizik II Expan-
sion
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | OFFICE MARKET
RENTS Relocations by large tenants such as Komerční

TAKE-UP STRUCTURE Banka and PWC may cause a short term
Prime rents remained unchanged in 2011.
1% rise in the vacancy rate towards the end of
Prague 1 (city centre) rents ranged from
2012 in Prague 1 and 2 as the space vacated
€20-21 m2/pcm. Rents in the inner city
33% by both tenants has yet to be backfilled.
ranged from €15-17.5 m2/pcm and outer
29% city rents ranged from €13-14.5 m2/pcm.
11 buildings, representing 113,000 m2 of office
Landlord incentives continued to be a staple
space, are expected to come on to the market
in leasing deals for new and also existing
in 2012, 65% of which will be located in
tenants. Incentives varied depending on the
Prague 4 (Pankrác) and Prague 8 (Karlín).
size and terms of the deal and net effective
6%
average rents were typically around 10%
31% Office rental rates are anticipated to remain
to 15% lower than quoted headline rents.
flat throughout 2012, however net effective
rents could rise from their current levels
New Leases PROGNOSIS
of 10-15% below quoted headline rents as
Expansions 2012 take-up levels are unlikely to reach vacant space around Prague dries up.
Renegotiations the demand levels of 2011 mainly due to
low economic growth, external market The propensity to develop and lease
Relocations within stock
risks associated with the Eurozone and sustainable properties will continue to
Sale & leaseback remnants of the global financial crisis. As a increase as more and more projects
Source: Colliers International / PRF result, we expect the share of renegotiated coming to market are being built to
leases will likely increase as tenants meet green certification criteria.
TAKE-UP VS. VACANCY reconsider expansion or relocation.
In Prague, there are currently four BREEAM
120 000 13.5% Levels of speculative development are certified office buildings, one LEED certified
100000 expected to drop in 2012 due to banking building and one other has an OGNI
13.0%
restrictions on development financing. New certification. Similarly, four new office
80 000
12.5% office construction will only commence buildings currently under construction are
60 000 once a project has achieved pre-leases seeking a BREEAM or LEED certification.
12.0%
40 000 between 40% to 50% of the total project
20 000 11.5% size or alternatively where developers are
able to draw upon private equity sources.
0 11.0%
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Net take-up (m2)

Gross take-up (m2)
Vacancy (%)
PRAGUE DISTRICT VACANCY
800 000 35%

700 000 30%
600 000 25%
500 000
20%
400 000
15%
300 000
200 000 10%
100 000 5%
0 0%
Praha 1
Praha 2
Praha 3
Praha 4
Praha 5
Praha 6
Praha 7
Praha 8
Praha 9
Praha 10
Total stock (m2)

Vacancy (m2)
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Prague SUPPLY DEMAND
Total Shopping Centre There is approximately 2.2 million m 2
Retail sales in the Czech Republic showed
870,000 m2
Stock
of retail space in the Czech Republic, a slight sign of improvement in Q4
70% of which is located within shopping 2011 as December 2011 posted a 1.6%
Prime Headline High Street malls. Shopping centre stock in Prague improvement year-on-year. This growth
€90 m2/pcm
Rent
totalled around 750,000 m2. was largely attributed to an increase
in car sales and non-food items.
A limited number of new shopping
RETAIL SPACE centres came to market in 2011, however, Several retailers continued to seek space in
PER 1,000 INHABITANTS some existing retail properties were the best performing shopping centres around
1 800 refurbished in smaller towns such as the country. The lack of available space
1 500 Lihovar in Říčany and Elan in Havířov. proved to be a barrier to new entrants.
1 200
900
Notable shopping centres currently Existing retailers already operating in
under construction included Multi’s the Czech Republic were planning store
600
Forum Nova Karolina (58,000 m2) in expansions, including Interspar, H&M,
300 Ostrava and the Develon/Avestus Breda Orsay, New Yorker and Paul (bakery). New
0 Shopping Mall (25,000 m2) in Opava. entrants to the market in 2011 included
Foot Locker (sports), Decathlon (sports)
Liberec
Brno
Plzen
Pardubice
Olomouc
Praha
Ostrava
Retail park development has been on the rise Desigual (fashion), Karen Millen (designer
with the completion of Ostrava Retail Point fashion) and Crabtree & Evelyn (cosmetics).
(7,600 m2), Centro Zlín Retail Park Phase
II (4,000 m2) both built by Discovery Group Grocery chains continued to experiment
ONLINE PURCHASED GOODS (2011)*
and Avion Shopping Park’s extension (9,300 with smaller convenience store formats.
50% m2) built by Inter-Ikea in Ostrava, alongside Tesco expanded its Tesco Extra stores while
the construction of a new Kika furniture Austria’s Spar, launched its first Spar-to-Go
40%
store (16,000 m2) at the same location. in Říčany, a 120 m2 sales floor with take-away
30% food, ready meals, sandwiches and soups.
20%
Demand for the best retailing locations
remained highly competitive due to the A handful of American retailers are in the
10% limited new supply of new shopping centres exploration stage of entering the Czech
0% coming on line across the country. market via a franchise arrangement
such as Churches Chicken, Dairy
Fashion
Cosmetics
Sports
Electronics
Books / Newspapers / Magazines
Household apliances
Mobile phones
The trend of refurbishment and expansion Queen, Marble Slab Creamery, Great
of existing shopping centres can be seen American Cookies and Radio Shack.
at Nový Smíchov in Prague 5 (interior
recently remodelled) and Černý Most in Luxury American jewellery store, Tiffany &
Prague 9 (scheduled completion in 2013). Co. planned to open its first store in CEE in
2012 in Prague. The shop will be 260 m2,
Individual retailers such as Ikea in Černý at 10 Pařížská Street and located opposite
% of individual on-line shoppers over last 12 months
Most, also chose to renovate and upgrade the Gucci store. Pařížská is Prague’s
Source: Czech Statistical Office (ČSÚ)
store formats to refresh their look and and CEE’s premier high-end fashion and
improve their in-store customer experience. luxury goods retailing destination.
The ratio of online sales to total retail sales

continued to increase as e-retailers tested
out new forms of electronic commerce to
boost sales and attract consumers. For
example, Tesco recently launched an online
grocery service in Prague. P&G and Mall.cz
created a partnership which brought virtual
grocery stores to Prague’s four busiest
metro stations where customers scan QR
codes with a smart phone and are connected
to an online store. The goods purchased
are then delivered the following day.
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | RETAIL MARKET
RENTS landlords will be hoping to maintain, or grow

their rental income and if possible move out
Prague’s prime high street city centre
weaker tenants for stronger retailing brands.
retail rents were between €160 m2/
pcm and €170 m2/pcm while Brno
Although a number of existing retailers are
prime rents were between €60 m2/
seeking to increase the number of their
pcm and €70 m2/pcm in 2011.
stores, the rate of expansion is expected to
be measured and cautious given the lack of
Prime shopping centre rents in Prague
available space and tepid consumer demand.
were €90 m2/pcm and Brno shopping
rents ranged between €50-60 m2/pcm.
The health of the economy and job
security is affecting consumer spending
While many shopping malls across the Czech
levels and many retailers are having to
Republic suffered a rental decline of 10-
work harder and smarter to maintain
30% over the past three years in relation to
or increase their sales turnover.
specific retail units or retailers, the stronger
performing malls such as Chodov, Palác
The opening of Nová Karolina in Ostrava
Flora and Nový Smíchov (all located in
is about to change the retailing landscape
Prague) achieved rental growth of 5% to
in this city. This new shopping mall will
10% on lease renewals or new lettings.
not only provide fierce competition to
existing retail malls but will also draw
PROGNOSIS
customers from a wider catchment
Popular, well designed shopping malls with beyond Ostrava’s city boundaries.
a good tenant mix will benefit from rental
growth and attract retailers seeking to lease Some new shopping malls will be added
shop units. While shopping malls that have to the retailing stock, however retail
struggled as of late will do well to maintain development is many ways is more
their current levels of tenant occupancy. challenging than development in the other
main property sectors, due to the fact
Many retailers experienced a drop in retail shopping centres tend to be larger in size,
sales and this has impacted their ability to expensive to construct and need to appeal
meet rental obligations. In 2012, we expect to a large variety of different retail tenants.
average rental rates to stabilise and many
Older or poorly located shopping malls will
continue to struggle, as some retailers in such
schemes will still find it difficult to meet rental
costs. Therefore, owners will need to be
RETAIL PROJECTS UNDER CONSTRUCTION
creative in order to improve the attractiveness
NAME CITY m2 DEVELOPER OPENING of their retail centres to shoppers or to find
Forum Nova Karolina Ostrava 58,000 Multi Development 2012 alternative uses for the growing vacant space.
Breda & Weinstein Opava 25,000 Develon / Avestus 2012
Hradec TK Development
Futurum - expansion 9,950 2012
Kralove / Heitman / GE Capital
Avion Shopping Park - Sever Ostrava 4,000 Inter-Ikea 2012
Centrum Cerny Most - expansion Prague 26,000 Unibail - Rodamco 2013
SAMPLE OF PLANNED RETAIL PROJECTS

NAME CITY m2 DEVELOPER OPENING
Gallery Santovka Olomouc 46,000 Dandreet 2013
Aupark Hradec Kralove 24,420 HB Reavis 2013
Aventin Jihlava 23,000 Aventin 2013
Gallery Teplice Teplice 22,000 Dandreet 2013
Fontana Teplice 22,000 JTH Group 2013
Gecko Ostrava 15,630 Reflecta 2013
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC
COLLIERS RESEARCH
CZECH REPUBLIC: Prime Headline Rent: Represents the top open-market tier of rent that could be expected
Lenka Oleksiakova conditions, but the same criteria on building size and specification will apply.
Sona Volfova
Colliers International s.r.o. Space Under Active Construction: Represents the total amount of gross leasable floor
Myšák Gallery space of properties where construction has commenced on a new development or in
Vodičkova 710/31
110 00 Prague 1
Czech Republic Space Under Construction – Inactive: Represents the total amount of gross leasable floor
TEL +420 226 537 618 was ongoing, but activity has since stopped for a period of three months or longer.
FAX +420 226 013 579
EMAIL prague.research@colliers.com Vacant Space: The total gross leasable floor space in existing properties that meet the
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | LEGAL OVERVIEW
CZECH REPUBLIC LEGAL OVERVIEW

BASIC FORMS OF TITLE contract. The most important restrictions
concern the commencement of the lease. FOR MORE INFORMATION
In the Czech Republic, the most common title PLEASE CONTACT:
to real estate is full ownership (“vlastnické
PRIVATISATION CLAIMS
právo”), which is similar to a “freehold”
Olga Humlová
title and entitles the owner to a full range There is a comprehensive re-privatisation
Partner
of perpetual rights to use and enjoy real law in the Czech Republic and all
Head of Real Estate – Czech Republic
property. It is also possible to use real deadlines for claiming possession have
T: +420 236 082 111
estate based on (i) an easement (“věcné expired. However, certain proceedings
E: ohumlova@salans.com
břemeno”) or (ii) a lease (“nájemní právo”), may still be pending. These should be
which can be either a long-term lease or registered in the Cadastral Register.
a lease for an indefinite period of time.
NOTARIES AND NOTARIAL FEES
ACQUISITION OF REAL ESTATE
Legal agreements for the sale of real
BY FOREIGNERS
estate and the transfer of perpetual
Foreigners who are EU nationals may usufruct rights to real estate do not
acquire commercial real estate directly. The need to be in notarial form in order to be
acquisition of residential and commercial enforceable in the Czech Republic. It is,
property by non-EU foreigners is only however, common practice for a notary,
possibly in the case of holders of a permanent attorney or local municipalities to verify
residency permit or, indirectly, through the the signatures on such agreement/letter.
establishment of a Czech legal entity such
as a limited liability company (“společnost LANGUAGE
s ručením omezeným”). A foreigner
In order to be enforceable in the Czech
can own 100% of such legal entity.
Republic, most legal agreements to be filed
with the Cadastral Register, Commercial
REGISTRATION SYSTEM
Register or other authority must be translated
In the Czech Republic, there is a so-called into Czech. However, it is common for
Cadastral Register (“Katastr nemovitostí”). English or other languages to be used as a
This register shows the owner of the second language for checking purposes.
property in question and also indicates the
extent to which the land is encumbered by
mortgages and other servitudes. Any rights
in rem become effective through registration
in the Cadastral Register as of the day on
which the application to register a right in Fluent in Real Estate
rem is filed. As a general rule, “good faith”
purchasers of land are entitled to rely upon www.salans.com
information contained in the Cadastral
Information contained in this general outline does not constitute
Register, provided that the registration was a legal opinion and is not meant to be comprehensive. As a
made after January 1, 1993. The Cadastral result of pending and new legislation, laws and regulations
Register system is accessible online. change frequently in the Czech Republic and are often subject
to varying interpretations. Professional advice should be sought
regarding all aspects of real estate in the Czech Republic.
TRANSFER TAXES
Presently, there is a 3% transfer tax for which
the seller is generally liable and for which
the purchaser is the guarantor by law. Value
Added Tax may also be payable in certain
cases upon the transfer of real property.
LEASES
Leases in the Czech Republic are freely
negotiable but are subject to certain
mandatory provisions of the Civil Code
and the Act on the Lease and Sublease
of Non-Residential Premises. These
mandatory provisions may not be varied by
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | TAX SUMMARY
CZECH REPUBLIC – TAX SUMMARY

CORPORATE INCOME TAX assets for tax purposes and therefore can the funds to the borrower); this is treated
AND CAPITAL GAINS be depreciated over a shorter period. as interest on related party debt.
Corporate income tax is levied on profit
Special provisions apply for the assets of Any interest or other expenses relating to a
from all activities (including rental incomes)
solar power plants. These fixed assets non EU or EEA resident lender disallowed
and from the management of all types
must be depreciated over 240 months under the capitalization rules may be treated
of property, although there are some
and the depreciation must be claimed as a dividend, i.e. is subject to dividend
exceptions to this rule defined in the tax
(unlike depreciation on most other assets). withholding tax, as reduced by the provisions
law. The corporate income tax rate is 19%
Special adjustments are made for similar of any applicable double taxation agreement.
in 2012 (with the exception of pension
assets acquired under finance leases.
and investment funds where it is 5%).
WITHHOLDING TAX
Tax Losses
Capital gains are generally included in The standard Czech withholding tax
income and taxed at the same rate, including Tax losses can be carried rate is 15%. However, the rate can be
income from the transfer of shares in Czech forward for five years. reduced by double tax treaties.
companies or cooperatives. However, if at
least 10% of the shares of a company is held Losses may not be carried forward on a Dividends
by a parent company for 12 months, income substantial change in the ownership of a
Withholding tax applies on all dividends
from sale of the shares is tax exempt if the company unless it can be shown that at
paid by Czech companies.
parent company is a Czech tax resident, least 80% of the company’s revenues are
an EU resident company or a resident of derived from the same activities as those
Norway or Iceland and the subsidiary is Under the EU Parent/Subsidiary Directive,
carried on in the period when the loss
tax resident in an EU Member State or a dividend paid by a Czech subsidiary to
arose. A change of at least 25% in the
a non EU Member State with which the a parent company that is tax resident in
ownership of the registered capital or the
Czech Republic has concluded a Double an EU member state may be exempt from
voting rights, or a change resulting in a
Tax Treaty (subject to certain conditions). withholding tax. These provisions also
person obtaining a controlling influence in the
apply to dividends paid between Czech
company, is always a substantial change.
companies and paid to Switzerland, Norway
As of 1 January 2012, the Czech Republic
and Iceland. A parent and subsidiary
has 77 bilateral double tax treaties. As a rule, Tax losses are available after a merger or
qualify for this exemption if a minimum
the right to tax capital gains is conferred on de-merger, although they only can be offset
shareholding of 10% is maintained for
the state of residence of the seller. However, against profit on the same activity as was
an uninterrupted period of 12 months.
a number of double tax treaties provide a carried on in the year when the tax loss arose.
special regime for the capital gains if the
shares being sold derive more than 50% of Interest and Royalties
Thin Capitalisation
their value directly or indirectly from real Withholding tax applies on interest,
estate (e.g. those with Australia, Cyprus, The thin capitalisation provisions act to
royalties and lease payments paid
Egypt, Finland, France, Ireland, Canada, restrict the deductibility of interest where
abroad, although the rate is reduced
Sweden, USA). In such cases, the taxing the borrower has insufficient equity.
to 5% for finance lease payments.
right belongs to the state where the real
estate is located. In other cases the taxing The following financial costs
Under the EU Interest and Royalties
right belongs to the state of residence of are nondeductible:
Directive, qualifying interest and royalty
the company whose shares are being sold payments between associated enterprises
>> Financialexpenses on loans and credits
(e.g. those with Germany and Israel). which are tax resident in the EU member
received from related parties which are
states may be exempt from withholding
There are no corporate tax grouping more than four times the equity (or more
tax. This also applies to recipients in
provisions in the Czech Republic. than six times the equity in the case of
Switzerland, Norway and Iceland.
banks and insurance companies);
Tax Depreciation Residents of other EU and EEA countries
>> Financial
expenses incurred on credits
For tax purposes, either straight-line or have the option to file a tax return in respect
and loans with interest rates or other
reducing balance depreciation can be of income subject to withholding tax (e.g.
returns dependent on the debtor’s profit.
used. The tax depreciation period for interest payments, royalties, income from
buildings is generally 30 years except for freelance work), and to claim a deduction of
Interest on loans and credits received
administrative buildings, shopping centres the related expenses. This may result in a
from unrelated parties, or those secured
and hotels where the depreciation period reduction in the tax burden as withholding
by a related party, are fully deductible on
is 50 years. Special rates apply in the year tax is calculated on a gross basis.
general principles, except for interest on
of acquisition. Land is not depreciated for “back-to-back” loans (i.e. where a related
tax purposes. Certain assets attached to a REAL ESTATE TAX
party provides a loan, credit or deposit to
building can be treated as separate movable an unrelated party, which then provides Real estate tax comprises land tax and
RESEARCH & FORECAST REPORT | 2012 | CZECH REPUBLIC | TAX SUMMARY
building tax. The property must be located in to buildings acquired before 1 March 2011.
the Czech Republic and recorded in the Land
Register. The real estate tax is calculated The transfer of land is VAT exempt except
on the area multiplied by the tax rate. for the transfer of building land, which is
subject to 20% VAT. The lease of buildings
The rate varies according to the type and and land is generally VAT exempt but the
location of the property. The basic rates of lessor can opt to charge 20% VAT on a lease
tax applicable to buildings may be increased with a tenant which is registered for VAT.
depending on the number of floors and the
location. Municipalities can also issue a decree Groups of related companies
increasing the basic tax rate or coefficient. can form a VAT group.
From 2012, improved land surfaces are From 1 January 2012, construction
regarded as a separate class of real estate work and building assembly services
on which a special rate of tax applies. between two Czech VAT payers are
subject to the ‘reverse charge’ regime.
REAL ESTATE TRANSFER TAX As a result, the duty to report and pay the
VAT rests with the service recipient.
A 3% real estate transfer tax is payable
on the transfer of ownership to real
ADMINISTRATION OF TAXES
estate for consideration. Generally the
tax is paid by the transferor (seller), Tax administration is governed
with the buyer guaranteeing the tax. mainly by the Tax Code with specific
procedures provided by other acts.
The tax base is the higher of the
market value (according to the
Valuation Act) or the sales price.
The contribution of real estate to share capital

is exempt from the tax unless the contributor
sells all shares received within five years. FOR MORE INFORMATION ON REAL ES-
TATE SERVICES IN THE CZECH REPUBLIC,
VALUE ADDED TAX (VAT) PLEASE CONTACT:
The reduced VAT rate is 14% and
the standard rate is 20%. Eva Doyle
Partner
The sale of residential property that qualifies
as social housing is subject to the reduced KPMG in the Czech Republic
VAT rate. To qualify as social housing, an Pobrezni 1a, 186 00
apartment should have a floor area of 120 Praha 8
square metres or less and the floor area of Czech Republic
houses should not exceed 350 square metres.
T: +420 222 123 564
The VAT rate on the sale of buildings is M: +420 602 738 591
generally 20%. The transfer of buildings E: evadoyle@kpmg.cz
is exempt from VAT once three years has www.kpmg.cz
passed from the first approval for use of the
premises or after the first use of the building.
If the acquisition of a building is subject to

VAT, this can be recovered if the building
is used to generate VAT-able sales. The
recovery is limited if it is used to wholly or
partly make VAT exempt sales. A change in
the level of exempt sales within ten years
of acquisition of the building may lead to a
claw back of previously recovered input VAT.
A claw back period of 5 years is applicable
RESEARCH & FORECAST REPORT | 2012 | GREECE
GREECE
RESEARCH & FORECAST REPORT | 2012 | GREECE | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
RECENT TRENDS Offices: The development pipeline of office
stock has been kept at low levels even with
Politics: The political situation in Greece is
lower absorption from tenants, as many
rather uncertain and unstable. The socialist
relocation projects were put on hold. Vacancy
party (PASOK) launched a five year austerity
rates have increased, while demand has
program on June 29th, 2011 with new taxes
decreased. Net effective rents have seen a
and spending cuts in order to avoid default.
drop of up to 27.0% on secondary locations,
The combination of austerity programs and
thus increasing the difference between Grade
the general economic situation, has Greece
A office space and lower quality space.
facing general strikes, demonstrations and
protests. Currently the country is ruled
Retail: The average reduction in turnover is
by an affiliation of three political parties
more than 40.0% compared to previous years
(PASOK, ND & LAOS) with the main task
to finalize the negotiations for PSI and lead
MARKET PROGNOSIS
the country to elections in the Spring.
Politics: The political situation is
Economy: Greece has nearly completed a unlikely to change in 2012. There is high
TRENDS 2012 year and a half of robust fiscal consolidation uncertainty as to whether the structural
and structural reform programs supported reforms the government has launched
GDP GROWTH by financial assistance from the Eurozone will succeed. Even if the country goes
countries and the IMF. On July 22nd, 2011 into elections, under the pressure of
PRIME
the European Union agreed to provide needing to meet scheduled reforms, the
PRIME
OFFICE RENTS an additional loan while private sector policies would not change drastically.
YIELDS
lenders accepted a 20.0% haircut. The
government announced a property tax to Economy: Austerity reforms are not expected
earn additional revenues which is expected to mature before the end of 2012 while the
to negatively impact the real estate market. results of deregulation, privatization and the
On October 27th, 2011 the summit of the reduction of state services are expected to be
EU agreed to a 50.0% haircut on Greek realized between 2012 and 2013. The updated
bonds and additional bailout funds to medium term economic stability program as
TRANSACTION PRIME SC
support the economy. However, with its discussed on October 27th anticipated the
VOLUMES RETAIL RENTS
fiscal consolidation and structural reform haircut of Greek Bonds by 50.0% and the
programs under implementation, plus the decrease in Greek government debt by €100
€130 billion financial assistance package billion. Within this context, Greece expects
from the Eurozone countries and the IMF, to improve its fiscal account and restart
Increasing Greece has entered into a painful adjustment economic growth in the next few years.
Stable
process, severely reducing public spending
Decreasing
from the expense side and increasing direct Office: The relocation of multinational and
and indirect taxes from the income side. local companies to secondary locations,
away from traditionally demanded areas
Investment: Investment volumes decreased such as the CBD, in order to achieve lower
during 2011. The Greek market turned rental levels and better quality space will
into a buyer’s market as a result of the be evident in the forthcoming months.
lack of financing. The buyer interest Lease renegotiations and subleasing will
that existed primarily came from local also dominate the market in 2012.
private investors looking for bargain
deals and distressed properties providing Retail: The market will change given
typically high returns on equity. the financial circumstances, with a lot
of high street units expected to stay
vacant for a long period of time.
RESEARCH & FORECAST REPORT | 2012 | GREECE | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY further reduce disposable income levels and
2010 2011 2012 the consumption power of households.
Currently, Greece is under an austerity
GDP % -3.50% -5.50% -2.80% restructuring program with financial support
CPI % 4.71% 2.97% 1.03% Growth in industrial production remains
from the EU and International Monetary
Unemployment % 12.46% 16.48% 18.49% low however there are signs of recovery
Fund. The programme is one of severe
as industrial orders have turned positive.
Source: IMF/CIA World Fact Book/FocusEconomics austerity and has affected the markets.
Population 10 787 690 During the past few years, Greece has
Top 3 Cities 4 079 564 37.82% The Greek government, in accordance with
lost its competiveness. Public sector
Athens 3 074 160 28.50% the Medium Term Fiscal Strategy 2012-2015,
spending increased beyond sustainable
Thessalonika 790 824 7.33% is trying to take the necessary steps to reduce
levels while CPI also increased to
Patras 214 580 1.99% the government deficit. On the latter point
unhealthy rates. Due to the recession,
the ongoing ‘haircut’ negotiations will drive
labour costs and inflation have decreased,
the gap between the primary and overall
Economic Make-up leading to a more competitive market.
deficits. With regard to the primary deficit, it
Sector GDP Labour
will move into positive territory in 2013 and
Agriculture 3.3% 12.4% PROGNOSIS
from then on, public demand can expand
Industry 17.9% 22.4%
supporting GDP growth and sustainability. GDP growth is expected to be negative
Services 78.8% 65.1%
(-2.5%) in 2012, according to the preliminary
According to the Ministry of Finance, the budget of the central government.
recession in 2011(-5.5%) will be worse
GOVERNMENT BOND & PUBLIC than in 2010 (-4.8%), and grew larger However, growth is expected to be witnessed
DEFICIT than initially expected at the beginning of after 2012 following the restructuring of the
180%
2011 (-2.6%). Other unofficial forecasts economy and increasing competitiveness.
160%
outline a figure close to -7.0%.
140%
The extent to which this scenario is
120% Unemployment has risen to 17.7% (Statistics, realized will greatly depend upon the
100% December 2011) while inflation is currently ability of the Greek government to retain
80% at 3.3% with decreasing trends. and build confidence among international
60% investors and the money markets, as it
40% The public deficit is expected to reigns in government debt and deficits.
20% amount to 9.4% in 2011 and 6.8% in
0%
2012, according to the preliminary This could prove to be positive for the
budget of the central government. real estate industry, with the government
2006
2007
2008
2009 temp)
2010 (temp)
2011 (temp)
recently announcing ‘renewed’ plans to

The recent announcements of significant sell government owned and occupied real
Government Debt cuts to public sector pensions and salaries estate and land holdings to raise capital.
Public Deficit as well as increasing income tax rates will
Source: Hellenic Statistical Authority
GOVERNMENT BOND & PUBLIC

DEFICIT
20%
15%
5%
0%
-5%
-10%
2008
2009
2010
2011
GPD Growth
Unemployment
HCPI
Source: Hellenic Statistical Authority
RESEARCH & FORECAST REPORT | 2012 | GREECE | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures - Greece SUMMARY Due to a lack of comparable evidence and
Investment Turnover €82.5 million the limited amount of deals in H1 2011,
Investment volumes dropped to historical
Prime Office Yields 7.75% there is an uncertainty regarding yields and
lows in 2011 since the recession affected the
Prime Retail Yields 7.5% pricing. Prime yields are estimated to be
investment market harder than the rest of
Prime Industrial Yields 9.5% around 7.75-8.0% for office, 9.5-10.5% for
the economy. The majority of investors were
industrial and 7.25-7.5% for retail properties.
on standby mode until potential investment
products reached distressed levels.
PRIME (NET INITIAL YIELDS) Secondary property yields have increased
more as these properties were seen as
10% The Greek investment market was
more risky and less desirable transactions.
characterised by an imbalance between
8% It is more difficult to source the necessary
demand-side requirements and supply-
funding to acquire such assets.
6% side expectations. A combination of
these factors resulted in a limited
4% PROGNOSIS
amount of deals being made.
2% 2012 is expected to be challenging given
0%
On the supply-side, the majority of vendors the limited availability of equity in the
in Athens, who had their properties on market to finance large projects, which
Office
Retail the market before the crisis, withdrew will result in smaller transaction sizes. The
SC Industrial their offers, continuing to wait for the bulk of investors will continue to depend
Source: Colliers International investment market to pick up again in order on debt, which may take some time to
to be able to achieve ‘yesterday’s prices’. materialise. That said, 2012 will see the
INVESTMENT VOLUME (€MILLION) For some, this may not happen, but they privatization of state-controlled assets. These
have been able to afford to wait as their projects will regenerate the investment
200
180
properties continued to generate income. environment and mobilize the market.
160
140 On the demand side, buyer interest came The general belief is that yields will trend
120
100 from private, local investors looking for upwards in 2012, driven by the cost of
80 bargain deals and distressed properties in money. Yields are anticipated to rise
60 order to earn high returns on equity. Of those more significantly in secondary properties
40
20 investors with equity, most were not ready located in submarkets. This is also evident
0 to assume an all equity investment risk. from the decreasing rental figures.
2006
2007
2008
2009
2010
2011
These investors will continue to bide The most sought after assets will
Source: Colliers International their time, anticipating forced sales. The continue to be core office properties
decline in the volume of European bank in prime locations in Athens with long
debt and anticipated rise in debt costs leases and strong tenant covenants.
may eventually begin to force some sales
onto the market over the coming year.
RESEARCH & FORECAST REPORT | 2012 | GREECE | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Athens SUMMARY m2 of space is occupied by the public sector.
Total Stock 6,860,000 m2 As a result of public sector downsizing,
A decrease in new modern office supply in
Take-up 42,000 m2 the vacancy rate will further increase.
Athens and a slowdown in leasing activity
Vacancy 16% were key trends in 2011 mainly due to the
Prime Headline Rent €14 m2/pcm The volume of planned developments in
decline of GDP and economic uncertainty.
H2 2011 has significantly fallen mainly due
to the limited interest of users. Therefore,
Lease renegotiation dominated the market,
the majority of office buildings constructed
resulting in higher vacancy rates.
RENT VACANCY MARKET INDICATORS were either pre-leased or built for a specific
€/m2 client, as many developers did not want
The amount of office space under
35
to risk having their building sit vacant.
14% construction has fallen dramatically due
30 12% to the lack of funding; preleases have also
DEMAND
25 10% dropped significantly in the office market.
20 8% Demand deteriorated in 2011 as the recession
15 6% A large differentiation in rents was noticed impacted the business of international
10 4% between Grade A space and lower quality companies entering the Athenian market.
5 2% office space, although in both cases
0 0% rental rates have fallen considerably. Demand was mainly driven by relocations
of multinational and local companies
2006
2007
2008
2009
2010
2011
Athens CBD, Kifisias Avenue and Syngrou trying to consolidate their facilities and
Avenue remain the preferred relocation achieve smaller and better quality space
Prime Headline Rent options for office users. The National Road at a lower cost. Renegotiations of existing
Average Headline Rent of Athens – Lamia is also picking up interest lease agreements accounted for 40.0% of
Vacancy Rate mainly due to its lower rental rates. take-up in H1 2011. The same pattern was
Source: Colliers International noticed in H2 2011 with lease renegotiations
Landlords, especially those with reaching 35.0% of the total office take-up.
TAKE-UP COMPOSITION properties in the main submarkets of
5% Athens, are offering incentives in the Traditionally popular areas in Athens,
form of rent free periods and fit out like Kifissias Avenue, Attiki Odos and
32% contributions in order to secure tenants. Athens/CBD have been the main focus
of tenants. However, tenant demand
SUPPLY was for cheaper rentals and more
efficient use of space (fewer m2).
In 2011, particularly in H2 2011, leasing
activity in Athens slowed down, development
A number of landlords proceeded with
54% activity significantly decreased and the
offering incentives such as stepped
9% supply of vacant space increased.
rents and leasehold improvements in
order to attract and retain tenants.
The supply of Grade A office space in Athens
Expansions
remained limited. Total office inventory in
New Leases Several lease transactions during
Athens is estimated to be around 6.5 million
H2 2011 in Athens did not surpass
Relocations from B-class m2, of which only 20.0% or 1.5 million m2 is
3,000 m² of office space.
Renewals & Renegotiations
of a high-quality. Approximately 1.5 million
RESEARCH & FORECAST REPORT | 2012 | GREECE | OFFICE MARKET
VACANCY / AVAILABILITY Athens/CBD prime office building rents,

CHANGE IN VACANCY RATE OVER TIME which competed for premier office reached
Occupiers seeking expansion were few and
14% as high as €27 m2/pcm although this
far between and the number of leasing deals
12% was rare and most buildings of good
has fallen significantly. In addition to the
10% quality offer space at €24-27 m2/pcm.
market dealing with the self-evident crunch,
8% it is also contending with the availability of
6% In the less attractive sub-markets such as
free office space in all major locations.
4%
Athinon Avenue, National Road Athens-
Lamia, and Peireos Avenue, office rents
2% The northern and southern submarkets of
currently stand at around €11-15 m2/pcm.
0% Athens comprise almost 70.0% of total office
stock. Vacancy rates in these sub-markets
2006
2007
2008
2009
2010
2011
PROGNOSIS
for Grade A buildings stand at 13.0%.
We expect lease renegotiations to dominate
Vacancy rates for Grade A office buildings the market in 2012, while uncertainty will
KEY OFFICE TRANSACTIONS are estimated at 8.0% for CBD and at lead to a “hold” on any expansion projects.
10.0-12.0% for Kifisias Avenue.
TENANT SIZE (m2) AREA
The driver of relocations will mainly
Kraft Foods Hellas 3,800 m2 N. Hrakleio
RENTS focus on ‘downsizing’ occupancy in
BBDO 2,000 m2 Chalandri newly leased premises in order to
Dupont 1,000 m2 Chalandri As demand falls and the supply of
reduce operation costs for occupiers.
Hewlett Packard 2,800 m2 Chalandri disposable office space increases, prime
rental values in Attica have dropped.
The upcoming year will also be dominated by
Source: Colliers International strong sub-leasing activity. Kifisias Avenue
The decrease of rental rates over the
and Athens CBD are expected to be the focus
last six months has declined by almost
TAKE-UP ACTIVITY BY LOCATION of most sub-lease activity in the market.
10.0% for new build office complexes
16% located on the main office avenues.
30% Vacancy rates should remain stable for
prime office locations as demand tends
On Kifissias Avenue, the benchmark location
to be concentrated in these areas. This
9% for office prices, prime asking rents were on
should also create stable prime rents.
average €18 m2/pcm for new built properties
and €14-16 m2/pcm for older properties.
Vacancy rates and rents in secondary
sub-markets, however, are expected to
On Syngrou Avenue rental values for
worsen by approximately 10.0% to 17.0%.
prime office space range from €14 m2/
pcm to €16 m2/pcm. Along the Attiki Odos
There will be limited construction of new
motorway, an area that changed the real
45% office premises in 2012, given the requirement
estate map, registered office rents that
CBD of new developments to be pre-leased.
ranged from €12 m2/pcm to €14 m2/pcm.
Northern Suburbs
Southern Suburbs
National Road
RESEARCH & FORECAST REPORT | 2012 | GREECE | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Athens SUMMARY Despite the fact that Ermou Street is still
Total Shopping Centre one of the worlds most expensive high
406,500 m2 Commercial sales activity decreased by over
Stock streets, retailers continued to express
50.0% in 2011 across retail sectors such as
Prime Headline SC Rent €45 m2/pcm their desire to secure a presence in
clothing and shoes. Nevertheless, the request
Prime Headline High this prestigious retail market.
€160 m2/pcm from international retailers for stores of
Street Rent
1,200 m2 and above in the central markets
Ermou had many empty stores by H2
Source: Colliers International of large cities such as Athens, Thessaloniki,
2011, which are not expected to be
Patras, Larissa, Heraklion, remained stable.
leased during 2012. Vacancy in high-
RETAIL RENTAL VALUES street stores was also a growing trend
€ Retailers are now demanding ‘turn key’’
in the centre of Athens in H2 2011.
0.90 solutions on new properties and also
0.80 requested to pay only turnover rent.
0.70 According to market data, up to 30.0% of
0.60 small and medium-sized store owners put
New requests from large space users,
0.50 their properties up for lease, a number that is
0.40 for space in smaller cities (40,000 to
expected to grow by up to 40.0% in H1 2012.
0.30 80,000 inhabitants) such as Trikala, Volos,
0.20 Alexandroupolis, Patras increased in 2011.
0.10 DEMAND
0.00
Prime SC Prime Prime
Demand to lease space in shopping malls Demand is focused on large stores
High Street Retail Outlets remained high. Retailers had limited options in central market locations. Shopping
Source: Colliers International as only one new development opened in centres and retail parks have become
Greece in H2 2011 (Phase I of Smart Park). the preferred format of foreign and local
NEW MARKET ENTRANTS retailers. Fashion and home wear stores,
OR DEVELOPMENTS Rental prices in central high street areas restaurants, bars and supermarkets were
TENANT SIZE PROJECT DEVELOPER decreased without any key money requested. all looking for opportunities to expand
(m2) in these attractive developments.
Shopping High street rents decreased by 10.0% to
16,500 River West Viohalko 15.0% between H1 2011 and H2 2011. Prime Demand for space on prime high street
Centre
Outlet McArthur McArthur shopping centre rents were around €40 m2/ locations decreased in H2 2011.
21,000
Centre Glen Glen pcm to €45 m2/pcm. High street rents were in
the region of €140 m2/pcm to €160 m2/pcm. PROGNOSIS
Given the economic crisis we expect a
SUPPLY
further decease in consumption. As a result,
Demand for shopping centres and designer the retail sector will be negatively affected
outlets was still high. The same cannot be by lower disposable household incomes.
said for high street locations. The first phase
of Smart Park opened in Athens in H2 2011.
RESEARCH & FORECAST REPORT | 2012 | GREECE
COLLIERS RESEARCH
GREECE: Yield = first years’ net income/purchase price (prior to deducting fees and taxes).
Katerina Dimou period, the quoted figure will be more hypothetical, based on expert opinion of market
Syngrou 70 & Drakou Street 2
Koukaki, 117 42 a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
Athens either the rent-free period or fit-out contribution available at the time of the survey date.
Greece Average Headline Rent: Average Headline Rent represents the average open-market tier of
TEL +30 210 6832440
TEL +30 210 6813075
FAX +30 210 6832351 Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
EMAIL greece@colliers.com
RESEARCH & FORECAST REPORT | 2012 | HUNGARY
HUNGARY
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
DEAR COLLEAGUES AND FRIENDS, At Colliers, we saw the departure of
some long-serving colleagues, enabling
2011 lies now behind us and
younger ones to grow into new roles.
what a year it became!
2012 will be another very challenging
On the back of the strong recovery of the
year, with the fundaments of our banking
German economy, Hungarian industrial output
system cracking and lots of uncertainties
rose, which was the good part of the story.
in the corporate world appearing.
It was the internal economy which gave
But it will also give us opportunities and we
us headaches, with consumer spending
will start new business lines like property
down, people suffering from high
management and green consultancy, and
mortgage burdens and companies and
we will keep on doing things with the spirit
the government laying off employees.
and energy you are used to from us!
The unconventional political measures by the
Best Regards,
new government did not give the expected
TRENDS 2012 boost to the economy and later in the year
became a reason for the international
GDP GROWTH community to start losing trust in Hungary.
Tim Hulzebos
PRIME PRIME
OFFICE RENTS Despite all these factors we performed
YIELDS Managing Director
well, with a strong second part of the
year. We were involved in two big
Colliers International Hungary
investment deals, a 15,000 m² office lease
and a healthy number of transactions
in the retail and industrial markets.
PRIME INDUSTRIAL RENTS
Increasing
Stable
Decreasing
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY private corporations to raise net wages by 5%
2010 2011 2012 beyond inflation levels in order to compensate
Hungary appears to have a stable business
GDP % 1.20% 1.80% 0.50% the negative effect of the flat income tax.
environment, but the standoff between the
CPI % 4.85% 3.70% 3.00% The aforementioned issues have led to great
Hungarian government, the IMF and the
Unemployment % 11.24% 11.25% 11.00% uncertainty in medium-term planning models.
EU will likely bring a heightened level of
Source: IMF/CIA World Fact Book/FocusEconomics uncertainty in the first few months of 2012.
Hungary’s economic growth is closely tied to
Population 9 979 000
trade with its regional partners where by 75%
Top 3 Cities 2 111 976 21.16% The Hungarian government demonstrated
of GDP is linked to export. In 2015, exports,
Budapest 1 733 685 17.37% a willingness to change most of the laws
as a percentage of GDP, are expected to
Debrecen 208 016 2.08% that received criticism from the European
grow to 82%, with 26% going to Germany.
Szeged 170 275 1.71% Union over a controversial law.
In 2011, (€) exports and imports grew by
Economic Make-up
More than 80% of the population is
12.8% and 11.4% y-o-y, while the trade
Sector GDP Labour
unsatisfied with the current situation (and
balance showed a surplus of HUF 1,843
also the government), and expects things to
Agriculture 2.4% 4.7% billion. This was an improvement of HUF
get even worse in 2012. This significantly
Industry 36.9% 30.9% 442 billion over the same period in 2010.
narrows the political and economic
Services 60.7% 64.4%
elbow-room of the government, thus also
Source: IMF/CIA World Fact Book/FocusEconomics FDI continues to increase, but the growth in
steering it toward reaching an agreement
foreign investment may be as a consequence
KEY ECONOMICS INDICATORS with the IMF/EU as soon as possible.
to investment decisions made in the past
15% three years as opposed to new FDI. The
Key economic indicators have remained
10% repercussions of the one-off “crisis tax”
fairly stable following the financial
on Hungary’s future FDI inflows remains
5% crisis. The unemployment rate sat just
to be seen this early in the year.
0%
above 10% in 2011 and is expected to
decrease over the next couple of years.
-5% At the same time, the introduction of REITs in
Hungary may boost real estate investments
-10% In order to boost the budget deficit, which
in the country. The current low value of
widened after revenues decreased following
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
properties, due to low rent levels and high

the implementation of the flat tax, the
Gross domestic product, constant prices yields, makes Hungary an attractive real
government imposed a one-off ‘crisis tax’ on
Inflation, average consumer prices estate investment destination for investors.
Unemployment rate the energy, retail and telecom sectors to fill
Source: IMF, Focus Economics
the revenue shortfall. The government also
looked to raise the minimum wage and wanted
BUSINESS ACTIVITY
15%
10%
5%
0%
-5%
-10%
-15%
-20%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Industrial Production (annual %)
Retail Sales (annual var. in % aop)
Source: Focus Economics
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | ECONOMIC OVERVIEW
KEY EXCHANGE RATES PROGNOSIS

(MONTHLY AVERAGE)
350
The government’s expansionist economic
strategy and its reluctance to impose
300 structural reforms and austerity measures to
250 its spending led to an unorthodox measure
200
that has put its laws at odds with the EU’s
directives on lowering the country’s fiscal
150 deficit. One of its more controversial laws
100 was the de facto nationalisation of pillar 3
pension funds. This, coupled with the bank
2008 January
May
September
2009 January
May
September
2010 January
May
September
20011 January
May
September
tax, has heightened uncertainty over the

Hungarian economy leading to a downgrade
on Hungary’s credit rating to non-investment
USD grade, by all major rating agencies.
EUR
CHF
Currency risk will prevail as an economic
Source: Hungarian National Bank(MNB), 2012
trend in 2012 as the Hungarian Forint (Ft)
continued to depreciate against the Euro and
the U.S. Dollar. This will impact consolidated
balance sheet values and reported
performances of foreign investors in Hungary.
Given the vicissitudes of the Hungarian

economy, a short term outlook may be
unreasonable however, it is fair to say that
Hungary, similar to other CEE countries such
as Poland and the Czech Republic, will not be
joining the Euro in the short to medium term.
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | INVESTMENT MARKET
INVESTMENT MARKET
SUMMARY PROGNOSIS
KEY INVESTMENT FIGURES
– HUNGARY The total investment transaction 2012 will have a rough start as market
METRIC MEASURE volume in Hungary in 2011 was €650 players adopt a wait-and-see attitude until
Investment Turnover €650 Million million, in comparison to 2010 when the country’s negotiations with the IMF/EU
Prime Office Yields 7.5% the value of investment transactions conclude. Hungary remained an attractive
Prime Retail Yields 7.5% was less than €200 million. investment destination, with potential buyers
Prime Industrial Yields 9% willing to view properties but expected
Source: Colliers International H1 2011 saw a large number of transactions, a yield premium in order to transact on
but it was in H2 2011, where two large a deal. The investment sentiment could
INVESTMENT VOLUME (€ MILLION) benchmark office transactions occurred improve, once ongoing government talks
helping to boost the overall annual with international institutions (EU and
2500
transaction figure. Investment transactions IMF) come to a resolution by H1 2012.
2000 were made up of local and international
1500
deals, such as the Europolis – CA Immo The two Heitman deals in 2011 were
transaction (€127 million) and the sale of encouraging with respect to investment
1000 two premium hotels, the Intercontinental prospects in Hungary. This level of
500
Hotel (circa €50 million) and the Four investment may help lead the way for
Seasons Gresham Palace in Budapest. other cross-border institutional investors
0 to return to the market this year.
Four core deals transacted in H2 2011
2005
2006
2007
2008
2009
2010
2011
including the sale of an OBI retail property Banks may increasingly be motivated
in Budapest (€15 million), the Raiffeisen to sell their real estate assets in 2012,
back office building (€27 million) and after refining their real estate strategies
PRIME (NET INITIAL) YIELDS two landmark office deals in the last few as owners over the past two years,
10% weeks of 2011. Heitman European Property helping to drive investment volumes.
Partners acquired a portfolio of offices
9%
from Aviva and TriGranit in two separate
8% deals exceeding €100 million each.
7%
Prime yields for quality office and
6% retail buildings remained at 7.5%, while
“theoretical prime” industrial yields
5%
were between 9% and 9.5%. Yields are
H1 2006
H2 2006
H1 2007
H2 2007
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
expected to remain unchanged in 2012.
There was also interest in prime retail

Office properties and single-tenant big-box
Retail units such as an OBI or a Tesco outlet
Industrial that were seen as safer investment
Source: Colliers International prospects in the current environment.
INVESTMENT VOLUME PER SEGMENT Securing financing remained difficult in 2011

as banks were only willing to lend to proven
18% 18% buyers for projects in core, high quality
buildings at lower LTV ratios than in previous
years. This is not expected to change until the
9%
economic outlook for the country improves.
55%
Retail
Office
Industrial
Hotel
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Budapest SUMMARY Take-up during 2011 showed strong demand,
Total Stock 1,807,450 m2 with the volume of new lease transactions
Budapest’s industrial real estate market
Take-up 35,108 m2 estimated to be around 150,000 m2, which
performed in line with expectations in
Vacancy 20.9% is essentially in line with 2010 figures.
2011, showing stable and balanced activity
Prime Headline Rent €4 m2/pcm Within this, expansion of existing tenants
at a relatively restrained level. Supply and
comprised 47,351 m2, or around one-
Source: Colliers International demand, as well as rents, were mostly stable
third of all new contracts, while pre-lease
during the year, with a slight improvement
transactions amounted to nearly 12,000 m2.
CHANGE IN STOCK OVER TIME noticeable toward the end of the year.
(MILLION M2) Large-scale transactions remained few
2.0 In line with Colliers’s forecast,
and far between on the market, as logistics
speculative developments decreased
companies are still not active players on the
1.5 sharply in 2011, while demand was
demand side at present, thus there were only
largely similar to the previous year.
a few deals for space of more than 5,000 m2 .
1.0
Regarding the data presented in this report,
0.5
However, on a positive note, there were an
we note that it is based mainly on the figures
increasing number of transactions in the
of the Budapest Research Forum (BRF)*.
0 3,000–5,000 m2 range compared to 2010,
thus the average size of lease transactions
2000
2002
2004
2006
2008
2010
SUPPLY
also increased a little in Colliers’s view.
*the stock growth from H2 2010 to H1 2011 is due Supply remained virtually unchanged during
to the BRF harmonisation.
2011, with only one building of 10,100 m2 Similar to previous years, there were also
Source: Colliers International delivered in the second half of the year in many renegotiations and extended leases last
pre-lease transactions. Thus, the overall stock year. The volume of these deals amounted
of industrial space built for lease in Budapest to around 176,600 m2 in 2011 according
TOTAL SIZE OF NEW CONTRACTS and its vicinity stood at 1.807 million m2 ** to our calculations. While this remains a
(NEW, EXPANSION AND PRE-LEASE) at the end of 2011. The stock consists of significant proportion of the market, new
THOUSAND M2 around 90% “big box” buildings, while city lease transactions have all but caught up
350 logistics projects make up the remaining 10%. to it in volume compared to previous years
300 when renegotiations at times amounted to
250 Developers continue to be quite passive double or even triple that of new contracts.
200
toward the market, holding to the position
150
that they will not launch new projects until Overall, the lease market is showing
100
there is limited vacant space on the market. strong activity, with many firms looking
50
However, there is ample available vacant land for adequate space and scouting for
0
capacity, so if there is demand, they would be opportunities, but staying cautious and thus
2005
2006
2007
2008
2009
2010
2011*
able to react quickly to market developments leaving much of the demand unrealised.
* According to BRF and build new buildings relatively quickly.
DEMAND
*Colliers rejoined the organization last year, but the full harmonisation and updating of the data and the methodology of
calculations (even within the BRF) has not been completed yet; this process is expected to be finalised in the near future.
**The Colliers monitored stock has been modified based on the BRF. So the stock growth from H2 2010 to H1 2011 is due to the harmonisation.
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | INDUSTRIAL MARKET
VACANCY PROGNOSIS
GRADE A OFFICE STOCK ABSORPTION
AND VACANCY In addition to new leases and tenant For 2012, we expect that the trends seen
,000 m2 expansions there was also a certain amount last year will continue this year as well
of industrial space becoming vacant in without any significant changes, with the
2 500 25%
2011, thus overall net absorption on the market continuing to show relative stability
2 000 20% market was slightly negative at -14,011 m2. at a low level of transactional intensity.
1 500 15%
The vacancy rate decreased slightly There are no significant new speculative
1 000 10% compared to the middle of 2011, falling developments expected at present, while
500 5% from 21.76% at the end of June to around take-up is not seen to significantly increase
20.9% by the end of the year. Within either compared to 2011. Vacancy may
0 0% this, occupancy at logistics parks was show a continued slight gradual decline
higher (79.8%) than in stock belonging toward the 20% mark this year.
2004
2005
2006
2007
2008
2009
2010
2011*
to the city logistics category (72.5%).

Vacant Space
On a macroeconomic level, much also
Vacancy Rate
The amount of empty space available is still depends on the outcome of government
fragmented in Budapest and its vicinity. talks with the EU and the IMF, with the
* the stock growth from H2 2010 to H1 2011 is due
to the BRF harmonisation While it is relatively easy to find 1,000–4,000 uncertainties relating to the country’s situation
Source: BRF / Colliers International
m2 of leasable space, there are only a few having a visible effect on transactional
locations where more than 10,000 m2, decisions in the case of fresh, larger deals.
and specifically where more than 15,000 A successful resolution to the matter
m2, of continuous space is available. would help restore market confidence and
provide support for the industrial property
RENTS/ TRANSACTIONS market, while an increase in consumption
would also help the FMCG segment, a
Rents did not show any visible change
major player in this real estate sector.
last year, as offered headline rents
for big box buildings remained stable,
generally in the €3.2–3.8 m2 /pcm
range, while the rate for city logistics
buildings was around €5 m2 /pcm.
However, there have been some examples

in the case of certain projects where
prices seem to be showing a slight upward
movement and owners are starting to show
less flexibility in relation to contract terms.
The market for industrial property and

land sales transactions continued to show
virtual inactivity in 2011. There remains
some interest toward smaller plots and
smaller, good quality industrial buildings
and warehouses, but there continues to be
little demand for larger development plots or
facilities. Some increase in interest towards
production halls is also visible, especially in
countryside locations and industrial parks.
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Budapest SUMMARY agreed to new terms only if the existing
Total Stock 2.6 million m2 contract was based on pre-crisis prices.
The Hungarian office market ended
Take-up 395,106 m2 2011 with record levels of take-up in
Vacancy 23.4% Sustainability continued to play an important
comparison to 2010. As take-up increased
Prime Headline Rent €13 m2/pcm factor in tenant decisions. LEED or BREEAM
and vacancy rates started to decline,
certificates are becoming a must for clients
Source: Colliers International there was a marginal uptick in rents.
looking to rent office space, such as shared
service centres (SSCs). In reaction to the
GRADE A OFFICE STOCK ABSORPTION SUPPLY
shift in demand in favour of environmentally
AND VACANCY Total modern office stock increased by friendly real estate, developers launching
,000 m2 87,500 m2 (including the owner-occupied new projects aimed to achieve green
2 500 30% K&H building in the Millennium City Center), certifications. Colliers has provided advisory
to a total of 3.16 million m2 in 2011. Total services in this area, consulting developers
2 000 25%
speculative stock stood at 2.59 million m2, as well as tenants such as Citibank who are
20%
1 500 with major new completions such as the interested in pursuing sustainability projects.
15% Officium project, the Laurus office building
1 000
10% and the Millennium Tower ’H’ building. VACANCYY/AVAILABILITY
500 5% Net absorption was positive in 2011, resulting
Bank financing remained a key success factor
0 0% in a decline in the speculative vacancy rate
to developers launching new projects. In
from 24.7% at the end of 2010 to 23.4% at
2004
2005
2006
2007
2008
2009
2010
2011
2012*
most cases, financing hinged on pre-leasing

the end of 2011. The total market vacancy
a substantial portion of the project. There are
rate, which includes owner occupied
Class A Competitive Office Stock currently 60 projects in Budapest hoping to
space, dropped from 20.5% to 19.2%.
Absorption sign a large pre-lease of around 5,000 m2 in
Vacancy * Forecast order to have a chance at receiving financing
The vacancy rate in Grade A buildings
Source: BRF / Colliers International and starting development on the project.
dropped, while the vacancy rate in Grade
B buildings increased as several tenants
DEMAND
DISTRIBUTION OF TRANSACTIONS 2011 decided to take advantage of the favourable
100% Total take-up registered just under 400,000 market conditions and trade up by moving
80%
m2, which significantly exceeded take-up in from Grade B to Grade A space.
2010 and was recorded as the highest by the
60%
Budapest Research Forum since its formation. The long-awaited construction of two
40% New tenants and renewals accounted for 80% new projects on the Váci út Corridor
20%
of total demand, while expansions totaled (Váci Greens and Green House) started
64,500 m2 and pre-leases accounted for in H1 2011. This particular Budapest sub-
0% 23,000 m2, both positive signs for the market. market remained an attractive location for
<500 m2
500 - 1000 m2
1001 - 2000m 2
2001 - 5000 m2
> 5000 m2
developers, as approximately 20 planned

Renegotiations played an important role within investments are waiting for a green light
take-up. Data demonstrated that 80% of in the development pipeline, reflecting
large tenants occupying more than 5,000 m2 a lack of office supply in the area.
Renewal of space continued to favour renegotiations (at
New
more preferential terms), rather than moving. RENTS
Meanwhile, tenants occupying less than 1,000
Rents increased slightly in comparison to
m2 of space generally opted to move to a new
2010, with average headline rents for prime
location 75% of the time. However, owners
office space moving up from €12-13 m2 /pcm.
of real estate were not willing to discount
space unequivocally. Landlords generally
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | OFFICE MARKET
PROGNOSIS
MAIN TRANSACTIONS
Take-up is expected to remain strong
TENANT SIZE PROJECT
(m2 ) in 2012, coming in at similar levels
South Buda as 2011, with a moderate increase
Confidential 15,136 in pre-leases but the remainder of
Business Park
Deloitte 4,800 Park Atrium transaction splits staying the same.
L'Oreal 1,600 Obuda Gate
Koreai Kulturalis The speculative office project pipeline is
1,168 MOMentum Offices limited to the Green House (17,500 m2) and
Kozpont
Váci Greens (15,500 m2). Both buildings are
seen as certain to enter the market. While the
former is expected to be completed in late
TAKE-UP COMPOSITION IN 2011
2012, the latter will be delivered in early 2013.
6% The lack of new completions and high levels

39% of absorption will continue to put downward
pressure on the vacancy rate in 2012.
Banks’ continuous demand on high levels
of pre-lease rates to obtain development
financing will also play a factor in the decline
of vacancy rates until at least 2013.
39%
For instance one local developer, Futureal,

announced a project in the Váci út Corridor
16% and has already signed a pre-lease agreement
for 8,500 m2 with KPMG, who will occupy
New Leases
almost half of the building. The development
Expansions is scheduled for completion in Q2 2014.
Renewals
Another project scheduled for 2014 is the new
Pre - Leases
headquarters for PriceWaterhouseCoopers,
developed by Horizon Development in
Source: BRF the Central Business District (CBD).
Rents are expected to show a slight

increase throughout 2012 as the market
continues its sluggish pace of recovery.
Hungarian rents and labour rates are

competitive in comparison to other
European cities, and continue to garner
strong interest from SSCs. Colliers expects
existing SSC’s to expand in 2012 and
new participants to enter the market.
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | RETAIL MARKET
RETAIL MARKET
SUMMARY Market interest from retailers is recovering
KEY RETAIL FIGURES - BUDAPEST from a virtual standstill in the first weeks of
METRIC MEASURE The retail market in Hungary showed
the year, but this experience has showed just
Total Shopping Centre virtual stagnation in 2011, not declining any
1,359,000 m² how sensitive international retail brands are
Stock further from the previous year’s levels but
to negative country perception and economic
Prime Headline SC Rent €63 /m²/pcm also showing no signs yet of a recovering
perspective. Some brands see this as an
Prime Headline trend. As consumption did not expand, but
€105 /m²/pcm opportunity to enter or strengthen their
High Street Rent the number of market players increased,
position on the Hungarian market to prepare
this resulted in smaller slices of the same
for a future when the country risk diminishes
pie of consumer spending for retailers.
and domestic consumption recovers.
CHANGE IN STOCK OVER TIME
The first several months of 2012 will likely see
(MILLION M2) Nevertheless, conditions are expected
a period of uncertainty resulting in downward
1.5 to remain difficult during 2012 with no
pressure on rents. An improvement in
increase projected in domestic consumption
economic conditions will help anchor
until 2013. A number of brands and
1.0 expectations and economic confidence for
especially local partners will probably
the next few years, increase investors’ and
close or leave the country. Exits in 2011
brands’ willingness to enter the country
0.5 included brands such as ElectroWorld,
and also lend support to the Hungarian
Jeans Club, Schlecker and Nordsee.
currency, the depreciation of which has
0 weighed heavily on retail sector participants.
On the flip side, there have been numerous
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
new brands entering the market as well,

SUPPLY AND DEMAND
Specialised Shopping Center Stock taking advantage of relatively low rents and
Traditional Shopping Center Stock Domestic spending showed no discernable hoping to be in a good position to capitalize on
Source: Colliers International change in 2011, with official statistics the recovery when it comes. New brands last
indicating stagnation in retail turnover year included Debenhams, Max Mara, French
in January–November compared to Connection, Hard Rock Cafe and Digidog,
RENTS (€/M2/MO) while brands such as Muller, Starbucks,
the same period of 2010. However,
200 H&M and the Inditex Group companies
December data, reflecting the end-
150
of-the-year holiday boost, could help continued their expansion in the country.
improve the overall statistics for 2011.
100 Newly delivered supply has performed above
According to the Central Statistical Office expectations in the first few months of
50
(KSH), retail sales were up a minimal 0.1% in operations. KÖKI is seeing ample footfall and
0 January–November year-on-year. However, some stores focusing on value shopping are
this figure includes a significant drop in fuel registering exceptional turnover, although
2005
2006
2007
2008
2009
2010
2011
sales, and while sales of clothing and footwear there remain many vacant shops as well.
Prime High Street Rent fell 4% year-on-year, other segments showed The Árkád Szeged has been a success
Prime Traditional Shopping Center Rent solid growth, such as cosmetics (+10%) story, opening in a good location and
Source: Colliers International and books and newspapers (+5.3%). bringing new brands to the city, resulting in
outstanding turnover in the initial period.
2011 saw only a handful of retail centres
opening: these were the 6,000 m2 Europeum ORCO’s landmark Váci1 project has seen
on Blaha Lujza ter, developed by Ablon; three stores with street-level entry open
the KOKI Terminal (47,000 m2) at the (Hard Rock Café, Szamos Marcipan and
metro 3 terminus in Pest; and the Arkad Tatuum), but the opening of the internal
Szeged (41,000 m2) shopping centre locations has been delayed due to a
in the southeastern Hungarian city. change in conception on the part of the
developer. The location itself is now planned
to open in the autumn of 2012, with a
special tourist attraction occupying the
fourth level likely to follow only in 2013.
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | RETAIL MARKET
SUPPLY AND DEMAND (CONT.) €-based leases of the past years, or are
ANNUAL CHANGE OF RETAIL SALES asking for €/HUF exchange rate caps.
AND GDP/ CAPITA (PPP) Budapest’s dominant high streets Váci utca
and Andrássy út remain popular targets
PROGNOSIS
10% for retailers, especially luxury brands, and
8% have seen a pick-up in activity. Several The development of retail turnover in
6% new brands, such as Sinequanone, BOGGI, 2012 is quite uncertain, with a notable
4% Hublot, Pandora, beeLine and Replay, have pickup in activity not expected either
2% opened new flagship stores in 2011 and this year or in 2013. If the general
0% more are expected to come in early 2012 as economic climate in Europe and Hungary
-2% well. Il Bacio di Stile, a luxury multi-brand improves, as does consumer confidence,
-4% department store on Andrássy totaling over then a slight increase is possible.
-6%
3,200 m2, is expected to open in 2013.
-8%
This year is expected to be a watershed
2005
2006
2007
2008
2009
2010
2011
One new factor that will have an effect on for many retailers, with many that have
Retail Sales (annual var. In % aop)
new supply is the so-called “plaza stop” been hanging on so far eventually being
GDP growth on purchase power parity act enacted by parliament, which requires forced to shutter their businesses. The
Source: Hungarian Central Statistic Office, Focus Economics
that all new retail developments with an negative pressure is expected to increase
area exceeding 300 m2 be approved by in every segment, and loss-making shops
a central planning committee. This does will be closed down, as in some cases
not necessarily bode negatively for the even closing a store makes more economic
sector, although it is likely to slow down the sense than staying open in the face of
expansion of discount food stores such as decreasing demand and purchasing power.
Aldi and Lidl that have been on a dynamic Vacancies will especially be a problem
expansion path in the last few years. in retail centres in the countryside.
RENTS Additional pipeline shopping centre supply

is very limited, as in addition to the already
Rents in Hungary remain at generally
mentioned Vaci1, the only expected openings
low and attractive levels, having fallen
in the capital being that of WING’s Hegyvidek
between 10–30% over the last two years,
Centre, a small, 7,000 m2 neighborhood center
although the best sites have been able to
in the 12th district, and that of CSB Plaza,
maintain or even increase their rent levels.
a former multi-level auto plaza with 11,000
One such positive example is MOM Park,
m2 lettable area in district 3 which is being
which has been able to attract new, high-
re-branded as a neighborhood centre. Further
quality tenants at rents that are in some
down the line, the expansion of the Árkád in
cases substantially higher than those
Budapest by over 20,000 m2 is underway
earlier tenants paid. Other similar positive
and scheduled for spring 2013. Also,
examples are Mammut and Arena Plaza.
Futureal’s planned city centre at Etele ter
has received its preliminary planning permit,
Prime rents on Vaci utca as well as
but is not expected to open before 2015
top rents in the best shopping centres
which have been fairly stable in the past
Retail operators and brands are becoming
five years are poised to see a moderate
more sophisticated and attuned to the
reduction of between 5–10% in 2012.
subtleties of the market, increasingly
employing professionals to find the
A development that has had a large effect
best locations. They are doing their
on rent negotiations has been the major
research and investing time and money in
fluctuations of the Hungarian forint, as
locating the best spots, as turnover and
demonstrated by its significant weakening
profitability projections are becoming more
versus the euro in the second half of
important in securing a new location.
2011 and the exchange rate reaching a
record low in the first week of January
2012. The rise in VAT from 25% to 27%
is also a factor affecting the market.
Many tenants in non-prime locations are

demanding that rents be stated and payable
in HUF rather than the more common
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | HOTEL MARKET
HOTEL MARKET
Key Hotel Figures - Hungary SUMMARY the same period last year. Hotels held on to
Number of Hotels* 926 their leading position in terms of conference
According to the first estimates of the
Number of Hotel Rooms* 54,674 venues, with a market share of 74%.
Hungarian Central Statistic Office (HCSO),
Occupancy of Rooms 46.5% total guest nights declined in Hungary in
Average Room Rate €51 Due to low economic growth both in Europe
2011. The decline was not across-the-
RevPAR €24 and in Hungary, it is difficult to formulate
board. While foreign guest nights increased
a forecast for 2012; nevertheless there are
* Operating hotels on 31 July 2011
by 3%, domestic guest nights decreased
Source: Hungarian Central Statistic Office optimistic signs that point to expansion.
by 4%. In Budapest, the number of guest
nights by both domestic and international
TOURIST ARRIVALS The SZÉP cards replacing holiday
tourists increased (by 4.5% overall),
(MILLION) vouchers, as well as the fixed exchange-
while at the same time, both indicators
9 rate repayment of forex mortgages, could
deteriorated in relation to Lake Balaton.
8 both increase domestic demand. The weak
7 Forint could also orient people more towards
6 A shift in quality preferences can be
domestic trips, while benefitting foreign
5 ascertained in the hotel market. Hotels
4 tourists. In addition, hotel rates base their
registered 6% more guests, while the number
3 turnover in Euros, and the high exchange
of guests at boarding houses decreased
2 rate is favourable for their businesses.
1 by 23%. Discrepancies of occupancy
0 rates also existed among the various
The Budapest airport registered a record
hotel categories. The number of guests at
2005
2006
2007
2008
2010
2011
turnover in 2011, but the recent bankruptcy of

four-star hotels increased by almost 10%
Source: Hungarian Central Statistic Office the country’s national carrier poses a serious
despite the capacity expansion of recent
threat to the number of foreign guest nights.
years in the category, while five-star hotels
HOTEL OCCUPANCY AND ADR showed stagnation. Three-star hotels
SUPPLY
Region/Category Units Occ. ADR declined slightly and the categories below
Budapest (5-star) 14 68% €124 this decreased even more substantially. In 2011, nine new hotels started operations
Budapest (4-star) 66 60% €52 Wellness hotels performed especially well, in Budapest, increasing supply by more
Budapest (3-star) 74 44% €33 accepting 26% more guests than in 2010. than 600 rooms. In 2012, six new
Balaton 143 45% €43 hotels will open adding a further 500
Source: Hungarian Central Statistic Office Room rates increased by 1%, with rooms. However, the exact opening
the average room rate at hotels in the dates of the new hotels are uncertain.
NEW OPENINGS IN BUDAPEST three-to-five-star category ranged
between €33 and €124 in Budapest. New hotels in the countryside are also
Hotel Name Cat. Rooms
being built mostly from EU funds. These
Bohem Art Hotel 4* 60
The number of conferences held in Hungary new hotels are primarily wellness focused,
Green Hotel 4* 95
grew for the second year in a row, according but are also hoping to build on business
Canada Hotel 3* 80 to the survey of the Hungarian Convention tourism stemming from major new
Fraser Residence 4* 51 Bureau. The number of international events industrial investments (Győr, Kecskemét).
La Prima Fashion Hotel 4* 80 increased by 22% and the number of
Bo18 Hotel 3* 45 participants increased by 19%, compared to
Boscolo Luxury Residence 5* 138
Iberostar Hotel 5* 51
Duna Garden Hotel 4* 21
Source: Colliers Research
RESEARCH & FORECAST REPORT | 2012 | HUNGARY
COLLIERS RESEARCH
HUNGARY:
DIRECTOR OF VALUATION & ADVISORY,
RESEARCH:
Ákos Balla space of properties where construction has commenced on a new development or in
Director existing properties where a major refurbishment/renovation is ongoing at the survey date.
Csörsz utca 41.
H-1124 Budapest, Hungary Space Under Construction – Inactive: Represents the total amount of gross leasable floor
akos.balla@colliers.com space of properties where construction had started/where a major refurbishment/renovation
Tel: + 36 30 991 8509 was ongoing, but activity has since stopped for a period of three months or longer.
FAX: + 36 1 336 4201
www.colliers.hu
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | LEGAL OVERVIEW
HUNGARY LEGAL OVERVIEW

BASIC FORMS OF TITLE land (including all agricultural areas) may of its net turnover in the preceding business
not be acquired by foreign or Hungarian year from professional real estate broker or
In Hungary, the most common title to real legal entities nor by foreign individuals a financial leasing activity, and it undertakes
estate is full ownership (“tulajdonjog”), until May 1, 2014. The legal regulations to sell the real estate within two years as
which is similar to “freehold” title that governing agricultural land are expected to from the purchase, the duty is 2%; (v) if the
entitles the owner to freely use and enjoy be reformed in one or two years’ time. real estate is owned by a Hungarian legal
all the benefits of the real estate; however, entity no duty is payable if an organisationally
the owner is obliged to bear all costs and REGISTRATION SYSTEM separated unit of such company is purchased
expenses regarding the real estate and the by another legal entity together with all the
costs and expenses that occur because of The Land Register, which is handled by land
registry offices, contains data on individual assets of the company including the property.
damages. The owner is entitled to dispose
of the real estate freely (e.g. to allow other pieces of real estate, property owners, LEASES
persons to use it, to offer the real estate as mortgages, other encumbrances, beneficiaries
collateral or to establish other encumbrances and notes on incidental outstanding Leases in Hungary are freely negotiable,
on the real estate, and also to transfer the applications. Any right in rem that is based on but subject to certain mandatory provisions
ownership of the real estate freely). It is also contract becomes effective through registration of the Civil Code and the Act on Leasing
possible to use real estate based on a right in the Land Register. Those foreign individuals Apartments and Other Premises. Limitations
of perpetual usufruct (“haszonélvezet”): In or legal entities who do not have permanent mainly concern termination rights.
this form of usufruct one person formally residence in Hungary and do not have a person
or legal entity – with permanent residence RESTITUTION CLAIMS
owns the property, whereas the beneficiary
is entitled to use and obtain the profits of or seat in Hungary – engaged to act on their Privatisation of real property took place
the property and must bear the associated behalf in front of the Land Registry need to according to Acts passed in the early ‘90s.
costs and burdens. The usufruct may be engage a delivery agent for the procedure Except for churches in certain cases,
established for a determined time period and of the Land Registry, so that documents and the former owners of real property did
maximum until the death of the beneficiary. resolutions in connection with the procedure not have their original property returned.
In case of perpetual usufruct, unless the can be delivered to the delivery agent. As a Former owners received compensation
beneficiary consents to the termination of general rule, “good faith” purchasers of land coupons with which they could purchase
its right, the perpetual usufruct remains in are entitled to rely upon information contained real property (mainly agricultural land
force irrespective of the transfer of ownership in the registers. The register is accessible and residential property) which was sold
of the property. Land and buildings erected on-line and the underlying documentation by the state, local municipalities or state
on land may be transferred only together, is accessible with the authorisation of owned entities. Restitution claims can
however the owner of the land may allow, via the beneficiary of the given record. no longer be submitted to the state.
a contract, a third person to erect a building TRANSFER TAXES LANGUAGE
on the land and to obtain the ownership right
of the building. The owner of the building has In case of acquisition of a real estate or an In order to be enforceable in Hungary,
full ownership with respect to the building at least 75% share of a legal entity owning most agreements need to be bilingual or
and must bear the costs related to the (directly or indirectly) a real estate (where officially translated into Hungarian for
occupied land. The owner of the building is the shares of related parties are to be filing with the Land Register, Companies
entitled to a right of first refusal if the land aggregated), transfer tax (“duty”) is to be Register, etc. However, it is common for
is sold, and the owner of the land has the paid. The base of the duty is the value of the English or other languages to be used
same right if the building is sold. The owner real estate. From January 1, 2010, the duty as a second and controlling language.
of the building has a use right in respect is 4% for the first 1 billion HUF of the value
of the land (“földhasználati jog”). A land of the real estate and 2% for the remaining
use fee may be required by the owner. part of the value, but the total amount of the
duty may not exceed HUF 200 million per real
ACQUISITION OF REAL ESTATE estate. (The duty shall be calculated and paid
BY FOREIGNERS after every single real estate, and the values
of the real properties may not be pooled.)
Fluent in Real Estate
Individuals and legal entities may acquire
ownership right to a real estate. The contract In certain cases, including but not limited www.salans.com
of acquisition must be countersigned by to the following, this rate may be lower:
a licensed attorney at law or it may be Information contained in this general outline does not constitute
incorporated into a notarial deed. Foreign (i) in case of residential property, the duty is a legal opinion and is not meant to be comprehensive. As a
individuals or legal entities need permission 2% for the first HUF 4 million of the value of result of pending and new legislation, laws and regulations
to acquire the ownership right to a real the real estate and 4% for the remaining part of change frequently in Hungary and are often subject to
estate in Hungary (with the exception of EU the value; (ii) if the residential property is sold varying interpretations. Professional advice should be
sought regarding all aspects of real estate in Hungary.
citizens acquiring real property for primary within 1 year and a new residential property
residence). The permission is issued by the is bought from the purchase price, the base of
regional administration office where the real the duty is the difference between the amount
estate is located. Hungarian legal entities for which the old property was sold and the FOR MORE INFORMATION
may acquire the ownership of residential amount for which the new property was PLEASE CONTACT:
property and commercial real estate freely. purchased; (iii) in case of a real estate which
Foreigners are entitled to establish Hungarian is suitable for the construction of a residential Judit Kővári
legal entities or acquire the ownership of building and the purchaser undertakes to Partner
Hungarian legal entities and may be members and finally erect a building on the property Head of Real Estate – Hungary
and own 100% of the business quotas in 4 years, no duty is payable; (iv) in case of T: +36 1 880 6100
of such legal entity. Title to agricultural a Hungarian legal entity which gained 50% E: jkovari@salans.com
RESEARCH & FORECAST REPORT | 2012 | HUNGARY | TAX SUMMARY
HUNGARY TAX SUMMARY

CORPORATE INCOME TAX With effect from 1 July 2007, resident commencing from the date of transformation.
taxpayers and foreign entrepreneurs (PE’s) Furthermore, losses carried forward can not
Rental Income
may be subject to corporate income tax even be utilized if majority interest is acquired in
Effective from 2011, rental income is if their taxable base for corporate income tax a company except the parties were affiliated
subject to 10% corporate income tax up purposes is negative. The minimum tax base in the two tax years prior the acquisition.
to a tax base of HUF 500 million and is 2% of the total of revenues, decreased This prohibition should not be applied if a
19% above this threshold. The Hungarian by the costs of goods sold and the costs of part of the shares of the acquirer or acquired
government’s tax reform proposal of a intermediated services, and modified by some company was introduced to a recognized
linear income taxation with a tax rate of other items. If the higher of the tax base or stock exchange prior the acquisition, or
10% will not be introduced in 2013. the accounting pre-tax profit does not reach if the business activity of the acquired
the minimum tax base, the minimum tax company will be continued to perform after
With respect to tax deductible items, only base should be considered as the tax base. the acquisition over the next two tax years
costs, expenditures, which are not relating commencing from the date of acquisition,
to the core business activity of a company However, taxpayers may choose not to pay and the acquiring company will realize
are not deductible in Hungary for corporate the tax on the minimum tax base even if income from this activity considering that the
income tax purposes. With respect to they were obligated to, based on the above activity will not be significantly changed.
“normal” business costs, there is no specific calculation, but to file a specific declaration
limitation. Availability of robust and complete to the tax authorities stating that their tax WITHHOLDING TAX
documentation is important to support base did not reach the required minimum
Withholding tax rules have been
the tax deductibility of business costs. income level. The tax authorities specifically
abolished as of 1 January 2011.2
focus on those companies that file such a
Certain consulting and financing expenses declaration in the selection for tax audits.
VALUE ADDED TAX (VAT)
(e.g. interest) which relate directly to
the property prior to capitalising the The minimum tax base rule does not apply As of 1 January 2008, the VAT treatment
asset should be taken into account and in the year of foundation, and in case of sales of buildings depends on the
capitalised as the part of the investment certain natural disasters caused a loss. election of the taxpayer. The sale is
value. The amounts of possible future subject to VAT if the transaction is
reconstruction/ enlargement costs might Loss Carry Forwards
also be capitalised as part of the real estate. 1) before the first occupation or
Under the effective legislation, 2004 and
subsequent losses can be carried forward
In case of buildings, generally 2% p.a. 2) after the first occupation, but
without time limitation. According to the
depreciation is accepted by the corporate
new rule effective from 1 January 2010,
income tax regulations. In case of a real between the date of the occupancy permit
no permission needs to be obtained
estate subject to rental, the accepted and the date of sale is less than two years. In
from the tax authority in order to carry
depreciation rate is 5% p.a. The value case of sales after two years of the issuance
forward losses.1 From 1 January 2010
of the land cannot be depreciated. of the occupancy permit, the VAT treatment
financial institutions may also carry
is dependent on the election of the taxpayer.
forward losses. These rules can already
Interest payments are tax deductible in After choosing either VAT-charging or VAT
be applied to losses realized in 2009.
Hungary, however thin capitalisation rules exempt status, the taxpayer has to retain
should be taken into account. The Hungarian that choice for five years. If choosing VAT
As of 2012, losses carried forward from
thin capitalisation regulations provide for charging status, the taxpayer has to notify
pervious periods could only offset against
a debt to equity ratio of 3:1, which means the tax authority by the end of the preceding
half the positive taxbase (calculated
that the proportional interest amount on the tax year. From 1 January 2010 the taxpayer
without the utilised loss). Accordingly the
daily average loan liability, which exceeds may choose to apply VAT charging status only
effective utilisation of losses is expected
the daily average amount of the equity of the for the sales of non-residential real estate.
to be double the time needed earlier.
company multiplied by three, should not be
treated as tax deductible. Loans from financial Rental activity is exempt from Hungarian
Effective from 1 January 2012 in case of
institutions, even if related, are excluded VAT, but with a taxpayer option to
a transformation available losses could be
from the calculation. Effective from 2012 charge standard 27% VAT on rental
utilized if as a result of the transformation
the taxpayer will be entitled to decrease the fees. From March 2008, the VAT status
no new majority shareholder is introduced
average daily amount of the liabilities with the of residential and non-residential real
on top of the company and income would
average daily amount of the loans granted by estate rental can be treated separately.
be realized from one of the activity (not
the taxpayer to other companies, if the funds
including holding activity) performed by the
for the loans provided by the taxpayer derives
predecessor over the next two tax years
from liabilities which should be considered 2 Between 1 January 2010 and 31 December 2010 withholding tax at
1 Before that, if the taxpayer had a negative profit before tax position a rate of 30% was payable on royalty, interest and certain service
in the thin capitalization calculation.
and had tax losses for two consecutive years (after the initial fees payments granted to foreign entities. Exemption from WHT
start-up period), or the total revenue of the company in the tax year was only possible for foreign companies that were tax residents
Minimum Income (or Minimum Tax Base) did not exceed 50% of the total costs and expenses, the carrying in countries having a double taxation treaty with Hungary. Having
forward of losses was subject to permission from the tax authority. only their seats in such countries was not enough for exemption.)
The VAT exempt method allows entities Transfer of shares in a real estate holding land tax or local building tax. The maximum
not to charge VAT on property rental, company between affiliated companies is rate of local building tax may be 3.6% of the
however, in that case input VAT cannot be exempted from transfer tax. Furthermore, fair market value of the building owned or
deducted or reclaimed. Companies have transfer of real estate between related parties HUF 1100 per square metre (approximately
to submit a request to the Tax Authority is exempted from transfer duty if the list of the EUR 4 per square metre). The maximum
within a statutory deadline if they will apply main activities of the acquirer contains certain rate of local land tax may be 3% of the
standard rated VAT. If such an election real estate related business activity (i.e. market value of the parcel or HUF 200 per
is made, the VAT treatment of the rental buying and selling of own real estate; leasing square metre (approximately EUR 1 per
activity cannot be changed for five years. of own real estate) as at the acquisition. square metre). The applied method of tax
base depends on the local municipality.
Reverse charge system is applicable in CAPITAL GAINS ON SHARE DEALS
case of construction and other real estate The tax liability arising is paid in two
If the shares of a Hungarian entity are sold
related services, reducing VAT financing instalments (whose deadlines are 15 March,
by a non-Hungarian entity the gain is not
costs. Since 1 May 2008 services that are 15 September). This tax may be levied by the
taxable in Hungary. However, such capital
provided in relation to real estate liable local municipalities at their own discretion.
gains are taxable in Hungary from 1 January
for official permit fall under this rule.
2010 if shares of a so-called “real estate
RETT
owning company” are transferred. A company
LOCAL BUSINESS TAX
will be considered a ”real estate company” In case of acquisition of real estate in
If real estate is recognised as stock in the if the following requirements are met: Hungary, the buyer is liable to pay stamp
books of a company at the time of the asset duty on the property, based on the market
deal, local business tax should be paid; the 1) more than 75% of its total assets on price of the property. It is important to note
maximum tax rate is 2%. Rental income is also a consolidated and/or standalone basis that the basis of the stamp duty liability is the
subject to local business tax. For calculating are real estate located in Hungary and gross market value of the property, inclusive
the amount of the local business tax base the of VAT. The standard rate of stamp duty is
amount of material costs, mediated services, 2) at least one of its shareholders is 4% up to HUF 1 billion of the value of the real
cost of goods sold, direct R&D costs and value resident in a state with which Hungary has estate, and 2% for the exceeding value, but
of services provided by subcontractors can not concluded a double tax treaty, or in a with the maximum stamp duty liability of HUF
be deducted from the net sales revenue. state where the double tax treaty allows 200 million per real estate (plot number).
such gains to be taxed in Hungary.
Please note that the amount of the local Transfer of shares of a company holding real
business tax is deductible from the corporate According to the Act, tax liability for the estate should be subject to transfer duty if
tax base only once as of 1 January 2010. shareholders of a real estate company will the company main activity consists of certain
As part of pre-tax profit, it is accounted arise when the shareholder sells, gifts or real estate related business activity (i.e.
as cost under Hungarian GAAP.3 contributes the shares of such a company. Development of building projects, Construction
The tax base is to be the difference between of residential and non-residential buildings,
ACQUISITION the income from the sale of the shares and the Renting and operating of own or leased real
acquisition costs including expenses related estate, Buying and selling of own real estate)
Until 2010, by purchasing the shares
to the shares during the shareholding period.
of a Hungarian entity, no VAT or RETT
Sale and purchase of shares of a company
liability would arise in connection with
The tax rate will be 19% (i.e. reduced holding real estate in Hungary between
the transaction. Only minor procedural
rate up to a certain tax base could not related parties is exempted from RETT,
costs would be payable to the Company
be applied). Deciding whether or not however, in-kind contribution of such shares
Court to register new shareholders.
a taxpayer qualifies as a real estate is not exempted in this respect. Furthermore,
company could give rise to considerable transfer of real estate between related parties
However, from 1 January 2010, stamp duty
administrative work. A further complicating is exempted from transfer duty if the main
liability arises in case of the acquisition of
factor is that the real estate of affiliated activity of the acquirer is buying and selling of
shares of real estate owning companies.
undertakings has to be considered too. own real estate or renting of own real estate.
The liability arises at the time when the
direct or indirect (through the owner’s
ASSET DEALS In special cases, lower stamp
related parties) ownership of the real
duty might be applicable:
estate owning company reaches 75%. The If real estate is sold as an asset, the
base of the stamp duty is the gross market gain is subject to corporate income tax
>> The stamp duty rate is 2% if the purpose
value of the real estate, proportional to as part of the normal tax base at a rate
of the acquisition of the property is resale/
the ownership. Please find the rate of the of 10% up to a tax base of HUF 500
finance leasing and in the year prior to
stamp duty in the RETT section below. million and 19% above this threshold.
the purchase, more than 50% of the
3 ( Until 2009 it could be deducted from the corporate tax base buyer’s sales revenue arose from resale
as well, if a company did not have unpaid tax liability at the end PROPERTY TAX
of the tax year. This additional deduction was capped by the
of properties/finance leasing, or the buyer
amount of the positive pre-tax profit under Hungarian GAAP.). Hungarian companies may be subject to local is licensed by the Hungarian Financial
Supervisory Authority to perform financial converted into a REIT in a tax neutral

leasing. Moreover the buyer has to state that way (including transfer tax exemption).
the property will be either sold within two
years, or leased, with the condition that the >> REIT would be able to hold shares
lessee would eventually buy the property. in a project company.
FOR MORE INFORMATION ON REAL
>> If
the property is residential, the rate Limitations and obligations regarding ESTATE SERVICES IN HUNGARY, PLEASE
of the stamp duty is 2% up to HUF 4 the operation of a REIT: CONTACT:
million (approximately EUR 16,000), and
4% for the excess part of the price. >> REITswould have an obligation to Gabor Beer
dividend out 90 per cent, for SPVs 100 Partner
>> Withregard to plots, if the buyer of the per cent of their profits each year.
plot makes a declaration that it will build KPMG in Hungary
residential properties on the purchased >> A starting capital of HUF 10 Vaci ut 99
plot within four years, stamp duty billion is required. H-1139 Budapest
exemption might be obtained (as long Hungary
as the four-year deadline is met). >> Atleast 25 per cent of the shares
would have to be traded in controlled T: +36 1 887 7329
REIT financial markets (i.e. certain defined E: gabor.beer@kpmg.hu
stock exchanges); and would have to www.kpmg.hu
A new Real Estate Investment Trust (REIT)
be owned by minority shareholders
regime was introduced in 2011. Public
(below 5 per cent each).
limited companies with a minimum starting
capital of HUF 10 billion, registered (at
>> Share acquisition by banks and
the request of the company) with the Tax
insurance companies would be
Authority could qualify as REITs if the
limited to 10 per cent in a REIT.
conditions set by the legislation are met.
>> Strict
registration obligations
The activities of a REIT or its 100 per
administered by the Tax Authority.
cent subsidiary project companies (SPV)
would be limited to the following within
>> Thetotal debt to properties ratio
and outside the territory of Hungary:
would be a maximum of 65% for
REITs, and 70% for SPVs.
>> Sale of own real estate;
>> Noneof the real estates’ or REIT
>> Rental and operation of own real estate;
ownerships’ value could exceed
20% of the balance sheet total.
>> Property management; or
>> A compulsory quarterly market valuation
>> Asset management.
of the property portfolio is required.
The main advantages of a Hungarian
Further Notes:
REIT are the followings:
>> If
the purchase price of the real estate
>> Acorporate income tax exemption would
is unreasonably low (less than 50% of
be available for the REIT and at the SPV
the market price) the buyer pays gift
level (including gains on asset deals).
duty on the difference of the purchase
price and 50% of the market price, and
>> Exemption from local business tax at
stamp duty on the remaining amount.
the REIT and SPV levels (including
gains on asset deals) is introduced.
>> Loandebt assumptions are considered
as exempt of gift duty as of 9 July
>> The transfer tax rate would be 2%
2009. (Before that time they were
(although with no upper cap).
subject to gift duty of 40%).
>> TheSPV could have its seat
outside of Hungary.
>> The current SPV entities might be
RESEARCH & FORECAST REPORT | 2012 | POLAND
POLAND
RESEARCH & FORECAST REPORT | 2012 | POLAND | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: The Polish economy continued Economy: The Polish economic situation
to perform strongly in comparison to other will remain stable in 2012, according to
European countries in 2011. GDP growth for the Ministry of Economy, with GDP growth
the whole of 2011 is estimated to be 4%. to reach ca. 3%. The inflow of foreign
direct investments (FDI) to Poland will,
Investment: Poland is still perceived by the however, continue its downward trend.
international community as the main CEE
property investment market as liquidity Investment: Poland will again be the
remained high throughout 2011, leading to main market in the CEE region and
transaction volumes of over €2.6 billion. drive investment volumes. The pricing
gap between core and non-core assets
Land: As expected 2011 saw a large is expected to be maintained in 2012.
number of transactions on the land
market, as the total volume of concluded Land: If the financial markets manage to
deals exceeded one billion PLN. remain stable and the Eurozone can cope with
their problems, 2012 should be a good year
Industrial: During 2011, almost 380,000 m² for the investment land market in Poland.
of modern warehouse space was delivered to
TRENDS 2012 the market. A decrease in available space was Industrial: It is estimated that new supply
observed in most markets. Rents remained in 2012 will reach a similar level to that of
GDP GROWTH stable and an upward trend was observed in 2011. In the coming quarters, we expect a
regions where the vacancy rate was low. further decrease in vacancy rates, while
PRIME PRIME
rents will grow slightly in selected markets.
YIELDS OFFICE RENTS
Offices: 2011 witnessed meagre changes in
the total resources of modern office space as Offices: The upcoming year will bring a
total office stock grew by only 260,000 m2. significant increase in total modern office
Leasing activity maintained it’s high dynamics stock as new supply will double the level
in Warsaw and major regional cities. At the recorded in 2011. In H1 2012 tenants’
end of the year nearly1 million m2 of modern activity should remain stable, however,
office space was under active construction. the uncertain economic situation may
translate into a weaker demand for office
TRANSACTION PRIME SC Retail: 2011 can be considered an optimistic space in the second half of the year.
VOLUMES RETAIL RENTS year for the Polish retail market, especially
in terms of developers’ activity – nearly Retail: The uncertain situation in global
625,000 m2 of modern retail space was financial markets may result in a more
completed during the year. New international cautious approach from market players
Increasing brands entered the Polish market, including in 2012. Developers will try to attract
Stable
USA brands GAP and Toys”R”Us and tenants and clients by combining
Decreasing
Scandinavian DIY retail chain Jula. different retail formats within one retail
destination, especially retail parks
Hotels: 2011 was a pretty good year for hotel with traditional shopping centres.
operators in Poland. The capital of Poland
again registered high occupancies in the Hotels: In general, we estimate that
5-star segment, with ADRs at around €103 the hospitality industry will again have
and a very favorable occupancy of ca. 72.3%. a good year. We believe the following
Economy brands will continue their
expansion in Poland: Super 8, B&B,
Hampton by Hilton and Best Western.
RESEARCH & FORECAST REPORT | 2012 | POLAND | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
2010 2011 2012 Poland is the largest country in Central Projections that Germany’s economy
GDP % 3.9% 4.3% 3.0% Eastern Europe and its stature continues is expected to contract may negatively
CPI % 2.6% 4.3% 2.8% to grow in the international political impact Poland’s GDP growth in 2012.
Unemployment % 12.4% 12.3% 11.0% community. In 2004, it ascended to the EU However, according to the IMF, Poland’s
Source: Central Statistical Office
and spent six months at the helm of the economy is expected to grow by
Population 38,200,037 EU’s rotating presidency in 2011. The re- 3-3.5% between 2012 and 2015.
Top 3 Cities 3,213,679 8.41% election of the Civic Platform last summer
Warsaw (Capital) 1,720,398 4.50% also demonstrates how Poland’s political When the country co-hosts the EUFA cup in
Kraków 756,183 1.98% landscape is maturing. Entering a second 2012, Poland’s economy will also benefit due
Łódź 737,098 1.93% term in power, the government in Poland is to the increase in tourism and the investment
Source: Central Statistical Office
expected to bring on additional economic in infrastructure in order to co-host the event.
reforms like privatisation, institutional reform
Economic Make-up of the public sector and improvements Poland’s unemployment rate is expected to
Sector GDP Labour to bureaucratic and judicial processes. remain around 10%, (+/- 0.25%) in 2012
Agriculture 3.40% 17.40% with any significant reductions attributed
Industry 33.00% 29.20% In Poland, approximately 65% of people to economic growth in the country.
Services 63.50% 53.40% of working age (average 38.5 years) are
Source: CIA World Book concentrated in conurbations, or large Debt market turbulence influenced by
urban regions comprised of amalgamated Poland’s regional peers is not expected to
GDP, INFLATION & UNEMPLOYMENT cites and towns. Because of Poland’s size, increase the country’s gross debt level of
15% and the number of urban agglomerations 56% (as of 2011) this year. Poland’s gross
12% in the country, there are significant debt increased by over 10% since the global
9%
opportunities for commercial real estate financial crisis in 2007. However its rate is
6%
development outside of Warsaw. under the EU constitutional debt limit of 60%.
3%
Poland was the only country in the EU to Foreign direct investment (FDI) inflows to
0%
avoid recession. This was due to the size of Poland continued to decline as a percentage
2007
2008
2009
2010
2011
2012f
2013f
2014f
2015f
its domestic market, low levels of personal of GDP in 2011. New reforms brought on
debt among its citizens and a well regulated by the re-elected government may send
GDP CPI Unemployment
rate banking sector which has maintained a positive signals to the international business
Source: International Monetary Fund, conservative approach to banking. Poland community thereby reducing the hiatus.
National Bank, Central Statistical Office
also benefited from the relative health of its
INDUSTRIAL PRODUCTION largest trading partner’s economy, Germany.
(2005=100, SA)
160 Despite uncertainty over the state of the EU’s
140 markets in 2011, Poland maintained robust
120
100 growth in industrial production even managing
80 to reduce its dependence on Germany. Top
60
40 export classifications in Poland are machinery
20 and transport (41%) and manufactured
0
goods (20%). On the downside, however,
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
AMy-11
Jun-11
Aug-11
Sep-11
Oct-11
Nov-11
Poland’s unemployment rate increased to

Poland Germany EU27
12.3% in 2011. The unemployment rate in
Source: Eurostat
Poland is not far off the rising average of
the EU27 unemployment rate of 10%. Wage
NATIONAL FINANCING demands only increased by 1.4% in 2011 from
12% a peak of 5.5% in 2007 according to GUS.
9%
6%
3%
0%
-3%
-6%
-9%
2006
2007
2008
2009
2010
2011
2012f
2013f
2014f
2015f
Government Deficit Government Deficit

FDI % of GDP YoY achrge in Debt
Source: International Monetary Fund, National Bank
RESEARCH & FORECAST REPORT | 2012 | POLAND | INVESTMENT MARKET
INVESTMENT MARKET
Key Investment Figures - Poland SUMMARY PROGNOSIS
Investment Turnover €2.6 billion Transaction volumes of approximately EUR Poland will again be the main market in
Prime Office Yields 6.5% 2.6 billion, approaching 2007 pre-crisis CEE and drive investment volumes across
Prime Retail Yields 6.5% levels, were recorded in 2011. The market has the region. That said, investment volume
Prime Industrial Yields 7.75% entered into a phase of secondary trading of growth dynamics recorded in the last 2
assets, where owners disposed of properties years are unlikely to be maintained in 2012
previously acquired from developers. as purchasers will continue to selectively
PRIME YIELDS
pick their real estate investments
14%
Approximately 65% of total volumes was
12%
located in Warsaw (as opposed to 2010, The pricing gap between core and non-core
10% where the proportions were reversed), assets is expected to be maintained in 2012.
8% signalling investors flight to core, safety
6% and liquidity offered by the capital city. Core funds are expected to continue to
4% dominate the investment landscape for the
Activity in secondary cities has been medium term, given the ability to transact
2%
predominantly driven by retail, with office by means of low leverage levels. However
0% and logistics transactions outside of Warsaw leveraged value-add investors are also
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
limited to a minimum, partly due to the limited maintaining their presence on the market.
availability of investment grade product.
Industrial Single transaction volumes are
Retail Stabilisation of core yields across all expected to decrease amid possible
Office asset classes was witnessed towards senior financing constraints.
the end of 2011, however several post-
Lehman yield benchmarks across all asset Stabilisation of core yields in the midterm
classes have been set during the year. will continue to be dependent on the
INVESTMENT VOLUME (€MILLION) macroeconomic fundamentals of the
Prime office yields for Warsaw CBD core Eurozone and the CEE region in the wake
5000
in 2011 were in the range of 6.25-6.75% of sovereign debt issues and the capital
4000 6.4-6.75% for CBD Fringe; and 6.7-7.5% requirements of financial institutions.
for Warsaw Mokotow (the second largest
3000
office sub-district in the city). Prime retail Demand for Warsaw Grade A institutional
2000 yields in 2011 were in the range of sub-6-7% grade office assets and non-Warsaw retail
in Warsaw and sub-6 (for selected trophy properties is expected to be maintained,
1000
assets) - 8.5% in secondary cities. Prime subject to their availability. Selected,
0 logistics yields in 2011 were in the range well-located modern logistics assets
of sub-8-8.5% (selected locations only). (with long weighted remaining average
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
lease terms, leased on market levels to

Source: Colliers International Prime retail yields in 2011 were in strong covenants) are also expected to
the range of sub-6%-7% in Warsaw generate traction in the marketplace.
and sub-6% (for selected trophy
assets) - 8.5% in secondary cities.
Prime logistics yields in 2011 were

in the range of sub-8%-8.5%
(selected locations only).
Any further movement in pricing is

expected to depend largely on the impact
of the sovereign debt crisis and the
additional capital requirements of the
main senior lenders in the market.
Poland is still perceived by the international

community as the main CEE property
investment market and liquidity has
remained high throughout 2011.
RESEARCH & FORECAST REPORT | 2012 | POLAND | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Poland SUMMARY In 2011 warehouse space in Central Poland
Total Stock 6,800,000 m2 equalled 950,000 m², so that new supply
The total supply of warehouse space in
Take-up 1,800,000 m2 in 2011 remained unchanged from total
Poland is 6.8 million m². The industrial
Vacancy 11.4% new supply in 2010. Three new projects
market was strong in 2011 where close
Prime Headline Rent €6 m2/pcm by Panattoni and Segro totalling 25,500
to 380,000 m² of modern warehouse
m² were completed. Poznań’s industrial
Source: Colliers International space was completed. This represented
space in 2011 totalled 846,000 m2 as
a 40% growth of new warehouse supply
nearly 45,000 m2 was delivered to the
DEVELOPERS MARKET SHARE in the country in comparison to 2010
market, half of which was completed in
BY EXISTING SUPPLY levels. Most of the new projects came on
Q3 2011. Currently 50,000 m2 of modern
market in the Upper Silesia market.
26% warehouse space is under construction
with completion planned for 2012.
Transaction volumes also increased in 2011,
where 1.8 million m² of modern warehouse
41% Upper Silesia is the second largest warehouse
space was leased, resulting in a 20% increase
market in Poland, where the current supply
from 2010. Demand for industrial space was
is estimated at 1.33 million m2. Approximately
steady and peaked in Q3 2011, where the
109,000 m2 was completed in 2011 across the
highest volume of transactions were recorded
region comprising eight projects. A further
17% (nearly 30% of transactions). The majority of
20,000 m2 is currently under construction.
2% transactions occurred for space in Warsaw
2% 2% 3% 7%
(Zone II) and in Upper Silesia. New deals
Kraków is still one of the smallest industrial
constituted 60% of tenant activity and a large
Prologis Panatoni markets in Poland. Total warehouse
part of them were deals to pre-lease space.
SEGRO MLP
space accounted for 115,000 m², of which
40% was completed in 2011. At the end
CA IMMO PointPark Properties The vacancy rate in Poland dropped
of 2011 nearly 19,000 m² of warehouse
from 13.8% at the end of 2010 to 11.4%
Goodman Other space was under construction.
at the end of 2011 due to a decrease in
Source: Colliers International available space across the market.
The supply of modern warehouse space in
Wrocław is now over 640,000 m2. In 2011,
TOTAL SUPPLY BY REGIONS Rents remained stable in 2011 and
22,000 m2 was completed and another
(THOUSAND) an upward trend was observed in
64,000 m2 is planned to be delivered in 2012.
1 800 regions with low vacancy rates.
1 600
1 400 Industrial space in Gdańsk reached
SUPPLY
1 200 136,000 m2 as supply increased by
1 000 Warsaw’s supply of modern warehouse space 6% during the year. There is currently
800
totalled 2.53 million m2 across it’s three 30,000 m2 under construction.
600
400 major industrial zones. In 2011, approximately
200 80,000 m2 was delivered to the market, 74% Toruń had less than 100,000 m2 of modern
0 of which was located in Warsaw Zone II. warehouse space in 2011. The supply of
The increase of new supply was 44% higher industrial space increased by 10%. Only
Other
Warsaw Zone I
Warsaw Zone II
Warsaw Zone III
Central Poland
Poznań
Upper SIlesia
Kraków
Wrocław
Gdańsk
Szczecin
Toruń
than the new supply brought to market in one project with an area of about 10,000
2010. In terms of new supply Warsaw was m2 was delivered to the market in Torun,
in the second place just after Upper Silesia. namely, BTS in Goodman Logistics Centre.

There is currently 77,000 m2 under Szczecin is the smallest market in Poland.
construction in Warsaw, of which Its resources have remained unchanged
73% is in Warsaw Zone II. for several years and total 42,000 m2.
DEMAND The Gdańsk market observed a significant

SELECTED LEASE TRANSACTIONS increase in tenant activity, as 55,500 m2 of
More then 735,000 m was leased
2
TENANT AREA BUILDING industrial space was leased in comparison
across Warsaw’s three industrial zones,
(m2) to 15,000 m2 rented in 2010. Interestingly,
with nearly 74% of demand seeking
ProLogis Park “pre-lease” agreements constituted
Unilever 50,300 space in Warsaw Zone II. Most lease
Piotrków I more than 90% of rented space.
agreements were signed in Q3 2011.
Panattoni Park
DSV 36,500
Teresin
Among the deals done, new contracts
Toruń is the only region in Poland
constituted 58% of demand whereas
Poznań Logistic where no lease transactions of modern
Amica 30,000 Cerntre I renewals made up approximately 36%.
warehouse space occurred.
(Goodman)
BTS Krapkowice In Central Poland leased space
Metsa Tissue 27,700 Szczecin recorded a growth in the number
(Goodman) surpassed 200,000 m2. Most of the
of industrial transactions. Three contracts
Goodman rented space was taken up in H2 2011.
TJX (TK Maxx) 25,500 were signed for a total of 13,500 m2. In
Wrocław Renegotiations constituted 52% of the
comparison to 2010 and 2009, these deals
Panattoni Park total transaction volume in this area.
Delphi 21,600 represented a significant increase.
Błonie
BTS Gorzów Demand for space in Poznań was at a high.
Faurecia 17,600
Wlk. (Panattoni)
VACANCY
The transaction volume reached a level of
Rhenus 16,900
ProLogis Park approximately 168,500 m2. Renegotiations The vacancy rate in Poland declined over
Błonie and new contracts dominated the market the first three quarters of 2011. However,
Cracow Airport and stood at 47.5% and 51% respectively. in Q4 2011 a slight increase was noted
Valeo 16,700 Logistic Centre as the vacancy rate reached 11.4%. In
(Goodman) Krakow observed a significant increase comparison to 2010 the vacancy rate,
Tulipan Park in tenant interest for industrial space. dropped across all Polish regions.
Hellmann 15,000
Stryków (Segro)
New contracts accounted for more than
Source: Colliers International 90% of all transactions. During the 12 Warsaw’s vacancy rate in 2011 down
month period the volume of transactions trended to 16%. The breakdown between
VACANCY RATE (%) exceeded 54,000 m2, which is a record for the zones is 8.5% (Zone I), 18.9% (Zone
100 this industrial market. Nearly 61% of the II) and 12.7% (Zone III). A decrease was
90 lease agreements were “pre-leased”. recorded in Warsaw Zone I and III, while a
80
70
slight increase was observed in Zone II.
60 The volume of transactions in Wrocław
50 in 2011, in comparison to 2010, increased In comparison to 2010, the vacancy
40
30
by over 30% reaching 226,000 m2. Most rate declined in most regional cities.
20 contracts were signed in Q1 and Q3 The lowest rate was recorded in Torun
10 2011 and new agreements constituted and Poznan and the highest drop in
0
nearly 59% of all transactions. vacancy rates was seen in Szczecin.
Warsaw
SIlesia
Central Poland
Poznań
Wrocław
Gdańsk
Toruń
Kraków
Szczecin
Q4 2010 Q4 2011
RENTAL RATES The number of speculative industrial projects

EFFECTIVE RENTAL LEVEL (€/m²) will increase but are not expected to create
Throughout the year rents were stable,
REGION MIN. MAX. a bubble due to restrictions on construction
with a slight upward trend in regions
(€/m²) (€/m²) financing. Large, experienced developers
where demand was the highest and
Warsaw I 4.00 5.50 who can self-finance projects will have an
vacancy rates were the lowest.
Warsaw II 2.20 2.80 easier time accessing external financing and
Warsaw III 2.10 2.50 may achieve greater success in the industrial
PROGNOSIS
Central Poland 2.00 2.85 market in comparison to smaller firms.
Poznań 2.35 2.85 New supply in 2012 will match supply
Upper Silesia 2.60 3.10 levels of 2011. At the end of 2011 Demand will remain stable in 2012 across
Kraków 3.50 4.50 approximately 340,000 m² of warehouse Warsaw and the regional cities, although there
Wrocław 2.50 3.00 space was under construction, of which might be a small dip in demand in H2 2012.
Gdańsk 2.80 3.30 74% should be completed in 2012.
Szczecin 2.40 2.85 Given the relatively limited supply planned
It is worth mentioning that 72% of space for 2012 and the fact that more than 70%
currently under construction was already of industrial space has been pre-leased,
pre-leased. Therefore, in the coming quarters, we can expect that in H1 2012, the vacancy
we can expect a further decrease in the rate will gradually reduce, while rents
vacancy rate. Markets with low vacancy will grow slightly in selected markets.
and limited total supply of industrial space
will continue to attract developers.
RESEARCH & FORECAST REPORT | 2012 | POLAND | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Warsaw SUMMARY 138,000 m² of office space was completed in
Total Stock 3,597,000 m2 the regional cities, which equated to a 36%
In 2011, total office stock grew by 260,000
Take-up 573,400 m2
decrease year-over-year (y-o-y). Weaker
m², a 36% drop compared to new office
Vacancy 6.7%
supply dynamics were also reflected in the
inventory growth levels in 2010.
scale of completed office projects where
Prime Headline Rent €22.6 m2/pcm
more than half of the new developments
Demand for modern office space increased
were buildings smaller than 5,000 m².
across all markets by 11.4% in 2011.
Population Total Stock (m2) Vacancy Favourable market conditions encouraged
(%) Kraków and TriCity registered the highest
tenants to sign pre-leasing agreements,
Warsaw 3,597,000 6.7 increase in total office stock, while Katowice
which accounted for approximately 20%
Karków 434,320 8.5 and Wrocław saw marginal growth. The
of take-up (compared to 12% in 2010).
Wrocław 315,430 5.1 supply of office space in Szczecin remained
The majority of registered agreements
TriCity 252,100 10.8 unchanged. Notable completed office
were new deals, yet renegotiations and
Poznań 203,160 8.4 projects included: Olivia Gate (18,000 m²,
renewals also held a substantial share
Łódź 190,320 24.2 Gdańsk), two buildings in the Bonarka 4
in the total transaction volume.
Katowice 188,630 13.7 Business complex (15,700 m², Kraków) and
Lublin 61,980 4.6 Gray Office Park A (13,500 m², Lublin).
Dynamic leasing activity around the country
Szczecin 43,100 2.9 encouraged developers to begin construction
DEMAND
Source: Colliers International of new office projects. As a result, by the
end of December 2011, nearly 1 million m² Demand for office space in Warsaw
TAKE-UP STRUCTURE IN WARSAW of office space was under construction. reached over 573,400 m² in 2011, which
represented 4.4% growth compared to
1%
7% Limited new supply and booming leasing 2010. The Upper South and the City Centre
63% activity resulted in a drop in the vacancy fringe recorded the greatest transaction
rate in almost all office markets. volume which totaled 30% and 25% of
total take-up in Warsaw. New deals were
29%
Rental rates stabilised generally in the mainstay of leasing activity, 22% of
2011, however, an upward trend for which were pre-leased agreements.
prime office space was noticed.
The most significant transactions signed
SUPPLY in 2011 in Warsaw were TP S.A. in
Miasteczko Orange (pre-let, 43,700 m²),
Warsaw’s modern office space totaled
Ernst & Young in Rondo 1 (renewal,
3.59 million m² by the end of 2011. In
New Deals Expansions 11,000 m²), Mostostal in Adgar Business
comparison to Q4 2010, total stock grew
Centre (new deal, 7,800 m²) and Nordea
Renevals and Owner-occupied space by 4% as only 120,000 m² of new office
Renegotiations in Green Corner (pre-let, 7,200 m²).
space entered the market. The first
quarter recorded the weakest results
in terms of development activity, which
TAKE-UP IN WARSAW (THOUSAND M2) eventually picked up in H2 2011.
250
200 90% of new office completions were
150 concentrated in three Warsaw zones: Upper
100 South, South West and City Centre. Major
50 office buildings that were completed in 2011
0 include: phase I of Mokotów Nova (25,000 m²,
Upper South), Equator II (21,300 m², South
Q1 2008
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
West) and Hortus (10,600 m², City Centre).

RESEARCH & FORECAST REPORT | 2012 | POLAND | OFFICE MARKET
In comparison to 2010, the regional cities RENTS

TAKE-UP LEVELS IN MAJOR witnessed 27% growth in total take-up. In
REGIONAL MARKETS (THOUSAND) In comparison to 2010, asking rents in the
terms of leased space, Kraków remained
CBD registered a 5% increase, whereas
90 the leader among major regional markets
non-central locations recorded only feeble
80 (over 82,000 m² of leased space). However,
70 changes. After continuing the upward trend
growing activity in other regional cities such
60 from previous quarters, rental rates stabilised
as Poznań, TriCity and Katowice demonstrated
50 in Q1 2011. The average headline rent in the
40 tenants’ interest to look elsewhere.
CBD stood at €22.6 m²/pcm, while non-
30
central location rents were €15.5 m2/pcm.
20 Further development of the BPO/SSC
10 Throughout 2011 we observed a slight upward
sector was a key success factor in terms
0 trend in headline rents for prime office space.
of demand for modern office space. The
TriCity
Kraków
Poznań
Wrocław
Katowice
Łódź
biggest transactions in the regional cities

Rental levels in the regional markets recorded
included: The renegotiation of 16,000 m²
no significant change in the past 12 months.
by Shell in Kraków Business Park and two
2010 2011 The average headline rent varied from
pre-let agreements: 11,500 m² by Infosys BPO
€12-15.5 m2/pcm. Łodź recorded the lowest
Poland in Green Horizon (Łódź) and 14,600
rents ranging between €11-12.5 m2/pcm.
m² rented by Allegro in Pixel (Poznań).
SELCTED LEASE TRANSACTIONS
IN 2011 PROGNOSIS
VACANCY
Tenant Size (m2) Building New supply is expected to double in 2012
By the end of 2011, Warsaw’s vacancy
Pre-lease Miasteczko from 2011 supply levels. The Warsaw market
TP S.A rate reached 6.7%, a 46 basis point drop
43,700 Orange Warsaw will witness an increase of 250,000 m²,
compared to the same period in 2010. Limited
Reneval / 50% of which will be delivered within two
KBP new supply of office space combined with
Shell Renegotiation zones: City Centre and Upper South.
Kraków strong tenant activity in the CBD, resulted
16,000
in a decrease in vacancy from 8.1% in Q1
Infosys BPO Pre-lease Green Horizon In the major regional markets the largest
Poland 11,500 Łódź
2011 to 6.7% at the end of Q4 2011. In
quantities of office space will be completed
Pre-lease Senator
contrast, the vacancy in non-central locations
Orlen in Wrocław, Poznań, Szczecin and Kraków.
9,000 Warsaw climbed to 6.7% by the end of 2011.
Pre-Release Green Corner In H1 2012 tenant activity should remain
Nordea The vacancy rates in the majority of regional
7,200 Warsaw stable at a level comparable to the last
Grunwaldzki markets demonstrated a downward trend in
Expansion quarter of 2011. Nevertheless, the volatile
Credit Suisse Center comparison to 2010. The most significant
5,880 economic situation may translate into weaker
Wrocław vacancy rate changes were recorded in
demand for office space in H2 2012.
Reneval / Katowice (from 22% to 13.7%) and TriCity
Riverside Park
Polbank Renegotiation: (from 16.8 to 10.8%). Łódź remained the
Warsaw We predict that in 2012 the overall
5,375 market with the highest vacancy rate (24.2%).
Aquarius vacancy rate in Warsaw will be subject
Pre-lease to a slight increase, mainly due to the
Tieto Business House
4,700 rise in vacancy in non-central locations.
Wrocław
The vacancy rates in regional cities may
also undergo temporary increases.
AVERAGE ASKING RENTS
Rental rates will remain stable
City MIN. MAX. across all office markets.
(EUR/m2) (EUR/m2)
Warsaw –
17.00 27.00
city centre
Warsaw –
12.00 16.00
outside centre
Kraków 12.00 14.50
Wrocław 11.00 16.00
TriCity 12.75 15.00
Poznań 14.00 16.50
Katowice 11.00 13.50
Łódź 11.00 12.50
RESEARCH & FORECAST REPORT | 2012 | POLAND | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Warsaw OVERVIEW Approximately 17% of new supply was
Total Shopping Centre Stock 1,338,000 m2 in the format of extensions to existing
In 2011, developers returned to the
Prime Headline SC Rent €79 m2/pcm retail schemes. The biggest extension
market with retail projects in the eight
Prime Headline High Street was completed at Galeria Echo in Kielce
€85 m2/pcm major agglomerations as well as in
Rent (40,000 m2). Other notable extensions
smaller cities bringing 625,000 m2 of
included Silesia City Centre in Katowice,
modern retail space online in Poland.
M1 in Zabrze and Jantar in Słupsk.
EVOLUTION OF RETAIL STOCK IN Tenant activity increased as retailers targeting
The Warsaw agglomeration represented
POLAND small and medium sized cities found space to
thousand m million m
the largest quantity of modern retail
2 2
expand, thanks to the new projects brought to
900 9 space in 2011, totaling 1.3 million m2,
market around the country. Retail expansion
800 8 nearly 80% of which are traditional
700 7 plans tempered towards the end of 2011 as a
shopping centres. In contrast, Wrocław
600 6 result of the debt crisis in the Eurozone and
and Poznań recorded the highest levels
500 5 poor market sentiment. The strengthening of
400 4
of retail space density per inhabitants at
the Euro which resulted in rising operational
300 3 600 m2 per 1,000 inhabitants. The average
costs also hampered expansion plans.
200 2 retail density level in the country’s eight
100 1 major agglomerations was 545 m2.
0 0 New entrants to the Polish market
included international brands such
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Shopping centres, which constitutes

as The Gap (US), Toys”R”Us (US)
more than 90% of Poland’s existing retail
and DIY retailer Jula (Sweden).
Annual Supply Total Supply developments, continued to be the major
retail format of choice. The remaining retail
The retail vacancy rate decreased
projects are made up of retail parks, factory
slightly around the country despite the
MAIN RETAIL SCHEMES outlets and theme-oriented shopping centres.
onslaught of new supply in 2011.
COMPLETED IN 2011
The market share of retail parks is
CITY PROJECT DEVEL- SIZE SUPPLY
gradually increasing in the country, as
OPER (m²)
The total stock of modern retail space in the format becomes more popular and
Develop
Millenium Poland reached 8.8 million m2 in 2011. traditional shopping centre retailers look
Rzeszów Invest- 52,000
Hall Nearly 625,000 m2 of new retail space to extend their product range keeping
ment
Galeria was delivered to the market last year, overheads at a reasonable cost.
Szczecin ECE 43,000 which represents a 27% increase in
Kaskada
Galeria AIG Lin- comparison to new supply levels in 2010.
Radom 42,000
Słoneczna coln
Toruń Plaza 52% of new retail projects were developed
Toruń 40,000
Plaza Centers in small and medium sized cities such
Saller as Millenium Hall in Rzeszów, Turawa
Ostrów Galeria Group Park in Opole, Galeria Ostrovia in Ostrów
36,000
Wlk. Ostrovia West In- Wielkopolski and Galeria Leszno. The
vestment delivery of modern retail space in small and
Turawa Helical medium sized cities accounted for 45% of
Opole 35,500
Park Poland total retail space in 2011 across Poland.
Significant retail developments in the eight

major Polish agglomerations included:
Galeria Kaskada in Szczecin, Futura Park in
Kraków and Dom Mody vitkAc in Warsaw,
the first luxury department store in Poland.
Developers were also active in the major

regional cities (with populations between
200,000 and 400,000 inhabitants). 130,000
m2 of space was delivered to the market in
the following projects: Galeria Słoneczna
in Radom, Plaza Toruń in Toruń, as well
as extensions to Galeria Echo in Kielce
and Auchan Hetmańska in Białystok.
Developers continued to look for new ideas DEMAND

NEW RETAIL SUPPLY BY THE CITIES SIZE to attract clients and to combine different
New retail projects translated into
retail formats within one retail destination.
27% heightened interest from potential retail
The trend of building shopping centres
tenants seeking expansion. In 2011, there
in conjunction with retail parks to offer
was a moderate level of expansion activity
customers a “one-stop” shopping experience
around the country, particularly in the small
52% proved successful. Examples of these hybrid
and medium sized cities. International
shopping centre-retail park projects included
retailers that expanded last year included
Turawa Park in Opole, the planned Siódemka
TK Maxx, H&M and Starbucks.
Shopping Centre in Elbląg and Europa
Centralna in Gliwice. Another interesting
More than 30 international retail brands
21% example is Futura Park in Kraków which was
opened their first stores in Poland in 2011
major agglomerations developed by Neinver in October 2011. In one
such as the Gap (US), Toys”R”Us (US),
regional cities building there is a retail park on the ground
Dorothy Perkins (UK), Jula (SE) and Tiger
floor and factory outlet on the first floor.
medium-sized & small cities (DE) a retail chain offering a diverse range of
products, such as stationery, toys, cosmetics
Source: Colliers International Pursuing environmental building certifications
and home accessories. The Polish retail
was also increasingly popular among retail
market also saw the expansion of four
MAIN RETAIL SCHEMES PLANNED TO developers. To increase the attractiveness
café and confectionery chains such as the
BE DELIVERED IN 2012 of its shopping centres, developers designed
Chocolate Company (three stores already in
projects with sustainability in mind.
CITY PROJECT
DEVEL- SIZE Poland), Cinnabon (US), Yogen Fruz (CAN)
Examples of existing shopping centres that
OPER (m²) and Redberry offering frozen yogurt.
obtained a BREEAM certification included
Europa Helical 3 Stawy in Katowice, Manufaktura in Łódź
Gliwice 67,000 The expansion plans of some international
Centralna Poland (both owned by Apsys) and Futura Park
Star retail chains will bring competition to existing
City in Kraków (Neinver). Investors of the
Rzeszow Europa 26,000 retail brands in the market such as Toys”R”Us,
Center Plac Unii complex in Warsaw (Liebrecht
Holding which will compete with Smyk stores.
& Wood and BBI Development NFI)
Church
also registered their projects to obtain
Kielce Korona Land De- 34,000 Toys”R”Us (2,000 m2) and Jula (3,000 m2)
velopment an environmental certification during
will become significant anchor tenants in the
Futureal,
the planning stage of their project.
Gorzów market of future retail park developments.
Nova Park Caelum De- 32,400
Wlk. At the end of 2011, nearly 750,000 m2 of
velopment
The first luxury department store in Poland,
War- Auchan modern retail space was under construction
Immochan 37,000 Dom Mody vitKac, opened in Warsaw in 2011.
szawa Łomianki in Poland. In 2012, new retail supply is
Luxury brands such as Dolce & Gabbana,
Alfa JWK estimated to reach 550,000 m2. Main retail
Grudziądz 22,000 Gucci, Yves Saint Laurent, Lanvin, Bottega,
Centrum Invest schemes planned to be delivered to the
Veneta and La Perla are tenants in the project.
Source: Colliers International market this year include Europa Centralna
in Gliwice, Korona in Kielce, City Center in
Rzeszów, Nova Park in Gorzów Wielkopolski
and Auchan Łomianki in Warsaw.
The development of the e-commerce RENTS

SELECTED LEASE TRANSACTION sector grew in 2011. Several retailers
IN 2011 Rental levels in 2011 were relatively stable.
launched their first e-commerce platforms
TENANT AREA LOCATION Due to the high supply of new retail space,
including hypermarket operator Auchan,
(m²) owners of existing shopping centres
drugstore Douglas, Tchibo, C&A, Solar,
Jula 3,970 OKAY Centre, Gdańsk adopted a competitive rental policy.
Monnari and three brands from Inditex
Europa Centralna, Group (Zara, Bershka, Pull&Bear). Online
Jula 2,960
Gliwice The highest rental levels were recorded
shopping has become popular in Poland
TK Maxx 2,460 M1, Kraków in Warsaw. The average rent in the best
and a further increase in internet sales
Europa Centralna, shopping centres for units of 100 m2 to 150
Smyk 2,320 is expected in the coming years.
Gliwice m2 ranged between € 60-80 m2/pcm.
RTV Euro Europa Centralna,
1,160 “Big box” retailers are expected to increase
AGD Gliwice Retail parks offered lower rates.
as retailers open in retail parks like Empik,
Superpharm 540 Turawa Park, Opole A typical unit of 800-1,000 m2 could
Smyk ,C&A and Superpharm. The main
Duka 180 Złote Tarasy, Warsaw be rented for € 11-12 m2/pcm.
advantage of locating in a retail park being
Galeria Słoneczna,
Reporter 162 the lower operational cost to the retailer.
Radom In terms of high streets, the highest rents
Green Coffee 95 Plac Unii, Warsaw were recorded in Warsaw on such streets as
Despite the stability of the Polish economy
Nowy Świat, Trzech Krzyży Square, Chmielna,
Source: Colliers International in 2011, retailers still approached expansion
Marszałkowska and Aleje Jerozolimskie.
cautiously given the strengthening Euro
RETAIL SPACE DENSITY which impacts rents and operational costs.
The average rental level for units between
IN THE BIGGEST AGGLOMERATIONS The debt crisis in the Eurozone and weak
100-150 m2 was €85 m2/pcm. Kraków
(M2 PER 1,000 INHABITANTS) expectations for global financial markets
was the second most expensive area with
also negatively impacted retailers.
700 rents at €75-80 m2/pcm on average on
600 Floriańska, Grodzka and the Market Square.
VACANCY
500
400 The vacancy rate of the eight major
300 agglomerations ranged from 0.5-3%, with
200
the lowest level, below 1%, recorded in
100
Warsaw and Szczecin. Vacancy rates also
decreased in Silesia and Tricity in 2011.
0
Tricity
Warsaw
Upper SIlesia
Kraków
Łódź
Poznań
Wrocław
Some of the older generations of

shopping centres whose layouts and
offerings are not competitive with
newer retail projects experienced an
increase in their vacancy rates.
PROGNOSIS The majority of planned retail developments

ENTRIES OF NEW BRANDS IN 2011 are projects ranging in size from 10,000
The uncertain situation on global financial
BRAND CAT- ORI- FIRST m2 to 20,000 m2. There is also a clear
markets may result in a more cautious
EGORY GIN LOCATION upward trend of developing small
approach from market players in 2012.
Arkadia, convenience shopping centres.
GAP Fashion US
Warsaw
Tenants may revise their expansion plans
and more thoroughly analyse potential new
Janki Park Developers will continue to innovate in order
Jula DIY S Handlowy, locations. However, some retail chains will
to attract tenants and clients by combining
Warsaw take advantage of favourable investment
different retail formats within one retail
Children conditions, such as a weaker Zloty and
Blue City, destination, especially in formats such as
Toys"R"Us & US lower prices to strengthen their position.
Warsaw retail parks and traditional shopping centres.
Maternity
Dorothy Złote Tarasy, The supply pipeline in 2012 will
Fashion GB Due to lower costs more retailers
Perkins Warsaw be slightly lower than 2011 and is
will seek expansion in retail parks
Children estimated at nearly 550,000 m2.
Catimini & FR
Stary Browar, rather than shopping centres.
Poznań
Maternity Developers will continue to plan new
Galeria Rental levels in 2012 will remain
Chocolate retail projects in small and medium
Cafe NL Mokotów, stable, as demand versus supply
Company sized cities around the country.
Warsaw continues to be in equilibrium.
Change Lingerie DK Port Łódź
Children
Galeria Malta,
Gocco & ES
Poznań
Maternity
Silesia City
Cinnabon Food US Center,
Katowice
Children
Groovy Reduta,
& AUS
Kids Warsaw
Maternity
RESEARCH & FORECAST REPORT | 2012 | POLAND | HOTEL MARKET
HOTEL MARKET
SUMMARY in occupancy. Occupancy rates were
OCCUPANCY AND ADR
reported at a 68% level with an ADR of ca.
IN MAJOR POLISH CITIES 2011 was a good year for hotel operators
€72. The other branded hotel products had
CITY OCCUPANCY ADR who benefited from the EU Council
circa 8% RevPAR y-o-y growth in Warsaw.
Warsaw* 70% € 88 Presidency. As a result of the 6 month
Kraków 63% € 66 event, approximately 47,000 room nights
B&B hotels of France opened its first hotel
Gdańsk 61% € 59 were occupied in the country. Warsaw, and
in the capital, its second in Poland, close to
Wrocław 66% € 59
the Tricity region also had a strong year
the Warsaw Airport in December of 2011.
Poznań 46% € 67
in 2011 as the capital of Poland registered
high occupancy rates in the 5-star hotel
Łódź 54% € 62 The projects that started construction in
segment, with ADRs at around €103 and a
2011 included a 365 room Doubletree by
very favourable occupancy of ca. 72.3%.
*4 and 5-star hotels Hilton Conference Centre and a 250 room
Renaissance by Marriott at Chopin Airport.
Other success factors that impacted the
SELECTED HOTEL OPENINGS An Express by Holiday Inn is also being built
country’s hotel market included Poland’s GDP
by the airport. This 124 room hotel will be
HOTEL NAME CITY NO OF growth, healthy exporting and manufacturing
ROOMS opened in Q4 2012. There is also a 123-
sectors, the relatively well positioned
Hilton Garden Inn room Hampton by Hilton planned to start
Kraków 154 (devalued) Polish Zloty and domestic demand
**** construction in the vicinity of the Airport.
growth of 2.8%. FDI for 2011 increased by
Puro Hotel 40% from 2010 to an estimated €11 billion.
Wrocław 102 Significant transactions in 2011 included the
***
Haston City Hotel Sobieski Hotel, which sold for approximately
Wrocław 111 Continuous investment in infrastructure
**** €52 million to Wenaasgruppen, who in
improvements such as roads, stadiums,
Focus Hotel turn signed a Management Agreement with
Gdańsk 98 railways and airports, had a helping factor to
*** Rezidor. This hotel is now branded as the
the economic development in the country.
Interferie Medical RadissonBlu Sobieski and will undergo major
Świnoujście 308
SPA **** renovations over the next 18 months. The
The Polish stock exchange (WSE) performed
Le Meridien Bristol’s Perpetual Usufruct
Source: Colliers International at a negative 21%, influenced by turbulences
title was also sold by Orbis/Accor for
in the world markets. Negative results of the
€21.3 million to Starman Hotels of the UK.
WSE correlated with the major European
Additionally, in December 2011 the Mercure
trading bourses. The WSE still showed
Chopin Hotel was sold to Echo Investment
signs of growth with an additional 13 IPO’s
S.A by Orbis/Accor for €31 million. The hotel
coming to its main trading platform and
was permanently closed to make way for
participation in New Connect, the small
a new 47,000 m² commercial building that
cap venue in the Polish Stock Exchange.
will be built by the property’s new owner.
DEMAND
Warsaw’s hotel industry will also benefit
WARSAW from hosting the UEFA in 2012. The UEFA
is expected to have a considerable impact
There was a strong demand for room
on occupied rooms in all hotel segments
nights in the business and small conference
prior to the start of the championship. The
segments in 2011. 5-star hotels performed
combination of the event’s technical media,
with an occupancy level of 72.3% and an
UEFA staff and Russian, Greek and Polish
ADR of €103. Weekend occupancies also
teams staying in Warsaw is estimated to
strengthened in 2011 which was a sign that
represent 125,000 room nights in the city.
the leisure and tourism market in Poland was
growing. 4-star hotels also saw an increase
KRAKÓW POZNAŃ
HOTELS BY CATEGORY
IN MAJOR POLISH CITIES The branded hotel products in Kraków Some hotels in Poznań saw improvement
8% 8% fared well as occupancy in the city was in 2011. The Sheraton, IBB Andersia, IBIS
circa 63% at an ADR of €65. 5-star and Campanile Hotels were the city’s best
16%
hotels also saw growth at occupancies of performing properties. Poznań, across all
20% circa 71% with a year end ADR of €91. of its categories managed to register 46%
in occupancy and achieved an ADR of €67.
Kraków had a favourable summer season The best performing hotel in the city had a
where leisure travellers descend on the 63% occupancy, at an €89 ADR (estimate).
city for vacation and tourism. 54% of all
occupied rooms in Kraków were inhabited The challenge for Poznań continues to
48% by international guests over the 2011 be the MICE market. Poznań should do
summer. It is estimated that the increase in all it can to reposition itself in this very
Hotel ***** tourist arrivals in 2011, up 6.7%, was partly lucrative segment. In 2011, Poznań had
Hotel **** due to Poland’s EU Council Presidency. the Open European Bridge Championship,
Hotel ***
the International InterTech Conference
The BPO business continued to and the World Rowing Regatta Masters.
Hotel **
create corporate room nights. Kraków
Hotel * has quietly become a very popular SZCZECIN
destination for BPO activities.
Source: Colliers International on the base of Hotel Registered in
Occupancies climbed to 61% in Szczecin,
Poland with an average ADR of €52. The
The first Hilton Garden Inn in Poland
Radisson Blu’s Szczecin property,
opened in Kraków in January 2011. The
still the market leader, fared well in
only significant transaction in this city
TOURIST ARRIVALS (MILLION) the city and is currently undergoing
was the Francuski Hotel, which was
20 renovation of its 20 year old building.
sold for 22 million Polish Zloty.
15 The Neptun Hotel was sold in 2011 to Echo
TRICITY
Investment, who purchased the building with
10 As a host to a few EU Council Presidency the plan of expanding the Galaxy retail gallery.
events, Tricity’s Hotels also saw growth As a result, Szczecin will see a reduction of
5
in 2011. Gdańsk’s hotels performed the hotel room inventory in the next three years
best in terms of y-o-y RevPAR growth. at that hotel. However, the hotel inventory
0
Gdańsk recorded a 61% occupancy through number may only be minimally affected as
2005
2006
2007
2008
2009
2010
2011
2012f
its hotel categories, with an average J.W. Construction, the owner of Hansa tower,
daily rate of €59. Five star branded is planning a small 5-start hotel as an addition
Source: Institute of Tourism
hotels finished the year at approximately to its mixed use office-retail project in the city.
66% occupancy and an ADR of €88.
The Focus Hotel, a 98 room 3-star

property, opened in March of 2011
in Gdańsk. Otherwise, there are no
international branded hotel projects
in the pipeline for 2012 in Tricity.
Sopot’s Hotels also enjoyed a better

year than 2010. 5-star hotels in the city
performed at a level of 58% in occupancy
at an average achieved rate of €112.
Gdynia’s occupancy was 49%

with an ADR of about €47.
FORMALLY RATED HOTELS ŁÓDŹ A dual branded Campanile and Premier Class
AS OF END 2011 facility is presently under construction, with
The city experienced a minimal fluctuation
CATEGORY WARSAW KRAKÓW POZNAŃ an estimated opening date of Q2 2012. Puro
of its hotel industry trading numbers.
Hotel Wrocław had its grand opening in
Hotel ***** 10 10 1 Regional and local conferences held in Łódź
April 2011. The Polish company has already
Hotel **** 7 25 5 were smaller, with fewer overnight paying
announced the development of another Puro
Hotel *** 22 74 22 guests. The leader in the market continued
Hotel in Poznań. The 111 room, 4-star Haston
Hotel ** 13 20 15 to be Andel’s Hotel in Manufaktura, which
City Hotel was also delivered at the end of
Hotel * 9 5 2 practically owns the small to medium
2011. Its 1,500 m² conference centre which
Total: 61 134 45 size MICE segment in Łódź. The city did
will be completed early in 2012 will be a
54% in occupancy across all branded
welcome addition to the city’s MICE market.
CATEGORY WROCŁAW GDAŃSK hotels at an achieved ADR of €62.
Hotel ***** 5 4
OTHER POLISH CITIES
Hotel **** 10 5 A new 4-star, 191 room Doubletree by
Hotel *** 25 14 Hilton Hotel is being built. The hotel is In Bydgoszcz, a Campanile is being built.
Hotel ** 3 7 expected to open by H1 2013. The 127 Likewise, a 103 room Hampton by Hilton is in
Hotel * 4 0 room Holiday Inn should also be completed the works. In Świnoujście, PGB Dom will open
Total: 47 30 by Q3 of the next year. Finally a new 162 the first Hampton by Hilton Hotel by midyear.
room Novotel Hotel is under construction
CATEGORY ŁÓDŹ SZCZECIN and scheduled for opening in April 2013. PROGNOSIS
Hotel ***** 0 0 Poland’s GDP growth in 2012 is expected
Hotel **** 2 4 Łódź is predicted to become a new hub for
to be one of the strongest in the EU.
Hotel *** 10 6 medium sized national conferences and MICE
Poland continues to invest in infrastructure
Hotel ** 9 4 related events. This city will continuously need
projects all over the country, with more
Hotel * 2 5 to promote and market the city’s uniqueness
than €8 billion earmarked to be spent this
Total: 23 19 in order to attract businesses in the CEE.
year. The ongoing preparations for the
UEFA Euro 2012 championships will be
Source: Colliers International on the base of Hotel Registered in
WROCŁAW
Poland noticeable by H1 2012. As a result, the
Branded and other significant hotels hospitality industry will have a successful
drove occupancy at levels of 66% and year. New developments will continue to
an ADR of €59 across all categories. come online based on projects where the
5-star branded hotels totaled €86 in economics of the investment make sense.
ADR and a 67% occupancy rate. These
hotels included the Radisson Blu, Sofitel, The horizons for globally branded
Granary, Monopol, and Platinum Palace. 1, 2 and 3-star products around the
country remain optimistic for 2012.
In 2011, Wrocław won the European Capital
of Culture for 2016. This is not only an We expect the following economy brands to
incredible achievement for the city, but also continue their expansion in Poland: Super 8,
a monumental opportunity for Wrocław to B&B, Hampton by Hilton and Best Western.
become a top cultural destination in the EU.
Similar to 2010, there were no new hotel

openings this past year and the pipeline for
a 5-star Hilton project continued its delays
due to a lack of financing. A similar issue
was affecting the Hilton Garden Inn.
RESEARCH & FORECAST REPORT | 2012 | POLAND | LAND
LAND
SUMMARY PROGNOSIS
PRICES FOR THE OFFICE DEVELOP-
MENT SITES (€M² OF GLA) 2011 saw a large number of land As a result of new legislation which
transactions with a total volume exceeding will come into effect in April 2012, the
CITY/REGION MIN MAX MID-POINT
1 billion PLN. To put 2011’s total in residential development community will see
Warsaw 180 900 540
perspective, while impressive for a post a consolidation as only the largest companies
Kraków 150 320 235 financial crisis total, between 2007 and will be in a position to meet the new legal
Łódź 100 170 135 2008, Warsaw, Kraków and Wroclaw requirements. This will result in development
Poznań 150 300 225 individually transacted 1 billion PLN. land being brought to market, and the sale
Katowice 75 160 117.5 of some smaller development companies.
TriCity 100 300 200 Despite the high supply of investment land,
Wrocław 100 350 225 demand remained unsatisfied, as much If the financial markets and the Eurozone can
of the land on offer still failed to meet offer stability to investors, 2012 should be a
PRICES FOR THE RESIDENTIAL DEVEL- developers’ criteria. Poor location and good year for land investments in Poland.
OPMENT SITES (€M² OF PUM) poor shape of the site, which prevented
efficient development were among the main
CITY/REGION MIN MAX MID-
POINT reasons why some plots could not be sold.
Warsaw – city centre 300 900 600
Warsaw – suburbs * 140 380 260 Large developers consolidated in 2011,
Kraków 120 300 210 seeking to replenish their land banks, and
Łódź 70 180 125 enter joint venture partnerships. General
Poznań 80 280 180
contractors and smaller developers also
Silesia 60 200 130
actively sought partners for their projects.
TriCity 100 300 200
TRENDS
Wrocław 130 300 215
* Mokotów, Ursynów The market should remain active,
and in the coming months we expect
to see a continuation of transactions
PRICES AND TRANSACTIONS
for office sites in Warsaw, Kraków,
INVESTOR LOCATION SIZE PRICE
(ha) (million TriCity, Wrocław and Poznań.
PLN)
J.W. Kasprzaka,
8.1 174
The supply of land designated for retail
Construction Warsaw development in cities with populations
Dom Powązkowska, over 40,000 is likely to increase.
9.9 168
Development Warsaw
Echo Konstruktor- We will observe a further increase in
7.4 63
Investment ska, Warsaw demand for small shopping mall and retail
Echo Hotel Mer- park sites in small and medium cities.
n/a 125
Investment cure, Warsaw
Skargi,
Skanska 3.0 36 Prices for retail land should retain
Wrocław
their current level at around PLN 120
to 600 for retail parks and PLN 250
to PLN 1,500 for shopping malls.
In 2011 several projects came to market that

suffered from the difficulties of the crisis and
outstanding loan balances. These projects
are being offered for transactions not only
as ordinary sales, but also as opportunities
to build a consortium, or simply in exchange
for the transfer of existing loans.
RESEARCH & FORECAST REPORT | 2012 | POLAND
COLLIERS RESEARCH
• 978.6
million square feet under the region. Definitions of the key metrics used in our regular reports are highlighted below.
POLAND: Yield = first years’ net income/purchase price (prior to deducting fees and taxes).
Dominika Jedrak period, the quoted figure will be more hypothetical, based on expert opinion of market
Director conditions, but the same criteria on building size and specification will apply.
Research & Consultancy

Dir +48 22 333 9172 a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
Main +48 22 331 7800 either the rent-free period or fit-out contribution available at the time of the survey date.
dominika.jedrak@colliers.com Average Headline Rent: Average Headline Rent represents the average open-market tier of
Pl.Pilsudskiego 3, IV floor | 00-078 Warsaw,
Poland Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.

RESEARCH & FORECAST REPORT | 2012 | POLAND | LEGAL OVERVIEW
POLAND LEGAL OVERVIEW

BASIC FORMS OF TITLE > the supply is made within the first NOTARIES AND NOTARIAL FEES
occupancy (as defined by VAT Law) or
In Poland there are four basic forms of title before the first occupancy took place; Legal agreements for the sale of real estate
to real estate: (i) full ownership (“własność”) and the transfer of perpetual usufruct rights to
which is similar to “freehold” title and entitles > the period between the first occupancy and real estate need to be in notarial form in order
the owner to a full range of perpetual rights the supply of a building, construction or to be enforceable in Poland. Notarial fees are
to use and enjoy real property; (ii) the any part thereof was shorter than 2 years; calculated on the value of the transaction up
right of perpetual usufruct (“użytkowanie to a set maximum. The new law on Court
B the supply of buildings, constructions or Registration Fees (effective as of March
wieczyste”) which is a form of ownership any part thereof (together with the land)
where the State Treasury or units of local 2006), introduces fixed fees for entering the
which is not subject to the exemption following rights into the Land and Mortgage
government own the underlying title and referred to in A, provided that:
grant the user full rights to use and enjoy Registers: the right of ownership, the right
the property for up to 99 years subject to > the seller had no right to reduce the of perpetual usufruct and limited property
an annual statutory fee; subject to certain amount of output tax by the amount of rights (e.g. mortgages and easements).
conditions, the right of perpetual usufruct may input tax connected with these items; CONSTRUCTION LAW
be changed into full ownership; (iii) a long > the seller did not incur expenses for
term lease (“dzierżawa”), which was originally As a general rule, all major construction
their improvement in respect of which requires a building permit in a form of
designated for agricultural land but is often the seller had the right to reduce the
used to lease commercial property for up to a an administrative decision. Following the
amount of output tax by the amount of amendments made in 2006, administrative
maximum period of thirty (30) years; and (iv) input tax, and if such expenses were
a lease for a fixed period of time (“najem”) requirements for the construction of
incurred, they were lower than 30 per media access have been relaxed.
which has a maximum term of ten (10) years cent of the initial value of these items.
or thirty (30) years, if the agreement is PLANNING AND DEVELOPMENT LAW
entered into between commercial entities. However, taxpayers who fall within the
VAT exemption referred to in point A The local development plan is the main
ACQUISITION OF REAL ESTATE above, may opt for taxation of the supply document deciding which investments are
BY FOREIGNERS made (if the formal requirements provided to be allowed on a given site. However,
Generally, the direct or indirect acquisition by VAT Law are met). The exemption many Polish communes still have no
of commercial property by entities which are referred to in point B above is obligatory local plans in force and therefore, in such
“controlled” by foreigners require a permit for taxpayers (i.e. they may not waive this cases prior to obtaining a building permit,
from the Minister of Internal Affairs and exemption and opt for VAT taxation). an administrative decision on the site
Administration. However, due to amendments development conditions is required.
Where a sale of immovable property is either
arising from Poland’s EU accession, entities VAT exempt or not subject to VAT, the sale LANGUAGE
from the EEA no longer require such a permit. is subject to a transfer tax at the rate of
However, certain restrictions and transitional 2% (the buyer is liable for the payment of Most legal agreements do not need to
rules relating to the purchase of specific types the transfer tax). Transfer tax is charged be executed in Polish in order to be
of real estate (e.g. agricultural land or land on the market value of the immovable enforceable in Poland. Nevertheless,
located in border zones) remain in place. property subject to its being transferred. the notarial form of real estate transfer
can only be executed in Polish.
REGISTRATION SYSTEM LEASES
In Poland, District Courts maintain land and Leases in Poland are freely negotiable, but
mortgage registers (“księgi wieczyste”) subject to certain mandatory provisions of
which can sometimes date back more than the Civil Code which cannot be varied by
100 years, depending upon the jurisdiction.
These registers show the owner of the
contract. The most important restrictions
concern the length of lease terms (although Fluent in Real Estate
property in question and also indicate the in commercial leases the maximum period
extent to which the land is encumbered by for which a lease agreement can be signed www.salans.com
mortgages and other limited property rights was recently extended from 10 to 30 years, Information contained in this general outline does not constitute
or limitations. As a general rule, “good faith” however this relates solely to those leases, a legal opinion and is not meant to be comprehensive. As a
purchasers of land are entitled to rely upon in the case of which both parties are result of pending and new legislation, laws and regulations
information contained in the registers. commercial entities) and termination rights. change frequently in Poland and are often subject to
varying interpretations. Professional advice should be
TRANSFER TAXES RESTITUTION CLAIMS sought regarding all aspects of real estate in Poland.
Generally, the supply of immovable There is no comprehensive restitution

property is subject to VAT. The supply law in Poland. Instead, there is a
of undeveloped land other than building complex web of laws which, under limited FOR MORE INFORMATION
land or land designated for development is circumstances, permit certain former PLEASE CONTACT:
exempt from VAT. As regards developed owners of real estate to assert claims
against governmental authorities. Restitution Piotr Szafarz
land, the VAT exemption also covers:
claims may be registered in the land and Partner
A the supply of buildings, constructions mortgage books; however, the absence Head of Real Estate – Poland
or any part thereof (together with of such registration does not necessarily T: +48 22 24 25 647
the land), except where: indicate that no such claims exist. E: pszafarz@salans.com

RESEARCH & FORECAST REPORT | 2012 | POLAND | TAX SUMMARY
POLAND – TAX SUMMARY

GENERAL rates. On disposal, the taxpayer can deduct >> fromthe shareholder holding solely at
the net tax value of the assets and associated least 25% of voting rights or shareholders
The increased VAT rates introduced in
disposal expenditures. Taxable income can be holding jointly at least 25% of voting
January 2011 - a standard rate of 23%
reduced by tax losses available for utilisation. rights of the borrowing company;
as well as reduced rates of 8% and
5% - are still applicable in 2012.
In case of a sale of shares in a Polish >> from
a sister company which has the
company held by a non-Polish shareholder same shareholder as the borrower, if
Generally, based on the currently binding
typically the double tax treaties Poland has the shareholder owns at least 25% of
VAT provisions, the sale of buildings and
concluded with other countries provide for voting rights of both the lending and the
constructions occupied for longer than two
a taxation right of respective capital gains in borrowing company (i.e. sister company).
years is VAT exempt (as a result, 2% transfer
the jurisdiction of the shareholder. However,
tax is payable by the buyer). However, in
some double tax treaties provide for the Generally, the thin capitalisation restrictions
most cases, taxpayers may give up the
sale of shares of a Polish company whose apply to interest paid from the above loans
exemption on such sale and make it a VAT-
assets principally (directly or indirectly) by a Polish company if as per the date of its
able transaction if special conditions are payment the total debt to the above qualifying
fulfilled. Also, exempt from VAT are supplies consist of real estate to be taxed in Poland
at 19% CIT (for example double tax treaties lenders and shareholders of a parent entity
of buildings and constructions if the supplier with at least 25% of voting rights in the parent
had no right to deduct input VAT upon with UK, Spain, France, Ireland, Germany,
Austria, Belgium, Denmark, Malta, Sweden). entity exceeds three times the equity of the
acquisition of this building or construction Polish company. In principle, the interest paid
(and additional conditions are met). from the part of the loan exceeding this debt
A fiscal group may be created for corporate
tax purposes. There are a number of to equity ratio will not be tax deductible. There
The reduced 8% VAT for sales of residential are some uncertainties how thin capitalisation
property before first occupation applies only conditions that need to be met (in practice,
the most difficult is the requirement for rules should be applied in practice.
if the property meets the criteria of a social
housing programme. If the area of a house the profit of the group for tax purposes to
WITHHOLDING TAX
or apartment exceeds a certain area, both be equal to at least 3% of gross taxable
reduced and standard VAT rates apply. revenue). In principle, partnerships are used Dividends
to achieve consolidation of CIT results.
Dividends are subject to 19% withholding
Starting from 1 January 2011 collective tax. This is generally reduced under double
investments institutions (including investment Tax Depreciation
tax treaties to which Poland is a party. To
funds) with its seats within EU Member State Depreciation of fixed assets is usually calculated apply the reduced rate, the payer should be
or another state belonging to the European on a straight-line basis using the rates laid down in possession of a tax residence certificate
Economic Area are CIT exempt in Poland if in the Polish CIT Act. Depreciation write offs are of its shareholder and written confirmation
the certain, statutory criteria are fulfilled. then claimed on the initial value of the individual from the dividend recipient that he is not
fixed or intangible assets, in equal amounts each CIT exempt in the country of his residence.
CORPORATE INCOME TAX month, starting from the month following the Dividends paid to qualifying Polish resident
AND CAPITAL GAINS month in which a particular asset was brought company, EU/EEA resident companies (or
Generally, CIT in Poland is levied on all into use, until the end of the month in which the their foreign permanent establishments), or
taxable income, with some exceptions, e.g. total depreciation write offs equal the asset’s qualifying Swiss companies are exempt from
income derived from forestry and agricultural initial value or that in which it is liquidated, Polish withholding tax if the shareholder
activities. A 19% rate of CIT is payable disposed of or found missing. The key annual owns at least 10% (for Swiss shareholders at
on income which is computed as taxable depreciation rates are: 2.5% for buildings, 4.5% least 25%) of payer’s shares and the shares
revenues reduced by eligible costs incurred for constructions and 10% for technical devices. are uninterruptedly held for at least two
to generate these revenues or retain or Land is not depreciated for tax purposes. years. The withholding tax exemption is also
secure a source of a taxable revenue. applicable if the dividend payments are made
Tax Losses before the end of this period, but if the shares
are disposed of earlier, any withholding
The costs incurred in respect of Tax losses may be carried forward for tax due is payable together with penalty
abandoned investments may be
five years and up to 50% of a specific interest. Moreover, in order to apply reduced
treated as tax-deductible costs.
tax loss can be utilised in any one year rates, the relevant treaty should provide for
(after five years they expire). The ability the exchange of information between tax
There is no separate capital gains tax, but
to utilise tax losses is unaffected by a authorities of Poland and relevant country.
gains on the disposal of fixed assets and
change of ownership in a company.
intangibles are added to the taxpayer’s
Interest, Royalties and Intangible Services
mainstream income (gains from the sale of
Thin Capitalisation
real estate property are taxed at the regular Under Polish domestic legislation, withholding
19% CIT rate). For the seller, profit on the sale The Polish thin capitalisation rules limit the tax of 20% applies on payments of interest,
of assets is added to the mainstream income tax deductibility of interest paid or capitalised royalties and fees for intangible services
subject to corporate income tax at normal on loans granted by qualified lenders, i.e.: made abroad. This is generally reduced or

eliminated under the double tax treaties to >> 2% of the value of constructions/ In case of a VAT exempt sale of the buildings,
which Poland is a party. However, in order installations (in principle the value being constructions and their parts, the transaction
to apply the treaty rates, the payer should the base for tax depreciation purposes is subject to 2% transfer tax. In case of a sale
have a certificate of tax residence of the at 1 January each year not been of land with a building which qualifies for
recipient and in respect of interest and reduced by depreciation deductions). a VAT exemption, then both assets are VAT
royalties payments also written confirmation exempt and are subject to 2% transfer tax.
from the recipient that he is not CIT exempt Year after year it has been the Government’s
in the country of his residence. Moreover, in intent to implement a new real estate tax where The standard VAT rate in Poland on the
order to apply the reduced rates, the relevant the basis for the taxation would be the value sale of land and buildings is 23%. The
treaty should provide for the exchange of of the real estate (cadastral tax). However, the reduced 8% VAT for sales of residential
information between tax authorities. implementation of this tax has been postponed property before first occupation applies only
each year and there is no information if the property meets the criteria of social
Poland was granted a derogation period when (if at all) it will be implemented. housing programme (houses not larger
until 1 July 2013 to fully implement the EU than 300 square metres and apartments
Interest and Royalties Directive. Based on TAX ON CIVIL LAW TRANSACTIONS not larger than 150 square metres). If the
the above derogation provisions, until 30 (PCC, TRANSFER TAX) area of a house or apartment exceeds
June 2013 interest and royalties paid to such values, both VAT rates apply (8%
A 0.5% PCC is imposed on capital injections for areas up to 300 square metres/150
qualifying EU resident companies or EU to a newly registered company, as well as
permanent establishments are subject to 5% square metres, 23% for the portion of the
on any increases of the share capital or area exceeding those statutory limits).
withholding tax. From 1 July 2013 qualifying additional payments made to the reserve
interest and royalties will be tax exempt. To capital of the company (or on the value of
apply the EU Interest and Royalties Directive Where a property is acquired as a going
contributed assets in respect of partnerships). concern (as a whole business or organised
provisions in the above manner a 2-year Shareholder loans are PCC exempt while part of business) such transaction falls
holding period is required. These provisions non-shareholder loans are generally subject outside of VAT. In these circumstances,
can be also applied before the 2-year holding to 2% PCC (the borrower is obliged to pay transfer tax applies at 2% on the value of
period has been fulfilled, but if the shares are the transfer tax; if certain conditions are met property and is payable by the buyer (if an
disposed of earlier, any withholding tax due there is no obligation to pay PCC on loans). enterprise consisted of various components,
is payable together with penalty interest.
transfer tax of 2% applies to sales of real
Moreover, the sale and exchange of goods estate, movables, perpetual usufruct rights;
Similar provisions apply to qualifying and property rights are subject to PCC if 1% applies to sale of other property rights).
Swiss resident companies. outside the scope of VAT. If the sale is VAT
exempt, it is usually exempt from PCC, Lease of office and rental space is subject
REAL ESTATE TAX except for land and buildings (purchase of to 23% VAT. Lease of residential property
Real estate tax is a local tax which applies real estate is subject to 2% transfer tax on for housing purposes is VAT exempt
to land (and perpetual usufructuary of land), its market value even if VAT exempt). regardless of the status of the tenant.
buildings and constructions (installations).
Acquisition of shares in Polish companies Place of Supply of Services
The taxable base for all buildings is the in principle is subject to 1% transfer tax in
Poland payable by the buyer, but some tax Generally, the place of supply of services
ﬂoor area of the building. For land (and to a taxpayer registered for VAT purposes
perpetual usufruct of land), it is the area. optimisation techniques may be used.
in Poland or in another EU country is
For constructions (installations), the the place where the purchaser has its
depreciation value is taken into account. VALUE ADDED TAX (VAT)
seat, permanent place of residence or
The current (for 2012) maximum rates General Provisions Regarding permanent place of carrying on business.
for real estate tax cannot exceed: However, in case the supply of services
Real Estate
is done for entities other than taxpayers
>> PLN0.84 per square metre for Generally, the sale of buildings, constructions (registered for VAT purposes in Poland on
land used in business activity and their parts is VAT exempt (except if the in other EU country), the place of supply of
sale performed confi nes the first occupation services is where the service provider has
>> PLN 0.43 per square metre for other land or is made before it or if the sale is performed its seat, permanent place of residence or
within two years of first occupation). permanent place of carrying on business.
>> PLN 0.70 per square metre for dwellings However, in most cases taxpayers are able to
give up the exemption if special conditions are However, in case of services related to
>> PLN21.94 per square metre for fulfilled. Also, exempt from VAT are supplies real estate, the place of supply of services
buildings used in business activity of buildings, constructions or their parts if the is where the real estate is situated.
supplier had no right to deduct input VAT upon
>> PLN7.36 per square metre acquisition of this building or construction Advisory services provided to a non-
for other buildings and additional conditions are met. taxpayer (i.e. entity not registered for

VAT purposes in Poland or in another EU

country) having its seat or permanent place
of residence outside of the EU are subject
to taxation where the purchaser has its
seat or permanent place of residence.
VAT Refund and Domestic Law ESTATE SERVICES IN POLAND, PLEASE
CONTACT:
The standard refund period has been
shortened from 180 to 60 days. In order to
apply for direct refund of input VAT excess Honorata Green
within the standard 60 days, the taxpayer Partner
has to perform a taxable sale. The standard
periods of refund (60 days) can be shortened KPMG in Poland
to 25 days if all purchase invoices from ul. Chlodna 51
which VAT is declared in the specific VAT 00-867 Warszawa
return are paid by the time the VAT return Poland
is submitted to the tax office. If there is
no VAT-able activity, then the VAT refund T: +48 22 528 11 53
can be obtained as well, however, within M: +48 604 496 370
180 days. It can be shortened to 60 days E: honoratagreen@kpmg.pl
if the taxpayer files a security deposit. www.kpmg.pl
Foreign VAT Refund under VIII Directive

Since 1 January 2010 VIII Directive
reclaims must be filed with the local VAT
authority (where a company is registered)
and not where VAT has been paid. A VAT
reclaim has to be fi led electronically.
EC Services List
Since 1 January 2010, the monthly EC
services lists must be filed by taxpayers, if
they supply services to taxpayers from other
EU countries where the reverse-charge
mechanism is applied. Advisory services
where the VAT is charged in the recipient’s
country have to be included. Services
relating to local real estate where the VAT
is charged locally are not to be reported.
The EC services lists must be fi led by the

15th of the following month or by the 25th of
the following month if filed electronically.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA
ROMANIA

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: Last year, Romania’s strong Economy: In the near term, the
performance in industrial production, increased Credit Default Swap (CDS)
as well as, its solid export performance spread is expected to be reflected in
helped to recover the country’s GDP. domestic interest rates which may
hinder investment and consumption.
Investment: 2011 investment figures reflected
a mixed appetite for real estate investments. Investment: We are expecting a widening
Following a dynamic H1 where a number of the price gap between sellers and
of new deals were generated, the market buyers in the coming months with
slowed down at the end of H2 as investors fewer deals initiated as a result.
took a “wait and see” approach as the
European sovereign debt crisis unfolded. IIndustrial: The growth of the industrial
market in 2012 will be similar to the
Industrial: The industrial market remained previous year. Logistics operators will
stable as only 10,000 m2 came on market in continue to be the most active players in
TRENDS 2012
Bucharest. Demand decreased by 10%, a level terms of demand for industrial space.
comparable with 2004’s demand figures.
GDP GROWTH
Offices: As new and existing developers
PRIME PRIME Office: In continuation of the 2010 trend, an revitalise their optimism toward developing
YIELDS OFFICE RENTS increasing number of companies consolidated in the Bucharest market, demand will
their offices into a single property. continue to be driven by companies
seeking to optimise their space.
Retail: The new supply of shopping centres
in Romania was notable in terms of the size Retail: The number of pre-leased deals in
of projects, but also significant in terms the best located shopping-centres (expected
of the ability of the developers to bring openings in 2013-2014) will carry on
projects online with high occupancy rates from the positive trend seen last year.
of over 70%. Food retailers remained one
of the most active segments in the market,
VOLUMES RETAIL RENTS followed by large fashion retailers.
Increasing
Stable
Decreasing

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
2010 2011 2012 Despite having a reputation as one of the Romania currently has a Stand By
GDP % -1.27% 1.49% 2.10% Balkan bad boys, according to the latest Arrangement (SBA) with the IMF for a total
CPI % 6.11% 6.37% 4.26% IMF report published January 23rd, 2012, of €3.4 billion. While not all of the money
Unemployment % 7.63% 5.03% 4.83% the Romanian government received praise has been disbursed, as Romania continues
Source: IMF/CIA World Fact Book/FocusEconomics for its monetary and fiscal discipline. to meet IMF criteria, funds will be made
Population 21 904 551 available. Despite the risk of disruptive fallout
Top 3 Cities 2 563 313 11.70% The IMF also upgraded the country’s GDP from the Eurozone it is felt that Romania
Bucharest 1 942 254 8.87% performance for 2011 due to its strong will be able to meet its fiscal target through
Timisowa 311 428 1.42% agricultural output. 2012 GDP estimates were, continued discipline rather than new policies.
Iasi 309 631 1.41% however, revised downwards to reflect the
Source: IMF/CIA World Fact Book/FocusEconomics externalities of the European crisis. While Unfortunately despite this upturn in
2011 growth is expected to close at a growth performance, the price of risk by association
Economic Make-up
rate of 2%, by the end of 2012 we will see a of both the EMU and EU periphery has
Sector GDP Labour
slight decrease in economic growth to 1.8%. meant that CDS spreads on Romanian debt
Agriculture 12.2% 29.7%
have widened considerably. In the near
Industry 37.6% 23.2% term this is expected to be reflected in
Strong industrial production and exports
Services 50.2% 47.1% higher domestic interest rates which may
have initiated a sustainable recovery in
Source: IMF/CIA World Fact Book/FocusEconomics Romania’s GDP. Favourable economic hinder investment and consumption.
conditions, including a lower unemployment
KEY ECONOMICS INDICATORS rate, kick-started a recovery in domestic
10% demand and revealed that the slump in
5%
retail sales has bottomed out. The dips in all
three trends are supported by the external
0% impact of austerity measures in the Eurozone
and by extension, the EU as a whole.
-5%
-10%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Unemployment rate
Source: IMF
GOVERNMENT FINANCING
(% OF GDP)
0.4
0.3
0.2
0.1
0
-0.1
-0.2
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Structural deficit
Public debt gross
Current account balance
Source: IMF

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | INVESTMENT MARKET
INVESTMENT MARKET
Key Investment Figures - Romania 2011 investment figures reflected a mixed INVESTORS AND DEAL PIPELINE
Investment Turnover € 150 million appetite for real estate investments.
In H1 2011, in the context of the feeble but
Prime Office Yields 8% Following a dynamic H1 where a number
nonetheless positive economic growth of
Prime Retail Yields 8.5-8.75% of new deals were generated, the market
the country, and the result of the Floreasca
Prime Industrial Yields 10% slowed down at the end of H2 as investors
169A transaction (at an 8% yield) the
took a “wait and see” approach as the
market saw a slight yield compression. This
European sovereign debt crisis unfolded.
brought the expectations of sellers and the
CLASSIC INVESTMENT DEALS interested investment funds closer and
TRANSACTIONS
Property Seller Buyer Price sparked a heightened level of activity in
(€ In terms of closures, the year was mostly terms of offers, negotiations and potential
mil.) dominated by small sized transactions of deals during this period. The main target
Praktiker under €20 million. This is a consequence of the investors remained Grade A office
Omilos Bluehouse 10
Craiova of the low activity of Western investment buildings in prime locations in Bucharest,
Astoria Nicholas funds (either private equity or institutional) followed by retail big boxes with good
Bluehouse 10
centre Abaco in 2010. Therefore, the most active players quality tenants and long term contracts.
Augustin in 2011 were the Greek fund, Bluehouse
Louis Blanc Cefin Constantin 6
private investors like Augustin Oancea The worsening of the European economic
Oancea
and Ioannis Papalekas. The overall volume environment coupled with the tightening
Insolvency Ioannis
City Mall 17.3 of transactions amounted to around of the financing markets led to a more
company Papalekas
€150 million, of which only €45 million cautious approach from investors in H2,
MacroMall Carpathian Private 1
were from classic investment deals. which drastically reduced their activity
towards year end. Moreover, a number of
Apart from the three classic investment ongoing deals that were generated in the
OTHER TRANSACTIONS
transactions closed in H1 2011: Praktiker first half of the year were stalled or even fell
Craiova, Astoria centre office building in through. Nonetheless, the deal pipeline still
Property Type Seller Buyer
Romana Square and Loius Blanc office remains strong, the volume of transactions
Victoria City Joint Venture CD Capital NEPI
building in Victoriei Square, the market in due diligence or advanced negotiation
Adama Immofi-
Company
Intra-group Adama
nanz
saw two distressed sales of shopping stages amounting to €150 -200 million.
Raiffeisen
centre projects, namely City Mall in
Raiffeisen Raiffeisen Bucharest and Macromall in Brasov. YIELDS
Intra-group Property
Tower Evolution
Intl. Whereas the first half of the year brought
Iris Pitesti exercised The most notable transaction of the second
a yield compression for prime office
Shopping existing Avrig 3-5 NEPI half of the year was the joint venture
buildings to slightly below 8%, the trend
Gallery option partnership between the Canadian developer
was reversed towards the end of the year.
MacroMall Carpathian Private 1 CD Capital, represented by Colliers and the
The main cause of this development was
South African fund, NEPI, for the development
Source: Colliers International the tightening of financing conditions. With
of Victoria City Shopping Centre in Bucurestii
lending scarce and expensive, investment
Noi area. NEPI came in as a 50% partner and
funds have to be more reserved with yields
EVOLUTION OF YIELDS will lead the development of the 56,000 m2
in order to reach their return targets.
shopping centre. This is the first Bucharest
14% shopping centre joint venture transaction to
We expect see a widening of the price gap
be closed on the market since the inception
12% between sellers and buyers in the coming
of the crisis. It marks a growing trend
months and as a result fewer deals initiated.
10% among investors and developers who are
8%
not finding suitable existing projects or
available land plots and are thus drawn to
6% joint ventures that ensure good locations,
4%
good potential returns and a reduction of risk.
H1 2006
H2 2006
H1 2007
H2 2007
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
The lack of existing opportunities on the

market has also led investors who were
initially focusing on acquisitions to reorient
Office their strategy towards development. NEPI is
Retail
one prominent example - after the acquisition
Industrial
of European Retail Park Braila and Iris
Pitesti retail parks they are now developing
their own retail projects in Ploiesti and
Brasov next to Carrefour hypermarkets.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Bucharest SUPPLY RENTS
Total Stock 922,000 m2 During 2011, the industrial market was In Bucharest, rental levels have
Take-up 76,000 m2 characterized by stability as only 10,000 m2 remained stable, maintaining the same
Vacancy 15% were delivered in Bucharest in a build-to- values over the past 12 months.
Prime Headline Rent €4.2 m2/pcm suit facility. At the end of 2011, the industrial
Source: Colliers International and logistics stock measured 922,000 m2. PROGNOSIS
As insecurity still looms over economic
INDUSTRIAL AND LOGISTIC SPACE In the countryside, the modern stock
circumstances in the European Union,
DEMAND (THOUSAND M2) increased by 95,000 m2 in both build-to-suit
industrial market trends will not vary
facilities and speculative developments. Most
in 2012 from the previous year.
developers started their projects for specific
250
tenants so the majority of new industrial
While Bucharest remains the most important
200 space outside of Bucharest was build-to-
logistics hub in Romania, in terms of
suit. A few projects started on a speculative
150 production and manufacturing, cities such
basis located in Timisoara and Ploiesti.
100
as Cluj, Timisoara, Oradea, Craiova, Pitesti,
Brasov, will continue to attract new tenants.
50
DEMAND & VACANCY
0
In 2011, demand reached 76,000 m2 Similar to 2011, logistics operators will be
in Bucharest, out of which one third the most active players in terms of demand
2004
2005
2006
2007
2008
2010
2011
represented renewals and renegotiations. for industrial space. Also, we expect that
Source: Colliers International some of the outsourcing agreements
Compared to 2010, demand for will expire and hence we might see
AREA (m2) RENT(€ /m2) FORECAST industrial and logistics space decreased companies change their logistic operator.
< 3,000 4.0 - 4.5 Stable by 10%. Of total demand, half was
3,000 - 10,000 3.7 - 4.2 Stable driven by logistics operators. As lease agreements approach their
>10,000 3.5 - 4.0 Stable expiration date, landlords will work
Source: Colliers International When selecting space, tenants had a to maintain their current tenants.
propensity to seek out space that combined a
mix of quality and an appropriate rental rate Land transactions for industrial use will
as opposed to being purely driven by price. be limited as most of the large developers
in the market already have additional land
Similar to previous years, most demand was capacity for further developments.
located in the Western outskirts of Bucharest.
Demand also came from existing tenants that
either relocated or extended their space.
Outside Bucharest, over 50,000 m2 were

leased and another 22,000 m2 were
extended. Out of the total activity, the
automotive sector was most active in
both new demand and renegotiations.
2011 was the first year when important

companies relocated outside of Romania
and it is anticipated that the vacant space
left behind will soon be occupied.
The vacancy rate for industrial

space did not change in 2011.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Bucharest SUPPLY RENTS
Total Stock 1,474,000 m2 In 2011, the modern office stock of Bucharest Overall, headline rents did not record any
Take-up 175,000 m2 reached approximately 1.5 million m2. significant change in comparison to rental
Vacancy 16.5% 114,000 m2 of office space was completed rates in 2010. Although asking rents remained
Prime Headline Rent €15 m2/pcm last year and delivered in both central stable the majority of landlords offered rent-
locations and in the outskirts of the city. free months and other financial incentives,
and hence achieved lower effective rents,
NEW SUPPLY & PIPELINE (,000)
The pace of new office completions especially in buildings with high vacancy.
400
continued to slow down and is expected
350
to be muted in the coming years. PROGNOSIS
300
250 For 2012 and 2013 combined, we
DEMAND & VACANCY
200 estimate that another 170,000 m2 will be
150 In 2011, market activity increased slightly, completed, of which 65,000 m2 is already
100 pre-leased. In 2011, new and existing
following the trend started in 2010. Net
50
take-up reached 145,000 m2 out of the developers rekindled their optimism
0
175,000 m2 of total occupational market regarding the Bucharest market and are
2006
2007
2008
2010
2011
2012e
2012f
activity. Some of the tenants that renegotiated seizing the opportunity to build. Taking
Source: Colliers International their contractual terms, also expanded their into consideration prudent tenants, new
leased area. In fact, office space expansions delivered buildings will have higher technical
Area Vacancy
represented 8% of total net take-up. specifications and well designed, in an
West 0%
attempt to address the needs of clients.
Floreasca - Barbu Vacarescu 2%
An increasing number of companies
Charles de Gaulle 7%
consolidated their operations into a Demand will continue to be driven by space
Dimitrie Pompeiu 8%
single property. For instance, three of optimisation processes. Also, as lease
Victoriei 10%
the top ten financing institutions secured agreements come to an end, tenants will
Baneasa 18%
new, modern office space. Companies have the opportunity to move into new office
East 39%
who chose to consolidate were able to facilities. The lack of large spaces, above
Pipera 46%
take advantage of landlords’ flexibility 3,000 m2 will lead to a comeback of pre-
and current rental rate levels. leased transactions. Therefore, take-up will be
of similar value or slighty increase in demand.
The most active companies of the year
ASKING RENT LEVELS were financial institutions, medical and As the market matures, overall asking rents
IT&C segments, which together represented will be stable and may increase in the short
half of the 145,000 m2 of net take-up. term in areas with low vacancy rates.
Baneasa
13 -16 €
In terms of availability, 2011 is the first year In the last couple of years, local authorities
Piata Presei
16 € Baneasa since 2008 when office take-up surpassed initiated several infrastructure projects,
Floreasca Dimitrie
10–13 €
Pompeiu new supply. Therefore, the average vacancy aiming to facilitate and improve the
14–17 €
rate dropped to 16.5%. Taking out the urban traffic situation thereby enhancing
CBD Pipera area, the vacancy rate would sit access to several office areas.
West 16-20 €
10-13 € East at 12.5%. Availability throughout the city
10–14 € varies by area. For example, districts
such as Floreasca, Barbu, and Vacarescu
South
12 € benefit from an almost 0% vacancy rate.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | RETAIL MARKET – SHOPPING CENTRES
RETAIL MARKET
– SHOPPING CENTRES
Key Retail Figures - Bucharest SUPPLY RENTS
Total Shopping Centre In 2011 we witnessed a total supply of Rents remained stable in the top performing
947,000 m2
Stock shopping centre developments similar to shopping centres that had limited vacancy.
Prime Headline SC Rent €70 m2/pcm the level reached in 2009 and almost on
Prime Headline High Street par with the development levels recorded Different incentives such as free rent or
€75 m2/pcm
Rent
during the real estate boom. However, the fit-out contributions, as well as clauses that
main difference is that the proportion of food secured the success of the project for certain
City Shopping centre Size retailers (in m2) space take-up is the largest anchor tenants remained a market practice for
(m2) since 2002, reaching almost 30% of the GLA. existing centres. Incentives were also found
Baneasa Shopping City in projects that were required to achieve a
Bucharest 20,000
(extension) Although retail news in H1 was quiet, H2 high occupancy rate at the time of opening.
Maritimo Shopping saw the total new supply measure 180,000
Constanta 51,000
Centre
m2 of malls GLA, carried out in four new PROGNOSIS
Craiova Electroputere Parc 43,000
shopping centre projects and one extension.
Arad Galleria 32,000 Currently there are 11 shopping centre
Oradea Oradea Shopping City 30,000 projects under construction out of which
In addition to the size of new retail supply
three are extensions in existing centres.
* The figures are based on the official in the market, the percentage of space
The quantity of pre-leases in well-located
declarations of the developers that was pre-leased was at its highest in
Source: Colliers International shopping centres (2013-2014 completions)
comparison to previous years, reaching
Brand No. of Opened Shops will continue to increase this year.
over 70% for all retail projects.
H&M 11
New Look 5
170,000 m2 GLA is expected to be delivered
Apart from the 20,000 m2 extension of
in 2012, but given the construction
Calzedonia 3 Baneasa Shopping City, all the other projects
status, there could be discrepancies
Wienerwald 3 were delivered in the countryside.
in the actual opening dates.
Eponge Fashion 6
Source: Colliers International DEMAND
The Romanian retail market performed well in
City Rent level * The food segment remained one of the 2011, and as a result there is interest among
(€ m2 /pcm) most active retail segments in the market, new brands to enter the market in 2012.
Bucharest 60-70 followed by the large fashion retailers, led by
Cities over 250,000 German operators expanding in the market.
30-35**
inhabitants
Cities under 250,000 Retailers who had previously put their
15-20
inhabitants expansion plans on-hold got their plans
* The figures are based on the official underway but the decision to expand
declarations of the developers
has become a lengthier process as
Source: Colliers International businesses are more cautious.
* Starting with 2012 Colliers has changed the methodology Retail locations with the largest geographic
of calculating retail stock. The new calculation of shopping appeal continued to be Bucharest as well as
centres stock includes any commercial scheme planned,
large cities with over 200,000 inhabitants.
built and managed as a single entity, comprising units
with a minimum GLA of 5,000 m2. Big box retailers
are not included in the calculation, nor schemes that We also witnessed anchor tenants that
include several box units, regardless of size opened shops in smaller cities (100,000 to
150,000 inhabitants) in order to address
a segment of demand not yet covered.
There were several new retailers who entered

the Romanian market in 2011, such as H&M,
who in less than one year opened 11 shops
and agreed on several new locations in 2012.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | RETAIL MARKET – RETAIL PARKS
RETAIL MARKET
– RETAIL PARKS
SUPPLY RENTS
BIG BOX OPENINGS - 2011
Three retail parks planned for H2 2011 Rents remained stable for most big
DIY were successfully opened, bringing box segments. The evolution of rents
Retail Brand Parent Opened Units another 98,500 m2 GLA on the market. for the gallery operators followed the
Company same trend as the shopping centres.
BauMaxx BauMaxx 1 The big retail park schemes planned
Bricostore Bresson 1 to be secured by developers in Due to high land prices we may witness
Dedeman Dedeman 5 2011, were postponed due to the retail park transactions that involve sale
Leroy Merlin Leroy Merlin 1 complicated deal structures. of part of the space to end users.
FOOD OPERATORS* Several stand alone units were secured by PROGNOSIS

Retail Parent Opened retailers in the food and DIY segments
Due to the economic situation and financing
Brand Company Units
problems, risk minimisation will be at
Cora Delhaize 1+2** Small retail schemes anchored by discount
the forefront of retail expansion plans.
Kaufland Lidl&Schwarz 11 hypermarkets were developed, continuing
Carrefour Carrefour Group 2 the trend seen over previous years.
Rental prices increase on desirable
Auchan MGV Distri-Hiper 2* plots of space in retail parks are not
Selgros REWE Group & Co. 1 DEMAND
anticipated despite the fact that supply
* Total size of the box over 5,000 m2 The main focus of hypermarkets was is limited. Retailer sales are expected to
** Hypermarkets opened in shopping centres. to secure the best locations in the top remain at average levels in the short term,
cities, a trend that will continue. minimising the likelihood of higher rents.
GALLERY EXTENSION Some retailers and developers expanded The smaller strip mall format anchored
Project Owner City in medium cities with low quantities of by discounters of all sizes will continue to
European Park modern stock of retail per capita. represent development opportunities for
NEPI Braila experienced landlords and developers.
(extension)
Source: Colliers International Kaufland and Dedeman were the
most aggressive in terms of opening There is only one outlet retailer in
RETAIL PARK OPENINGS - 2011 and securing locations. Bucharest and due to the lack of new
brand entrants to the market we believe
Retail Park Area (m2) City
Apart from the leasing market, retailers that the existing scheme is sufficient
Colosseum 37,500 Bucuresti for the market in the years to come.
also played an important role in buying real
Botosani
estate. “Succes” hypermarket, a local brand,
Shopping 15,000 Botosani
opened their first hypermarket unit last year The retail mix in big boxes will remain
centre
replacing PIC in two of their locations. limited to hypermarkets and DIY operators
Drobeta
Cora Drobeta 29,000 as the market awaits new brands to
Turnu Severin
Source: Colliers International Lidl confirmed an aggressive expansion complete the tenant mix of the parks.
strategy with its first opening and the
rebranding of the former Plus store.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | RETAIL MARKET – HIGH STREET
RETAIL MARKET
– HIGH STREET
Area Vacancy SUPPLY The Commercial Gallery of the Marriott
Centre 6% Hotel increased its mix of luxury
During the last year, a number of family
Semi-centre 12% brands through which Salvatore
businesses experienced problems and
Periphery 15% Ferragamo has secured a location.
exited from their commercial leases.
In addition, many major networks gave
Calea Dorobantilor is increasingly becoming
up their unprofitable units leading to
the preferred location for retailers,
RENTS BUCHAREST slightly increased vacancy rates on
but due to the lack of anchor tenants,
Area Rent level high streets in compared to 2010.
similar to the situation in the Old City
(€ m2 /pcm)*
Centre, closing transactions difficult.
Centre 50-75 After the opening of H&M in H1, along with
Semi-centre 20-35 the previously opened New Yorker and Zara
The lack of shopping centre supply in
Periphery 7-25 stores on the ground floor of Unirii Shopping
medium sized cities coupled with the
Centre, the new, non-traditional high street
* 100 m2 locations potential demand these cities represent,
area expanded in the second half of 2011 with
Source: Colliers International has forced some retailers to open on high
the openings of Stradivarius and Bershka.
street locations instead of in malls.
RENTS COUNTRYSIDE
DEMAND
City Rent level RENTS
(€ m2 /pcm)* In 2011, just like in the previous year, food
Rents were constant in the central and
Large 25-40 operators (mini-markets, supermarkets,
high traffic areas, as demand for high
Medium 20-30 producers), were the most active
street locations remained unchanged.
Small 10-15 segment for high street space.
The rest of Bucharest witnessed a
* 100 m2, central locations
slight decrease in rents of about 10%,
The development of the Old City Centre as
Source: Colliers International similar with the situation in 2010.
anentertainment area continued, generally
bringing a mix of restaurants, clubs and coffee
PROGNOSIS
shops. Fashion retailers have expressed
their interest in this area in 2011 but in the We estimate that the supply of retail space in
absence of an anchor tenant and the legal the Old City Centre will increase both through
and structural issues of these buildings, consolidation and redevelopment of older
there were no significant transactions. The buildings and through new construction of
Adidas store opening which took place in existing plots instead of demolishing buildings.
Q1 2011 was not followed by expansions
from other international fashion operators. A higher percentage of classic shopping
centre retailers will turn their attention
The requirements of luxury brands are towards retail spaces on high streets
still primarily directed to Calea Victoriei. in medium sized cities, once the first
Victoria Men - the luxury multi-brand store fashion anchor arrives in the area.
was opened on the main luxury artery
in 2011. Burberry has already secured a The restructuring and consolidation of large
location which should be opened in H1 commercial networks will continue in 2012.
2012 and Max Mara will be relocated in Also, most contracts signed in 2007 will
a new location also on Calea Victoriei. expire 2012, which will provide the basis for a
new wave of renegotiations and relocations.
The luxury segment could witness several

new entrants from the brands that have been
looking at the market for the past few years.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | HOTEL MARKET
HOTEL MARKET
Key Hotel Figures - Romania SUPPLY BUCHAREST MARKET
Number of hotels 1,308 (6.1%) The number of hotels in Romania increased The number of hotels remained constant (131
Number of beds 174,750 (-5.6%) 2011 by 6.1% to 1,308 properties. Three star properties) but room inventory decreased
Tourist arrivals 7,014,000 (15.5%) properties grew 34.2% while two and one (-7.3%) mainly due to a change in size of
star properties had a negative growth (-9.7%, one large property (Rin Grand Hotel from
HOTELS BY DESTINATION respectively -47%). Growth also varied by 1,450 to 580 rooms). This change occurred
location such that the highest increase in as part of a transformation process in which
17.2% 11.5% the number of hotels occurred in secondary some of the rooms became residential units.
cities (24.3%) while the number of hotels at
the seaside registered a decrease of -19.4%. For the second year in a row, Bucharest
21.7%
registered an increase in tourist arrivals
The presence of international hotel chains is 14.3%, reaching two million overnight visitors.
still limited. Only 7.8% of the room inventory This is similar to 2008 tourist level.
affiliated to a hotel chain is international.
24.8%
They are concentrated in Bucharest (4,173 Occupancy posted an increase of 11.4%
rooms out of 10,573). The main hotel compared to 2010, reaching 56.5%. This
12.2%
groups present in Romania are Wyndham increase was not even across all categories,
11.1% 1.4% Hotel Group (1,681 rooms), Accor (1,221 the highest increase was for 4 star hotels
rooms) and Best Western (1,072). (17%) while the lowest increase was for 5
Balneo Resorts Bucharest
Seaside Secondary Cities
star hotels (7.4%). As the market is based on
Mountains Other In 2011, 75 hotels opened mainly through business travel, occupancy varies very much
Danube Delta the renovation of existing hotels (Hotel by season, with low numbers in January and
Source: Trend Hospitality
Grand – Targu Mures, Hotel Sportul- Poiana August (35- 40%) and high numbers in May
Brasov, Hotel Roman- Roman) but also June, October and November (65- 70%).
HOTELS BY CATEGORY new built (Ramada Pitesti- Pitesti, Grand
6.1% 1.8% Hotel Italia- Cluj Napoca, Hotel Metropolis- For the first time after 2 years, the average
14.8% Bistrita) and conversions (TulipInn nightly rate also went up, with a 4.4%
Nerva Traian to DoubleTree Unirii). increase to €65.5 per night. The highest
increase was for 3 star hotels (6.7%) and
30.7% DEMAND lowest increase was for 5 star hotels (3.2%).
After low levels of demand in 2010,
2011 marked a strong revival in tourist
arrivals (15.5%) in both, domestic arrivals
(16.4%) and international arrivals (12.5%).
45.9%
Overnights increased also but at a slower
pace (11.3%), which led to a decrease
5 stars 2 stars in average stay to 2.55 days (-4%).
4 stars 1 stars
3 stars
The highest increase in tourist arrivals was
registered in balneal resorts (+18%) and
secondary cities (+16%) out of which Craiova
TOURIST ARRIVAL (+38%), Cluj (27%), Galati (+25%) and
20% Arad (+19%) registered highest increase.
15%
10% The main feeder market is the European
5% Union (59.4%), specifically from Hungary
0% (23.1%), Bulgaria (10.5%), Germany
-5% (5.3%), Italy (4.4%) and Turkey (3.5%).
-10%
-15%
-20%
2007
2008
2009
2010
2011
Domestic
International

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | HOTEL MARKET
TRANSACTIONS PROGNOSIS
MAIN FEEDER MARKETS
Altogether, there were approximately Not many projects were launched in the last
Country Nights (thousand)
350 properties for sale which few years, and with few openings announced
Hungary 1,735
represented a decrease of 40% for 2012 (around 20), the increase in supply
Bulgaria 784
compared to the previous year. will remain marginal. Turnaround projects are
Germany 395
also likely to appear as office or residential
Italy 331
The average price asked per room varied projects will look for a different use.
Turkey 265
from location to location and category: a
hotel room in Bucharest had an average The presence of international brands
OCCUPANCY, BUCHAREST asking price of €141,000 per room, for a in the Romanian market is expected to
secondary city hotel it was €130,000 per increase, as affiliation will be seen as a
70% room and for a leisure hotel (mountains good way to increase competitiveness
60% and seaside) it costs €83,200 per room. and market share. Hilton Worldwide and
60% Wyndham Hotel Group are expected to
50% increase their presence, especially through
The volume of transactions reached €35
40%
million, three times more than last year. their mid and economy level brands such
30%
The most important transactions included as DoubleTree, Hilton Garden Inn and
20%
the acquisition of 30% of Continental Hampton, Ramada and Days Hotels.
10%
0% Hotels by GED Capital for an estimated
amount of €18 million and the acquisition Generally, demand follows the same line
2008
2009
2010
2011
of 16.2% of Intercontinental Bucharest as GDP (estimated at 1.8%, in 2012) and

Source: Trend Hospitality by Astra Asigurari for €41 million. airport passenger movements (estimated at
8%), therefore we have reasons to believe
Buyers are mainly companies or investment that demand also will increase in 2012.
AVERAGE RATE, BUCHAREST (€)
funds that are looking to consolidate their
90 presence on the local market, like GED Better management of European funds
80
Capital or Astra Asigurari, or individual and increased investments in tourism
70
60 business people with available money and infrastructure will help to increase
50 that are looking to acquire good assets at the attractiveness of some destinations,
40 discounted prices, like Hotel Scandinavia especially in leisure and resort areas.
30 in Mamaia or Hotel Moldova in Bacau.
20
10
A strategic marketing plan for Romania,
0 Also, some properties were liquidated from 2011 to 2015, was launched by creating
by creditors, and sold mainly to local a country brand, the broadcasting of TV
2008
2009
2010
2011
investors for low prices, like Hotel Alutus in spots on dedicated international channels
Source: Trend Hospitality Ramnicu Valcea or Hotel Parc in Oradea. (Eurosport, CNN, Euronews), the participation
in major European travel and tourism fairs
and exhibitions (London, Berlin, Madrid).
TRANSACTION VOLUME (MILLIONS) We think that this strategy will start to
show some results and will continue to
60
promote Romania as a travel destination.
50
40 Hotel activity will continue its positive
30 trend as tourist arrivals are expected to
rise by approximately 5-6%. Rates will
20
follow the same trend and will continue
10 trending upward, but at a much slower
0 pace, with an estimated increase of 2-3%.
2006
2007
2008
2009
2010
2011
A new wave of properties will be available

Source: Trend Hospitality for sale, as owners realise that prices will
not get any higher then current levels and
* The hotel market overview has been provided by
“trend hospitality - consulting and management”.
lenders look to liquidate some of their assets.
For further details please contact:
Lucian.Marinescu@trendhospitality.com

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | RESIDENTIAL MARKET
RESIDENTIAL MARKET
Key Residential Figures SUMMARY The current stock of 15,500 apartments
New Units' Stock* 15,700 in compounds with more than 200
The first half of 2008 saw the Romanian
Available Units* 3,800 units, 64% were delivered in the first
residential market at its peak. Prices per built
Sold Units 2-3 project/month two post crisis years. 2011 saw a
square metre reached an historical (average)
Average Price €1,000 m2/pcm significantly reduced number of deliveries
high of €1,630 and demand accounted for
in similar projects (only 16% out of the
* In projects with more than 200 units around 60% of the announced stock. The
average of the previous two years).
aftermath of the international financial
SUPPLY VS. EXPECTED SUPPLY crisis was felt by all real estate segments,
In the last three years the market also
(THOUSAND) bringing the accelerated rhythm of growth
received a number of smaller projects,
8 of the local market to a complete standstill.
addressing the low income population, located
mainly on the outskirts of the traditional
6 The first year of Romanian economic
residential neighbourhoods. These developers
recovery saw the residential market in a
have adapted to the new conditions of the
4 precarious position. Even though prices
residential sector and have renounced the
stabilised at an average of €1,000 m2 (built),
2 generous surfaces, luxurious finishes and
and sales volumes were relatively constant
central locations, for small affordable units
over the last 36 months (2 to 3 apartments
0 with prices similar to those of old apartments.
per month/ project) consumer confidence
2007
2008
2009
2010
2011
still remained low. Investors have slowly

DEMAND
Deliveries
returned to the market, although transactions
Expected Deliveries continue to be few and far between. Demand followed the upward trend of the
local economy with virtually few to no
Source: Colliers International Not surprisingly, for the third consecutive transactions before 2005, followed by an
year since the economic crisis, the average of 25 to 30 units per project per
PRIMA CASA DISTRIBUTION BY most active segment of the market has month in the peak years. However these rates
COUNTY been the ones consisting of projects are a characteristic of emerging markets
30%
targeting the low income population. and are not sustainable in a mature, stable
economic environment. Over the last three
SUPPLY years the market has averaged around 2 to
3 apartment sales per project per month.
38% Before 2005 one could hardly talk about a
The most dynamic sector of the residential
new apartment market in Romania. Most
market has been that targeting the low income
recent housing facilities were small scale
7% buyers with 4-6 units/project/month.
developments located in traditional luxury
5% 6% areas designated for expats who occupied
4%
An important factor in the apartment
4% 6% executive positions in Romanian HQ.
acquisition process is access to financing.
Bucuresti Constanta The transactional blockage of 2008
Cluj Iasi Between 2005 and 2008 the market heated
and the first half of 2009 reshaped the
Ilfov Brasov up and developers confidently announced
mortgage market when banks imposed
Timis Other the delivery of more than 35,000 units over
more restrictive standards for their clients.
Source: Colliers International the following years. However, by the end of
Nevertheless, in order to encourage the
2008 the market conditions had changed for
local real estate segment, the Romanian
the worse. Most investors started pulling out
Government reduced VAT to 5% for properties
and many end users could not follow through
under RON 380,000 and put in place, in
with their promissory agreements. The lack of
the second half of 2009 a special scheme
interested buyers made developers postpone
for First Time Buyers (Prima Casa).
their projects or slow down the delivery rate
of secondary phases. Currently, only 44% of
the announced units have been completed.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | RESIDENTIAL MARKET
Asking price for H1 2011 Access to cheap financing enabled clients PROGNOSIS
residential units to benefit from the state guaranteed loan,
2012 is expected to show a similar growth
Low Projects 910 €/m2 5% equity and the maximum interest
pattern to that of the previous year. Despite
Middle Projects 1,172 €/m2 margin imposed by the government.
the positive local economic outlook, the
Upper Middle Already at its fourth edition, the ‘Prima
1,500 €/m2 recent European public debt crisis has
Projects Casa’ programme accounts for €2.1
made both investors and developers
Average Price 1,050 €/m2 billion granted for 52,740 units.
sceptical about the recovery pace of
the Romanian real estate segment.
Nevertheless the gap between developers’
expectations and end users’ actual
PRICES BY PROJECTS TYPE (€) Demand will be directly dependent on
purchasing power continues to be wide,
financing conditions. As of January 31st 2012,
despite significant drops in prices (40% on
1 700 the National Bank of Romania imposed a 25%
average). With an average of 40.2 real estate
equity criterion for euro contracted mortgages
transactions per 1,000 inhabitants, (third
and a 15% down payment for those granted
highest in the EU), Romanians are more
in RON. The Prima Casa programme will be
1 200 willing to buy the lower cost communist-
in place in 2012 and is exempt from this new
era apartments rather than more expensive
regulation. As was the case in the previous
new units. Only 25% of the granted loans
semesters, demand from end users will most
through Prima Casa were destined for
likely be focused on low income projects
700 new residential units, the remaining buyers
and sales will remain at current levels.
securing apartments in old blocks of flats.
2009
2010
2011
It is improbable for prices to register any

Low upper middle Residential investors were more active
significant fluctuations in the next few
middle market average on the market than in previous years.
months. The difficult financing conditions
As projects went into default, they
Source: Colliers International will avert both buyers and developers
were able to buy apartment packages
from making decisions. Toward the end
at preferential prices. However, actual
PRICE VARIATION of the year, an upward trend is expected
deals were difficult to come by.
as the current stock is absorbed and end
1 800 users and financial institutions regain
PRICES
1 600 their confidence in the local economy.
Between 2005 and 2008, the market,
1 400 encouraged by the high demand and
1 200 accessible financing conditions, registered an
asking price growth of 15% y-o-y. In the two
1 000 years of economic recession, prices had a
800 steep drop of around 20% per year, followed
by a milder decrease of only 10% in 2011.
H2 2005
H2 2006
H1 2007
H2 2007
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
The asking price per built m2 reached

Source: Colliers International an average of €1,000 (VAT not
included) at the end of the year.
DWELLINGS STOCK/ 1,000
INHABITANTS
550
500
450
400
650
600
250
200
Bucharest
Warsaw
Prague
Budapest

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | LAND MARKET
LAND MARKET
SUPPLY DEMAND
REPRESENTATIVE LAND
TRANSACTIONS, 2011 With the prospect of better economic 1. Big box retailers/developers – continue
conditions and more attractive prices, to be the main players on the market, in
City Area Value Buyer
(mil- 2011 started as a year with increased search of consolidating their position and
lions) investor appetite for land plot acquisition. their future strategic locations. The highest
Bucuresti However, a good beginning is only half interest was shown for semi-central areas,
2 ha €11 * Interprime within high-density population neighborhoods,
Calea Plevnei*
Bucuresti the battle as towards the end of the year, excellent infrastructure, accessibility
~0.24 Private
Sf. Voievozi & €2.2 macroeconomic turmoil generated by and visibility. We noticed a new trend on
ha Investors
Popa Petre* the sovereign debt crisis and Eurozone the market, that traditional residential or
Bucuresti worries slowed down the investors pace, office developers and investors saw the
Militari – 3.7 ha €2.2 GED who became extremely cautious when increased potential of the retail sector and
residential making the purchasing decision. reshaped their strategies accordingly.
Bucuresti
Drumul 2.7 ha € 5 * Auchan Nonetheless, numerous transactions were 2. Office developers – targeted very well
Taberei
finalised during the past year (mostly for located land plots in Bucharest, in established
Constanta* 3.5 ha ~ €6 Dedeman office areas, with developed infrastructure
retail land) and several others (for both
Retail retail and office land) have advanced and proximity to subway stations. They also
Bacau 1.9 ha €4.5
Developer
to the final stage, their conclusions paid close attention to the advanced status
Bistrita 2 ha €2 Dedeman
depending on building permit approvals. of the permitting process, which allowed
*Market estimation; no official information made public them to start constructions, market and
Source: Colliers International We estimate that the total transaction volume deliver the project ahead of the competition.
on the land market in 2011 was comparable
to that registered in 2010, even though the 3. Residential investors – was the least active
number of deals was higher. 2010 comprised of all and interest was expected mostly in
several big transactions amounting to over partnerships. By acting this way, investors
€30 million, that were not repeated in 2011. tried not to block liquidity in land plots and
projects that were still difficult to sell in
A significant number of developers that the current market. These investors target
undertook aggressive land acquisition almost exclusively “Prima Casa” small scale
campaigns between 2005 and 2008 but developments (below 100 apartment units),
failed to complete projects while the markets and look for land plots within a price range
were in boom, tried to exit Romania and sell lower than 100-120 €/m2 of built area.
their portfolios. Companies in this situation
were mostly of Spanish, Israeli or Greek
origin and their portfolios consisted mainly of
land plots for residential development only.
Vendors that did not want to sell their

assets at a loss found themselves in the
situation of either holding the land plots
while expecting a future market recovery,
or finding alternatives like joint-venture
partnerships for possible developments.
Overall the supply of distressed properties

remained rather low. Most of the highly
discounted land plots were either plots
situated at the periphery, or properties
suitable for residential use only.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | LAND MARKET
In addition to the above, a timid demand came PRICES

from two other segments that continued to
Prices moved slowly, compared to
expand in 2011: medical and hotel sectors.
2010, registering a decrease within
the range of 5-15%, on average.
One of the problems that slowed down
transactions in 2011 (besides the increased
In some areas in Bucharest where
time frame caused by the authorisation
interest proved to be high, we estimate
process), was the uncertainty of the legal
that prices reached their minimum,
ownership of some of the properties, as
except for some specific cases. These
well as the events and rumors present
categories take into account areas like
in the economic environment, that at
Charles de Gaulle, Aviatorilor, Aviatiei,
times resulted in the revision of already
Barbu Vacarescu or Calea Plevnei.
discussed conditions and agreements.
Compared to 2010 peripheral locations, as
Although Bucharest remained the main
well as those areas with limited development
focal point of investors, in terms of
potential (lack of infrastructure, residential
retail and office development, some of
use only), continued to experience
the cities in the countryside are now
decreasing prices, up to 35-40%.
attracting the interest of developers.
PROGNOSIS
These cities are not yet saturated in terms
of the provision of commercial space or For 2012, we expect a similar activity as
have very low competition. This category in 2011, since investors show a reserved
includes Iasi, Cluj-Napoca and Timisoara, approach, in many cases resulting in
as well as smaller cities like Targu Jiu, the renegotiation of land prices.
Piatra Neamt, Bistrita or Ramnicu Valcea.
In this context, we expect average prices
to continue on a downward trend, except
for those highly targeted areas which are
perceived as having good development
potential in the short and medium term.
Property financing remains a crucial

element to the market and we are unlikely
to see an increase in demand for land until
financing becomes readily available and
demand for future developments picks up.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA
COLLIERS RESEARCH
• 978.6
ROMANIA:
Iuliana Tataru
Floreasca Business ParkCalea Floreasca 169 either the rent-free period or fit-out contribution available at the time of the survey date.
ABuilding A, 7th floorBucharest 1, 014459 Average Headline Rent: Average Headline Rent represents the average open-market tier of
Tel +40 21 319 77 77
FAX +40 21 319 77 78
EMAIL iuliana.tataru@colliers.com Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | LEGAL OVERVIEW
ROMANIA LEGAL OVERVIEW

IMPORTANT LEGISLATIVE AMENDMENTS building permit can be obtained. Non-EU foreign persons and legal entities may
acquire land in Romania in accordance with
The new Civil Code applies to all legal
Prior to the enforcement of the new Romanian international treaties based on reciprocity.
documents signed after 1 October 2011,
Civil Code, restituted land was subject to
but also to some existing agreements or
restrictions on transferability for a period All foreign persons, regardless of nationality
legal situations under certain conditions.
of time (e.g., although the land acquired by or residence, may directly own buildings in
However, the analysis of certain legal
way of reconstitution of title can be freely full property, although they do not have the
aspects will be much more complex as
transferred, the land acquired by way of ownership right over the land. In practice, in
both civil codes (the old and the new) will
“constitution of title” was subject to a 10-year such case the superficies right is granted,
be applicable. The new Civil Code aims at
interdiction to sell), and certain limits exist in a way in which the foreigner person will
clarifying a number of major principles of
on the amount of agricultural and forest land benefit from the ownership title over the
Romanian law, as well as crystallising certain
that may be owned by a person as a result building and the right of use of the land.
legal concepts that have been recognised
of the restitution process. “Constitution
(by legal doctrine or judicial practice) as
of title” means granting land to certain In any case, EU citizens and other foreign
adaptations to the late 20th and early 21st
categories of individuals that were never persons may acquire land by way of
centuries, but also includes new concepts
owners of such land or did not inherit such legal inheritance. However, in case such
and rules, applicable to real estate as well.
land from former owners. For instance, foreigners are not allowed to own land
“constitution of title” may refer to granting in Romania, they are obliged to sell the
The new Civil Code is part of a
land to: (i) members of the former agricultural land and get the counter value of it.
larger legislative reform envisaged
cooperatives who did not contribute
to be implemented in stages, which
land in such cooperatives; or (ii) persons REGISTRATION SYSTEM
will include enactment of a new
who performed agricultural works for a
Civil Procedure Code in 2012. In order to be opposable to third parties, all
cooperative, although they were not members
in such cooperative. This interdiction would acquisitions of real property and other in rem
BASIC FORMS OF TITLE still apply to land subject to constitution of rights must be registered in the real estate
title until the date the new Romanian Civil registry (Land Registry) kept by the local
With some exceptions, land may be owned,
Code took effect. Thereafter, the interdiction office of the Agency for Cadastre and Real
used and transferred freely in Romania
was repealed, meaning that land subject to Property Publicity of the Ministry of Regional
without any limitation as to the surface area
constitution of title after such date should Development and Tourism. Registering
of the land. Each transfer of land, irrespective
no longer be subject to the ban on sale. a change in ownership normally takes at
of the legal nature of the agreement (e.g.
least one week. However, it is expected
sale and purchase agreement, donation, etc.)
ACQUISITION OF REAL ESTATE that the introduction of computerised
is subject to (i) the notarised form of the
BY FOREIGNERS databases and Internet access will make
agreement (i.e. authentication by a notary
the operation of the Land Registry far
public), under the sanction of absolute
Following the Romanian legislation on the more efficient and reliable in the future.
nullity of the alienation/transfer deed, and
subject matter (Law 312/2005) as from
(ii) registration with the land registry. The
January 1, 2007, i.e. the date of Romania’s Following the finalisation of the cadastral
ascertainment of nullity may be requested
EU accession, EU nationals and legal entities, works at the level of each administrative
in court by any interested person. Prior to
as well as stateless persons domiciled unit, any registration of a real right (including
notarisation, the fiscal record of land, as
in Romania or another EU member state registration of an ownership right) with the
well as the land registry, must be inquired.
can purchase/acquire land under the Land Registry will be sufficient to create
Should any inconsistency occur concerning
same conditions as Romanian citizens. that right. We hope the cadastral works
the land’s status, the notary public shall
refrain from notarising the transfer. will be finalised shortly. Registrations in
In terms of the agricultural or forest the Land Registry are made based on an
land, farmers acting independently, being authenticated deed, a final and non-appalable
Other forms of property right, less than full
(i) EU nationals or stateless persons court decision, an inheritance certificate or
ownership, are usufruct, use, surface right,
domiciled in the EU, both categories having based on a deed issued by the administrative
servitude and habitation - all in rem rights.
Romanian residence, or (ii) stateless authorities, in the cases provided by law. .
The agreement’s notarisation is required in
persons domiciled in Romania, can acquire
the case of such special rights, as well as
agricultural and forest land as of January TRANSFER TAXES
registration in the relevant land register.
1, 2007, under the interdiction of changing
the agricultural or forest purpose of The disposition of real property may trigger
Long-term leases are common for such land during the phase-in period. the payment of: (i) 16% profit tax in case
commercial purposes, although a lease the seller is a company (other than those
of land is insufficient for granting designated as micro-enterprises), charged
Non-resident EU citizens and EU legal
construction permits. In such cases, on the capital gain computed based on
entities may acquire land for establishing
a surface right should be granted. the fiscal value of the real property, or (ii)
secondary residences or headquarters after
a five-year phase-in period and agricultural transfer tax calculated at the transaction
According to the recent amendments and forest land after a seven-year phase- value in case the seller is a physical person
of the construction regulations, based in period calculated from EU accession. (in this case the tax ranges between 1%
on in rem rights (e.g., the ownership, and 3%, and may exceed such threshold,
use, usufruct, surface right) a depending on the transaction value and

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | LEGAL OVERVIEW
period of ownership). Starting from January case-law of the European Court of Human Further, given the enactment of the new
1, 2007, notarising sale-purchase contracts Rights. Most types of claims should have Romanian Civil Code, it is hard to predict the
involving real estate is free of stamp tax. been filed by the cut-off date of February 14, future development of practice in this respect.
2002 and supporting documentation by the
LEASES date of the claims’ resolution. Many of these NOTARIES AND NOTARIAL FEES
restitution claims are still pending before
While certain standard requirements exist competent authorities or the courts and are Mortgages, transfers of real property
for contracts for residential leases, landlords likely to take years to resolve conclusively. and granting other in rem rights must
and tenants are largely free to negotiate be notarised by a notary public. The fee
most aspects of both residential and non- charged for the service rendered by the
Regardless of the special laws, such
residential leases. Rent may be freely agreed notary public is negotiable depending
as Law 10/2001, some claimants were
by the parties. There are no rent control on the transaction value, and in case of
relying on the Civil Code, and sometimes
laws, although a few categories of persons real property transfers, generally ranges
Romanian courts appeared sympathetic to
still benefit from state-subsidised housing. from approximately 0.5% to 2.2%.
such claims. Such situation was meant to
generate uncertainty and significant adverse
The maximum duration of a lease may not consequences for citizens’ rights as well LANGUAGE
exceed 49 years. Leases concluded for more as for investors’ economic interests. As a general rule, documents may be
than 49 years shall be automatically reduced
executed in any language. However,
to 49 years. A lease registered with the tax
However, current property evolution in documents involving real estate, including
authorities or concluded as an authenticated
Romania is constantly improving, subject to sale-purchase contracts, long-term leases
deed is qualified as a “writ of execution”. If
a decisive process of clarification. Following and mortgages, are normally executed and
a lease is made for an indefinite term, each
an appeal of the General Prosecutor’s office notarised in Romanian. Filings with Romanian
party may terminate the lease subject to prior
aiming to clarify the issue on whether authorities, including enclosures, must be
notice. The new Civil Code does not clarify
such Civil Code claims are acceptable for either executed in original in Romanian or
the duration of the notice period, hence it
the Courts, the Supreme Court of Justice translated into Romanian by a translator
remains subject to the parties’ negotiations.
rendered a ruling which appears to leave open duly authorised by the Ministry of Justice.
the path of Civil Code restitution claims, based
To be opposable to third parties, on the prevalence of the European Convention
lease agreements and concession on Human Rights, without prejudice to
agreements should be registered another ownership right or to the civil circuit
with the relevant Land Registry.
security. Although in theory the solution
The new Civil Code does not address
of the Supreme Court of Justice in this
case should be compulsory to other courts,
concepts such as triple net leases and nonetheless the outcome of such debates
service charges, these being subject and the approach of such other courts as www.salans.com
merely to negotiations between the parties to the above aspects cannot be predicted. Information contained in this general outline does not constitute
within the general limits allowed by law. a legal opinion and is not meant to be comprehensive. As a
result of pending and new legislation, laws and regulations
Topics as to restitution process under Law
RESTITUTION CLAIMS 10/2001 have been debated in front of the
change frequently in Romania and are often subject to
Former owners whose property was European Court of Human Rights, in a pilot- sought regarding all aspects of real estate in Romania.
nationalised under the communist regime judgment procedure. On 12 October 2010, the
were entitled to seek restitution under European Court of Human Rights rendered
several laws, as long as they provided the decision on the pilot-judgment procedure. FOR MORE INFORMATION
adequate supporting documentation and In brief, the Court stated that there had PLEASE CONTACT:
no compensation was made at the time of been a violation of the European Convention
confiscation. The most important as well as on Human Rights and held that Romania Laura Tiuca
disputed provisions are rendered by Law must take measures to secure an effective Managing Counsel
10/2001, regarding real estate abusively compensation mechanism. The Court noted Co-Head of Real Estate – Romania
taken over by the state between March 6, that, by May 2010, out of a total of 68,355 T: +40 21 312 4950
1945 and December 22, 1989, which became files registered with the Romanian Restitution E: ltiuca@salans.com
the overreaching framework governing the Authority (ANRP) only approximately
restitution process and leaving very few cases 21,000 had resulted in a decision awarding Bogdan Papandopol
to be settled in accordance with specific a “compensation certificate”, and that Managing Counsel
other legislation, especially with Romanian fewer than 4,000 payments had been Co-Head of Real Estate – Romania
Civil Code. These provisions completing the effectively made. The Court also noted the T: +40 21 312 4950
internal legal framework are meant to be very substantial cost to the State budget E: bpapandopol@salans.com
applied to the extent that the international represented by the compensation scheme,
agreements and arrangements of human and that the listing of the Property Fund (due
rights preservation do not provide otherwise. in 2005), had still not been accomplished by
Notwithstanding this general rule, Romanian the date of the pilot judgment (the Property
case-law was frequently inconsistent with the Fund was eventually listed in January 2011).

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | TAX SUMMARY
ROMANIA – TAX SUMMARY

GENERAL >> educing balance method (may be
R to one. If the debt-to-equity ratio is three
applied only to certain assets) to one or more (or negative), interest
Several changes to Romanian tax
expenses are non-deductible (but not
legislation were enacted in 2011 of which
>> ccelerated depreciation method (may be
A permanently non-deductible – see below).
the most important concern corporate
used for technological equipment such as
tax, income tax and real estate taxes.
machinery and installations, computers and However, interest and foreign exchange losses
related equipment). The accelerated method relating to loans received from Romanian
CORPORATE TAX, INCOME TAX
allows for a deduction of 50% of the cost of or foreign banks, non-banking financial
AND CAPITAL GAINS TAX
the asset during the first year of operation. institutions (including leasing companies),
Taxable profits are determined by reference to mortgage credit companies, and other
accounting profits, recognised in accordance Land and goodwill cannot be depreciated for regulated lending institutions are exempt
with Romanian accounting standards, tax purposes. Buildings can be depreciated from the scope of thin capitalisation rules.
subject to certain specific adjustments only using the straight-line method. The tax
as provided by corporate tax law. The depreciation period for buildings is between Any interest which is not deductible due
standard corporate tax rate is 16%. 40 and 60 years. Certain assets attached to a to the lender having negative equity or
building can be treated as separate movable debt-to-equity ratio higher than 3 to 1,
Capital gains realised by corporate entities assets for tax purposes and therefore can can be carried forward to be deducted
from the sale of assets are deemed to be be depreciated over a shorter period. against income earned in future periods,
corporate profits and are taxed at 16%. if and when the company’s debt-to-equity
Income realised by individuals from transfers TAX LOSSES ratio falls below the relevant thresholds.
of real estate are subject to lower tax rates.
Tax losses can be carried forward and
Capital gains derived by individuals from the If foreign exchange losses suffered by a
deducted from taxable profits recorded
sale of securities, other than shares in limited company in relation to non-bank loans subject
during the following seven years on a
liability companies and securities in closed to debt-to- equity limitation above described
“first in, first out” (FIFO) basis (tax losses
companies, are subject to 16% personal exceed the foreign exchange gains, then the
incurred before 2009 can be carried
income tax rate, irrespective of the period deductibility of net foreign exchange losses is
forward for a period of five years).
for which the securities are held. Income subject to the same restrictions as interest.
from immovable property located in Romania
Tax losses recorded by companies that cease
is subject to 16% capital gains tax. Income Starting from 2010, under Romanian law
to exist as a consequence of a merger or de-
from immovable property located in Romania unrealised foreign exchange differences on
merger cannot be taken over by the surviving
includes mainly income from the rental or the monetary items are recognised on a monthly
company after the merger or de-merger.
grant of use of immovable property located basis and are taxable or deductible upon
in Romania, gains from the sale-assignment corporate tax calculation (subject to potential
There is no withdrawal of the tax losses
of rights of ownership or other rights related thin capitalisation deductibility restrictions).
carry-forward right on change of
to immovable property located in Romania
ownership or activity. Tax losses can only
and gains from the sale-assignment of WITHHOLDING TAX
be carried forward, not carried back.
participation titles in a legal entity, if at least
The standard Romanian withholding tax
50% of its fixed assets derive directly or
THIN CAPITALISATION rate is 16%. However, the rate can be
indirectly from real estate located in Romania.
reduced by double tax treaties. As at 1
There are two basic Romanian
January 2012, Romania had double taxation
Non-Romanian vendors may be entitled thin capitalisation rules to be
treaties with more than 83 countries.
to claim Romanian tax exemption under considered, as follows:
double taxation treaties where applicable.
DIVIDENDS
Certain double tax treaties (e.g. those Deductibility of interest is restricted to
with Germany, France, Austria) provide 6% for non-RON denominated loans and Generally, sixteen percent dividend tax rate
special regimes for capital gains similar to the level of the interest rate of the NBR applies on dividends paid to non-residents
to the Romanian rules if the shares being corresponding to the last month of the quarter (whether individuals or companies).
sold derive more than 50% of their value for loans denominated in RON. This limitation
from real estate located in Romania. is applicable for each loan. The restriction However, dividend payments made by a
of deductibility is determined before the resident legal entity to an EU legal entity
There are no corporate tax calculation of the debt-to-equity ratio. Interest or EFTA legal entity which holds at least
consolidation rules in Romania. which is non-deductible after the application 10 percent of the Romanian entity’s
of this rule is permanently non-deductible. shareholding for a period of at least
TAX DEPRECIATION two years at the moment of distribution,
Interest expenses in respect to non-bank are tax exempt. If the holding period
The following depreciation methods
loans which exceeds one year, are wholly condition is not fulfilled at the moment of
are available for tax purposes:
deductible if the debt-to-equity ratio of distribution, the dividend tax paid may be
the borrowing company is less than three reclaimed when this condition is fulfilled.
>> Straight-line method

RESEARCH & FORECAST REPORT | 2012 | ROMANIA | TAX SUMMARY
INTEREST AND ROYALTIES VALUE ADDED TAX

Starting 1 January 2011, 0% withholding tax The standard VAT rate applicable in
rate applies for income derived from interest Romania is 24%. A reduced rate of 9%
and royalties, if the effective beneficiary of is applicable for certain supplies of goods
this income is a legal entity which is located and services. A special VAT rate of 5% is
in an EU Member State or EFTA State or a applicable for sales of dwellings to certain
ESTATE SERVICES IN ROMANIA, PLEASE
permanent establishment of a company from categories of the population as part of
CONTACT:
an EU Member State, located in another the Government’s social programme.
EU Member State or EFTA State. This rate
applies, provided that the effective beneficiary Supplies of buildings, parts of buildings Mark Gibbins
of the interest or royalties owns at least and land are VAT exempt without the
25% of the securities of the Romanian right of deduction (meaning that any KPMG in Romania
legal entity for an uninterrupted period of input VAT incurred on the relevant Victoria Business Park
at least two years, which terminates at the expenditures is not allowed to be offset DN1 Bucuresti Ploiesti nr. 69-71,
date of the interest or royalties payment. against output VAT, but should be borne Sector 1, Bucuresti 013685
by the company as an extra cost). Romania
REQUIREMENTS TO APPLY
THE EU’S DIRECTIVES However, there is an exception for supplies of T: +40 (741) 800 700
so-called “new” buildings which are subject M: +40 (747) 333 133
Starting from 1 January 2010 in order to apply E: mgibbins@kpmg.com
to VAT for which the taxpayer is entitled
the provisions of the EU’s Directives, a non-
to deduct all or part of the VAT incurred in
resident should provide Romanian companies
relation to the costs of the building. In order
with an affidavit stipulating that the first fulfils
to qualify as supply of “new” buildings
the mandatory condition of being beneficiary.
subject to VAT, certain conditions must
be met on a cumulative basis. Romanian
REAL ESTATE TAX
tax law specifies that the “sale of a new
Real estate tax comprises land tax and building” is deemed to occur if the building
building tax. The tax on land is determined is sold no later than 31 December of the
by taking into account the surface of the year following the first occupation or use,
land in square metres, the status of the Also, new building would mean any building
locality where the land is located, and the or part of the building, which has been so
area and/or category of use of the land, in transformed when the cost, exclusive of
accordance with relevant decisions issued by the tax, of the transformations reaches
the local council where the land is located. at least 50% of the open market value of
For companies the tax on buildings is usually the building or of the part of the building,
determined based on the gross book value as set by a valuation report, excluding the
of the building at a rate between 0.25% and value of the land, after the transformation.
1.5%, while for individuals the tax on buildings
is pre determined depending on the type Rental of real estate is also VAT exempt
of building. For building tax purposes, if a without the right of deduction.
company has not performed a revaluation
of its building for three consecutive years For both rental and sale of real estate
then starting with the 4th year it is generally properties, companies may opt to charge VAT
liable to an increased building tax rate and when they do so, a formal notification
between 10%-20% of the gross book value must be submitted to the tax authorities
of the building.Starting 1 January 2012 if the stating that the company has opted to charge
company has not revaluated the building for VAT for the rental or sale of the buildings
five consecutive years, then starting with the or part of buildings which it owns.
6th year the building tax rate is between 30%-
40% of the gross book value of the building. VAT grouping is allowed only for
certain categories of VAT payers.
REAL ESTATE TRANSFER TAX
Transfers of real estate may result in land/
building registry taxes and notary fees of
up to 1% of the value of the transaction.

RUSSIA
– MOSCOW

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: The economy continued to Economy: Russia’s GDP forecast for 2012
recover benefiting from stronger external was revised down from 4.4% in mid-
demand. Construction sector activity 2011 to 3.7% as of December 2011, in line
picked up which also contributed to GDP with GDP revisions across Europe.
growth. The undercurrent for economic
growth in Russia remained the high prices Investment: Investment volumes in 2012
it commanded for energy resources. will be dictated by the economic situation in
Europe and the US. If the Eurozone crisis
Investment: 2011 was a record year worsens, we expect a decline in real estate
for Russia’s commercial real estate investment volumes this year. In all segments,
market as the total investment volume assets are being consolidated in the hands of
reached close to US$10 billion. large holding companies such as Tashir Group
of Companies, BIN Group, and 01 Properties,
Industrial: The industrial property market which seldom sell quality properties.
experienced the most acute shortage of
TRENDS 2012
supply in Moscow and the Moscow Region. In Industrial: High demand for warehouse space
2011, the vacancy rate for Grade A properties in Moscow coupled with low vacancy rates
GDP GROWTH
declined to 1.2%. In St. Petersburg, net will drive local and foreign developers to
PRIME PRIME take-up exceeded new supply, which led to bring new projects to market. In particular,
YIELDS OFFICE RENTS a further reduction in vacancy rates in St. MLP has resumed construction of Phase II of
Petersburg’s warehouse property market to MLP Podolsk. Raven Russia has announced
6.2% which led to an increase in rental rates. its intention to build 100,000 m2 of space
in 2012. Ghelamco Group commenced
Offices: In Moscow the office sector construction of Dmitrov Logistics Park, the
demonstrated a strong recovery due to company’s first project in Russia.. In St
lower levels of commissioned space and a Petersburg, an insufficient volumes of new
surge in pent-up demand for office space. supply and persistent levels of demand, is
The combination of these factors resulted likely to cause rental rates to increase further.
in lower vacancy rates across all Grades,
VOLUMES RETAIL RENTS as well as higher rental rates in existing Offices: Declining vacancy rates and
PRIME INDUSTRIAL RENTS business clusters. In St Petrsburg vacancy increasing asking rental rates in Moscow’s
dropped to 13% by the end of H1 2011 but established business districts will continue
due to the completion of St. Petersburg throughout 2012. In St Petersburg, 2012
Increasing Plaza, one of the largest projects in the take-up volumes are expected to reach
Stable
Decreasing market, as well as several other relatively 150,000 m2 to 160,000 m2.Due to a
large projects (Lighthouse, Na Parnase) the potential delay in new supply, vacancy
vacancy rate increased to 14% by year-end. rates may decrease slightly to 12-13%.
Retail: The Moscow retail property Retail: Demand for premises in Moscow’s
market saw a recovery of demand in major retail corridors will continue to
2011, encouraging retailers to revive their increase, driven by the limited available
development plans. Retail space that space in the capital’s shopping centres.
came online between 2009 and 2010 was In St Petersburg, 25 projects are under
filled. The limited number of shopping construction with a GLA of 650,000 m2 and
centres built in Moscow in 2011 led to an a projected completion date between 2012
increase in competition to secure the best and 2014. Less successful retail projects will
locations among retail operators. In St continue to renovate or revise their concept
Petersburg, retail stock continued to grow to remain competitive in cities such as
in the market. In addition to the completion Moscow, St. Petersburg, and Yekaterinburg.
of new facilities, numerous “frozen”
projects announced back in 2006 and
2007 have revisited development plans.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Positive news from the world’s top- In their best efforts to mitigate the
GDP AND INDUSTRIAL PRODUCTION performing economies and from consequences of the financial crisis,
GROWTH RATES, UNEMPLOYMENT commodity markets helped bolster country leaders purchased toxic assets
RATE the Russian economy in 2011. and liberalised the monetary policy. Such
15% actions had a stabilising effect on corporate
10% lending and promoted retail consumption.
Domestic demand (both consumers
5%
and investors) maintained a certain
0%
level of stability despite the downturn Construction sector activity picked up
-5%
in real disposable income (–1.4%). which also contributed to GDP growth.
-10%
The undercurrent for economic growth
-15%
-20%
Russia’s GDP forecast for 2012 was in Russia remained the high prices it
revised down from 4.4% in mid-2011 commanded for energy resources.
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011*
to 3.7% as of December 2011.
GDP Growth Recovery in the lending markets had a

Industrial production growth
positive impact on consumption and, as a
Unemployment rate
result, retail turnover increased by 5.4% in
* Forecast
Source: Rosstat
comparison to 2010. However, volatility in
global commodity markets caused the lending
market to become more conservative. The
RUSSIAN FEDERATION’S KEY ECO-
MosPrime interbank interest rate, a money
NOMIC DEVELOPMENT INDICATORS
market indicator, almost doubled in 2011.
Economic indica- 2009 2010 2011
tors
GDP Growth Rate,

-7.8 4 4.2
%
International Re-
437.7 479.4 497.4
serves, US$ billion
Export Surplus,
111.6 1515 195.6*
US$ billion
Budget Surplus, %
-5.9 -4.1 0.8
of GDP
Consumer Price
Index, % (as of the
end of the period,
8.8 8.8 6.1
as compared to
December of the
previous year)
Retail Trade Turno-

14,602 16,437 20,763*
ver, RUB billion
Foreign Direct In-

vestment during the 15.91 13.81 19.78*
Period, US$ billion
Growth Rate of
the Real Income
3.1 5.1 0.2**
of the Population
(RUB), %
RTS Index, as of the

1,426.9 1,444.6 1,381.9
End of the Year
US Dollar Exchange
Rate, as of the End 30.24 30.48 32.2
of the Year, RUB
* Forecast
** January – November 2011
Source: Rosstat

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | INVESTMENT OVERVIEW
MOST ACTIVE BUYERS IN THE

COMMERCIAL REAL ESTATE MARKET
IN 2011
INVESTMENT OVERVIEW
Company No of Total SUMMARY The most significant increase in the volume
Proper- value,
of investment deals was observed in the
ties US$ mln 2011 was a record year for Russia’s
retail segment. Compared to 2011, retail
commercial real estate market
VTB Capital 4 788.0 investments grew twelve-fold to US$2.27
as the total investment volume
billion (29.6% of the total volume).
Holding Centre 4 370.0 reached close to US$10 billion.
BIN Group 3 491.5 Investments in the hotel segment also
Real estate investment transactions in the
soared to US$1.1 billion (a nine-fold
01 Properties 3 305.0 Moscow region corresponded to US$7.34
increase). However, 60% of this increase
billion, almost twice as high as 2010’s
UFG Asset Management 3 431.6 was attributed to the sale of the Ritz-
investment total of US$3.94 billion .
Cartlon hotel for US$700 million.
RMB-Invest 3 117.0
The sale of The Ritz-Carlton hotel on
Hines 2 171.0 The industrial sector was the only asset
Tverskaya Ul. was the largest transaction
Grade to see a drop in transaction volumes,
VTB 2 260.0 in the Moscow market. The value of the
with only two major transactions concluded:
transaction was US$700 million; Verny
Verny Capital 1 700.0 the sale of Severnoye Domodedovo
Capital, a Kazakh private equity company,
warehouse facility and Pushkino Logistics
M.Square Holdings 1 566.0 was the buyer. It was the second-largest real
Park, in total worth US$690 million.
estate deal (historically) in the Moscow region,
Kompleksnye Investitsii 1 450.0 surpassed only by 01 Properties’ acquisition
Investment volume by source of capital
Source: Colliers International of the Horus Group’s property portfolio the
in 2011 can be broken down as follows:
year before for a total of US$850 million.
Foreign investors (23%), domestic investors
MOST ACTIVE SELLERS IN THE (70%), and confidential transactions (7%).
COMMERCIAL REAL ESTATE MARKET The most active buyers* were VTB Capital,
IN 2011 Holding Centre trading house, the Gutseriev
Slightly less than 10% of the total transaction
family, Boris Mints’ 01 Properties, and
volume was accounted for by end-user
Company No of Total UFG Asset Management. Likewise, there
companies who were mostly in the office
Proper- Value, were several American investors quite
ties US$ mln segment, including the acquisition of
active in the Russian market including
premises in Western Gate BC by Federal
Capital Group 6 548.6 Hines, Heitman, and TPG Fund.
Grid Company of Unified Energy System,
VTB 4 370.0 and the purchase of Phase II of Legion
Vladislav Doronin’s Capital Group was the
II BC by Norilsk Nickel among others.
Orco Property Group 3 80.0
most active** seller in the Moscow market.
VTB Bank, which sold its retail premises
Transactions with end users in the build-
Moscow City Govern-
3 433.9
in DON-Stroy’s residential complexes,
ment to-suit format were also concluded
also stood out. Orco Property Group, a
in the warehouse segment.
AEON Corporation 2 175.0
Luxembourg company, sold its main assets
in Russia, namely an office building located
A sale-leaseback deal was announced
European Property
2 230.8
on Radischevskaya Ul., a warehouse
Holdings between VTB Leasing and Holding
facility on Yaroslavskoye Shosse, and
Centre for the Leipzig department
PNK Group 2 125.4 Otrada Club & Village residential project.
store, a first for several years.
Capital Partners 1 700.0 Of all the commercial real estate segments,
Following an improvement in the
Coalco 1 600.0
the office property segment saw the greatest
economic environment, and decreasing
investment activity totaling US$3.12 billion.
capitalisation rates in H1 2011, the trend
Source: Colliers International However, in 2011 office market transactions
reversed in H2 2011 but remained at
as a percentage of total market share
levels below those at the end of 2010.
transactions declined from 73% to 43%.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | INVESTMENT OVERVIEW
PROGNOSIS In all segments, assets are being

CHANGES IN DEAL VOLUME BY consolidated in the hands of large holding
MARKET SEGMENT (%) Investment volumes in 2012 will be
companies such as Tashir Group of
8 dictated by the economic situation in
Companies, BIN Group, and 01 Properties,
7 Europe and the US. If the Eurozone crisis
which seldom sell quality properties.
6 worsens, we expect a decline in real
5 estate investment volumes this year.
4 This year, the retail segment will see the
3 most significant reduction in the number
In addition to macroeconomic factors,
2 and volume of transactions as the number
the limited supply of quality properties
1 of properties in this segment are smaller.
will lead to a reduction in the total
0
amount of real estate transactions. Many
A number of major end-user transactions
2007
2008
2010
2011
properties formerly available on the

are expected in the office segment.
Office market have changed hands and will not
Retail
be offered for sale in the short term.
Mixed-use
The commissioning of new properties
Warehouse
will face challenges due to restrictions on
Hotel
construction capacity within the Garden Ring.
CHANGES IN CAPITALISATION RATES

BY SEGMENT, %
20
15 COMMERCIAL REAL ESTATE TRANSACTIONS BREAKDOWN, 2011, MOSCOW

(INCLUDING INVESTMENT TRANSACTIONS AND TRANSACTIONS WITH END USERS),
10 US$ MILLION
Segment Q1 Q2 Q3 Q4 Total
5
2003
2004
2005
2006
2007
2008
2010
2011
Hotel 80.0 700.0 15.0 298.0 1,093.0

Office
Warehouse 0 218.3 243.2 75.0 536.5
Retail
Warehouse Office 170.0 855.8 926.8 1,170.9 3,123.5
Source: Colliers International Retail 566.0 606.0 865.6 227.0 2,264.6
Mixed-use 9.4 0 0 314.9 324.3

CHANGES IN CAPITALISATION RATES
Total 825.4 2,380.1 2,050.6 2,085.8 7,341.9
BY SEGMENT, %
7%
23%
70%
Domestic
Foreign
N/a

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | INDUSTRIAL MARKET
INDUSTRIAL MARKET
The industrial property market experienced The most sought-after premises in Moscow
TOTAL STOCK AND NEW CONSTRUC- the most acute shortage of supply in Moscow and the Moscow region, which accounted
TION, GRADEES A AND B (MILLION M2) and the Moscow Region. In 2011, the vacancy for 50% of the requests were for large
9 rate for Grade A properties declined to 1.2%. blocks of space with an area greater
8
7
This was due to the fact that the volume than 5,000 m2. The number of requests
6 of new construction shrank to almost half for space with an area over 10,000 m2
5 the volume of the past two years, while was 1.7 times higher than in 2010. The
4 the take-up of quality warehouse space lack of available space and warehouse
3
exceeded pre-crisis levels. Together, these property expansions fuelled this trend.
2
1 factors were responsible for a record growth
0 of industrial rental rates in 2011. Grade A To adhere to stricter control over warehouse
industrial rents increased by 21% and Grade owners compliance with fire safety standards,
2007
2008
2009
2010
2011
2012F
B industrial rents increased by 24%. requirements for quality warehouse

Total Stock (beginning of the rep. period)
facilities were more stringent in 2011.
New Construction
SUPPLY
Source: Colliers International VACANCY/AVAILABILITY
In 2011, 400,000 m2 of warehouse space
was commissioned in the Moscow Region, As demand exceeded new construction by
BREAKDOWN OF DEMAND* BY TEN- which is comparable to the quantity that a factor of two, vacancy rates declined in
ANT PROFILE, MOSCOW AND THE came on market in 2010. However, 2011’s 2011. Vacancy rates in the Moscow region
MOSCOW REGION, 2011 new industrial supply levels are 1.5 to 2 times market for quality warehouse properties
2% less than pre-crisis new supply levels. returned to their pre-crisis levels at 1.2%.
2% 1%
4%
5% The total stock of warehouse space in the Low vacancy rates led to an increase in
6% 38% Moscow region grew to 7.6 million m2 in 2011. rental rates for warehouse premises in
2011: Grade A (21%) and Grade B (24%).
DEMAND
15% In 2011, rental rates for Grade A and
Demand for warehouse space stabilised.
Grade B properties reached US$135 m2 /
Gross take-up amounted to approximately 1
pa and US$120 m2 /pa, respectively.
million m2, equal to 2010 levels. However,
demand exceeded the volume of new
The trend to consider longer lease
27% construction by a factor of two making
terms continued into 2011. In 2010, it
Logistic Operator Automobiles / tech- it challenging to secure quality space.
/ 3PL nics / machines was common to sign a five year lease
agreement. 2011 saw the signing of lease
Retail & Trading Alcohol Logistics companies, retail operators,
FMCG agreements between seven to 10 years.
Pharmaceuticals / FMCG companies, and manufacturers
Healthcare Nonetheless, short-term lease agreements
Manufacturer drove demand. Together, these sectors
still prevailed in the Grade B segment.
Distributor Printed matter accounted for 80% of the total number
OTHERS of requests in the warehouse market of
Moscow and the Moscow region. In 2011,
the share activity from logistics operators
increased to 38% up from 15% in 2010.
VACANCY RATES (%)
14
12
10
8
6
4
2
0
2006
2007
2008
2009
2010
2011

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | INDUSTRIAL MARKET
REGIONS PROGNOSIS
BREAKDOWN OF VACANT SPACE IN
THE MOSCOW REGION BY DIRECTION In 2011, the regional markets saw an High demand for warehouse space
intensification of new industrial construction. coupled with low vacancy rates will drive
0.6% 0.1% Three new properties were under local and foreign developers to bring new
2.0% 4.2% construction in Krasnodar, PNK’s Phase II is projects to market. In particular, MLP has
being built in Novosibirsk, and construction resumed construction of Phase II of MLP
work on Phase II of Volzhsky Industrial Park Podolsk. Raven Russia has announced
is being carried out in Nizhny Novgorod. its intention to build 100,000 m2 of space
2.0% in 2012. Ghelamco Group commenced
Demand for industrial space in the regions construction of Dmitrov Logistics Park,
was also healthy. In 2011, Kazan’s key the company’s first project in Russia.
warehouses facilities, Q Park and Biek Tau,
2.4%
2.0% were fully leased out, which led to a reduction As developers tend to commission large
in the city’s vacancy rate to 1%. A similar warehouse facilities in phases there
2.3%
situation was observed in Yekaterinburg. will be few “speculative” projects with
South-West a simultaneously commissioned area of
Demand for industrial space in Russia’s over 100,000 m2 to enter the Moscow
South
regions was dominated by federal Region’s market in the next two years.
West companies and retail operators. Another
East notable trend was the growing demand Despite higher volumes of new construction
for warehouse space from car and car for industrial space, the vacancy rate
North
parts manufacturers. This trend was is not expected to rise above 1.5%.
North-West especially pronounced in the markets of
North-East Kaluga, Togliatti, and St. Petersburg. A shortage of commissioned space at
South-East existing warehouse facilities will drive
Lower rental rates were a key success factor a shift in demand toward warehouse
driving demand in the regional warehouse properties under construction.
market compared to Moscow and the Moscow
region. Depending on the location, rental Taking into account the increase in new
rates may vary from 10% to 20% lower construction expected in 2012, rental
than in Moscow. A second key success rates are expected to remain stable for
factor making the regions competitive was warehouse properties in Moscow and the
that the average term of lease agreements Moscow region. In H1 2012, rental rates
was only three to five years, shorter than for large Grade A premises will stabilise at
in Moscow and the Moscow region. US$135 m2 /pa to US$140 m2 /pa. Industrial
premises with areas of less than 5,000
m2 may be leased out at a higher rate.
In 2012, the completion of 750,000

m2 to 800,000 m2 of new space is
expected. Some of the new industrial
space has already be sold, leased or is
being developed as a build-to-suit project
and will not enter the leasing market.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | OFFICE MARKET
OFFICE MARKET
The office sector demonstrated a strong DEMAND
TOTAL STOCK AND NEW CONSTRUC-
recovery due to lower levels of commissioned
TION, GRADES A AND B (MILLION M2) Office demand in Moscow was driven
space and a surge in pent-up demand for
14 by banks, financial organisations, IT and
office space. The combination of these
12 telecommunication, and mining and energy
factors resulted in lower vacancy rates
10 companies. These sectors accounted
8
across all Grades, as well as higher rental
for over 60% of gross take-up. Due to
6 rates in existing business clusters.
instability in the international financial
4 markets, Russian companies were mainly
2 SUPPLY
responsible for generating demand in
0
In 2011, 750,000 m2 of office space Moscow’s office properties (74%) in
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012F
was completed with Grade A business contrast to international companies.

Total Stock (beginning of the rep. period) centres accounting for 37% and Grade
New Construction B office properties accounting for 63%. Consistent demand for Grade A and Grade B
Source: Colliers International The proportion of new construction office properties has been witnessed since
and renovation equaled 70% and 30% H2 2010. In 2011, about 1.9 million m2 of
HOTELS BY CATEGORY respectively. The total office stock of quality office space was either leased or sold
IN MAJOR POLISH CITIES Grade A and Grade B inventory reached to end users, almost double the take-up of
13.48 million m2. New construction levels office space in 2010. Demand was fueled by
4% 3%
5% in 2011 were 15% lower than 2010 levels. the search for quality office space and low
5%
35% supply meeting the needs of end users.
Improvements in the office market
5%
performance prompted developers to return In 2011, transactions (lease and sale)
7% to previously suspended projects. The were split according to Grade A
first “unfrozen” office projects from 2010 (26%) and Grade B (74%) space.
were added to new supply in the market.
9%
Smaller properties came online first as they The greatest proportion of transactions was
12% 15% take less time to construct. The average recorded in the CBD, representing 35% of
GLA of a building commissioned in 2011 the total amount of space leased in 2011.
CBD East was 10,000 m2 in the CBD and 11,000 The share of transactions in the West part of
West South-East m2 in other submarkets. Larger projects, Moscow increased from 9.5%, as of H1 2011,
South South-West “unfrozen” after the crisis, will be actively to 15% by year end. In the Southern part of
North Moscow-City commissioned between 2012 and 2013 with Moscow, they increased from 9% to 12%.
North-West North-East an increase in the average GLA to 11,000 m2 The volume of transactions in each of the
Source: Colliers International in the central part of Moscow and 19,000 other districts accounted for less than 10%
m2 to 20,000 m2 outside of the CBD. of total take-up in the leasing market.
MAJOR LEASE AND SALE TRANSAC-
TIONS COMPLETED IN 2011 Most Moscow-City sites are actively Net take-up in 2011 amounted to almost
Tenant/ Building Build- Office being developed again. Construction work 400,000 m2, which meant that companies
Purchaser ing area, resumed at SkyLight business centre expanded during relocation (so this
Grade m2 and White Gardens complex. In addition, is only 21% of all mkt activity).
Rostelecom Rumyantsevo B 90 000 developers continued to purchase new sites
Federal Grid Western Gate, to develop office projects. For example,
A 38 178
Company Bldgs A, B O1 Properties bought the Evocom Plaza
Mail.ru SkyLight A 29 932 project on Oktyabrskaya Ul. in the summer
Kaspersky
Olympia Park A 29 840
of 2011, while in late 2011, it purchased
Lab. the former Bolshevik factory building, for
Russian the purpose of renovating it into a Grade
Alfa-Arbat
Agricultural A 27 450 A business centre. In addition, in late
Centre
Bank 2011, Moscow-City Plot No. 15, previously
Danilovsky designated for construction of Moscow
Sberbank B 23 863
Fort
City’s Mayor’s Office, was sold at auction.
AFI at Pave-
Greenatom B 13 600
letskaya
UniCredit Nagatino
B 11 683
Bank i-Land
Morton Preo8 A 11 520
Legenda
GroupM A 10 794
Tsvetnogo
Confidential Silver Stone B 10 771

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | OFFICE MARKET
VACANCY AND RENTAL RATES PROGNOSIS

ASKING RENTAL RATES AND SALE
PRICES IN 2011 A reduction in new supply and increased Declining vacancy rates and increasing
Building GradeRental Price, US$/m 2 demand for office properties resulted in asking rental rates in Moscow’s established
rates, US$/m2/ (net of VAT) decreasing vacancy rates. In 2011, the business districts will continue throughout
pa (net of VAT breakdown of vacancy rates by Grade was: 2012. At the same time, in other areas,
and OPEX) Grade A (15.8%) and Grade B (9.1%). the market is expected to stabilize.
Grade A 600-1,100 9,000-13,000
Grade B+ 300-800 3,500-11,000 Vacancy rates increased in Moscow’s Between 2012 and 2013, we could expect
Grade B- 200-550 2,500-6,500 South-West and in Moscow-City due to a reduction in new construction volumes
Source: Colliers International the large amount of new office space between 0.5 and 0.7 million m2/pa.
that came online in these districts.
MOSCOW OFFICE RENTS & VACANCY Office projects such as Westpark, 700,000 m2 of office space is expected
BY LOCATION Leipzig Fashion House, and Ochakovo BC, to be completed in 2012. Most of the
1000 25% (70,000 m2) were built in the city’s South- buildings are located outside the CBD.
800 20% West district located in the vicinity of the
MKAD. In Moscow-City, the Imperia Tower Demand for office space will stay
600 15%
(over 70,000 m2) was constructed. concentrated in the central part of the city,
400 10% Leningradsky Prospekt area, as well as
200 5% Grade A weighted average asking rental around Leninsky Prospekt and Tulskaya
rates exceeded US$800 m2/pa, which was metro stations. Given a stable economic
0 0%
30% higher than at the beginning of the environment, we predict lower vacancy rates
City
CBD
West
Nort-West
North-East
East
South
South-East
South-West
North
year. Grade B, weighted average rental rates and higher rental rates. The rental rates for
varied between US$350 m2 /pa to US$450 Grade A premises in 2012 in these districts
m2 /pa due to fluctuations of the USD/RUB will be in the US$900-1300 m2/pa level,
Average Asking Rental Rates, Classes A & B,
$/m2/year (net of VAT and OPEX), 2010 exchange rate. By the end of 2011, Grade B while the rental rates for Grade B premises
Average Asking Rental Rates, Classes A & B, rental rates decreased by 3% compared to will range from US$650-900 m2/pa.
$/m2/year (net of VAT and OPEX), 2011
Average Vacancy Rates, %, 2010 rents in 2010 (around US$400 m2 /pa).
Average Vacancy Rates, %, 2011 By the end of 2012, vacancy rates may
drop to 3-4% for Grade B offices and
10% to 12% for Grade A premises.
DEMAND DISTRIBUTION IN THE
MOSCOW OFFICE PROPERTY LEASE In other Moscow districts, vacancy rates
MARKET BY TENANT PROFILE are expected to stabilize. Substantial new
supply may push vacancy rates up to the
9%
19% 18-19% range for Grade A offices and
4%
11-13% for Grade B premises. However,
4%
as new supply is absorbed, vacancy rates
5% will gradually decline. As a result, average
6%
asking rental rates outside the established
15% business districts will remain between
US$500-600 m2/pa for Grade A and
10% US$300-450 m2/pa for Grade B premises.
14%
14%
Banking/Finance Manifacturing
IT Construction
Telecommunications Pharmaceutical
Natural Resources Consulting
FMCG Other

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | RETAIL MARKET
RETAIL MARKET
The retail property market continued to Some international retailers, having
TOTAL STOCK AND NEW CONSTRUC- develop vigorously. Recovery of demand already familiarised themselves with the
TION (GLA) IN MOSCOW (MILLION M2) encouraged retailers to revive their Russian market, decided to abandon the
4.0 development plans. Retail space that came franchising model and develop stores
3.5
online between 2009 and 2010 was filled. independently such as Hermes, Prada,
3.0
The limited number of shopping centres Guess, Hugo Boss, Lee, Wrangler, Mango,
2.5
2.0
built in Moscow in 2011 led to an increase New Yorker, Promod, S’Oliver, and ECCO.
1.5
in competition to secure the best locations
1.0 among retail operators. To strengthen Russian federal retail chains are also
0.5 their market positions, retailers focused expanded in 2011. The highest growth was
0.0 on quality business development and recorded in the food sector. In 2011, two
expansion into new regional markets. major transactions were completed: DIXY
2006
2007
2008
2009
2010
2011
2012F
purchased Victoria chain, while Alexandr

New Retail Space Supply (GLA) SUPPLY Zanadvorov, owner of The Seventh Continent,
GLA as of the beginning of the reporting preiod purchased Mosmart chain. The Magnit
In 2011, a historical low of newly constructed
Source: Colliers International chain added 1,254 stores in 2011, including
retail floor space was reported in the
210 stores of the new drogery format.
market as only five shopping centres were
MAJOR SHOPPING CENTRES OPENED
opened in Moscow, with a total GBA of
IN MOSCOW IN 2011 Several new retail formats were rolled out in
300,380 m2 (171,740 m2 GLA). 2011’s new
2011 including the first electronic department
Name Address GBA, m2 retail supply figure was 50% lower than
store by Svyaznoy (Enter project). In addition
AFIMALL 2 Presnen-skaya
new supply in 2010 and 65% lower than
179,000 to electronics, Enter will sell furniture, toys,
City Nab. new supply in 2009 (in terms of GLA).
household goods, jewellery. DIXY converted
1 Severnoye its stores to a convenience store format.
Aventura 35,000 The total stock of shopping centres in
Chertanovo, Bldg 1 O’STIN focused on expanding its product mix
Planernaya Moscow (GBA) was 6,100,310 m2 (3,074,410
7 Planernaya Ul. 50,380 to include children’s clothing and increasing
transit hub m2 GLA), taking into account the Ramstore
store floor space to 1,000 m2 in its clothing
Severnoe 1 Dmitriya SC demolition on Yartsevskaya Ul.
20,000 stores. SPAR plans to develop hypermarkets
Siyanie Donskogo B-r
(5,000 m2) and test in Chelyabinsk.
31a Leningradsky Retail space provision in Moscow equalled
MonArch 16,000
Pr-t, Bldg 1 265 m2 per 1,000 residents, whereas in
VACANCY AND RENTAL RATES
Eastern Europe, the average value of retail
space per 1,000 residents was 350 m2, and Rental rates at the most successful shopping
reached between 600-800 m2 in some cities. centres increased by 10-15% during 2011,
SHOPPING CENTRES OPENED while vacancy rates have declined by 1-3%
IN RUSSIA IN 2011 (GBA) seeing the return of the tenant “waiting-list.”
DEMAND
8% 8%
In 2011, international retailers opened
In less successful shopping centres, rates
8% stores in Moscow including American Eagle
remained stable or increased by up to 5%.
Outfitters, Victoria’s Secret, DKNY, and
Developers were ready to accommodate
Banana Republic. A number of brands entered
tenants and, in some instances, grant them
the Russian market in several cities at once,
8%
certain privileges such as partial finishing
such as Desigual, Diesel and Dorothy Perkins.
of premises, and preferred payment terms.
8%
Moscow
Cities more than 1 mln citizens( without Moscow)
Cities 500-1000 thous citizens
Cities 300-500 thous citizens
Cities less than 300 thous citizens


RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | RETAIL MARKET
HIGH STREET RETAIL PROGNOSIS

MAJOR SHOPPING CENTRES OPENED
IN MOSCOW IN 2011 In 2011, positive trends were observed in Demand for premises in Moscow’s major
the high street retail market. Rental rate retail corridors will continue to increase,
Name Address GBA, m2 increases did not exceed the inflation rate. driven by the limited available space
16-8 Avtozavod- Vacancy rates in Moscow’s major retail in the capital’s shopping centres.
River Mall 258,000
skaya Ul. corridors remained low, amounting to 3-5%.
JUNE
Mytishchi, Volkovs-
178,000
In 2012, 17 shopping centres with an
koye Sh. Despite rental rates in the central part of aggregate GLA of 593,500 m2 (1,178,530 m2
GoodZone 12 Kashirskoye Sh. 120,000 Moscow being among the highest in the GBA) was announced to be opened in 2013.
RIO Leninsky Pr-t 76,000 world, international companies continued Half of the new supply was comprised of large
Vnukovo Out- Kievskoye Sh., 8
47,000*
to open stores. In 2011, Jimmy Choo and projects which may not meet construction
let Village km from the MKAD Joseph stores opened in Stoleshnikov timelines. Therefore, the 2012 supply of retail
Outlet Village Kotelniki, Belaya Pereulok and French brands Daum and space is likely to be considerably smaller.
40,800
Belaya Dacha Dacha community Lalique opened an interior design store
*In 2012, Phase I of the shopping centrewith a GBA of 29,130 m2 is with an area of 170 m2 at the corner of The retail property market is gradually
to be opened.
Nikolskaya Ulitsa and Tretyakovsky Proezd. transitioning to a tighter market requiring
more strategic planning as competition
Public catering establishments show the intensifies and the number of good locations
MAJOR SHOPPING CENTRES OPENED greatest demand for street retail premises. in Moscow and large Russian cities
IN RUSSIA IN 2011 For example, in 2011, Ginza opened more decreases. In the past, companies could
than 10 restaurants in Moscow. Large- develop extensively supported by rapid
City Name GBA, m2
format operators also continued their economic growth, high purchasing power
Ufa MEGA 130,000
development. In 2012, Paulaner plans to of the population, and inexpensive loans.
Samara MEGA 130,000
open a restaurant located on the Garden
St. Peters- Ring, with a total area of 1,600 m2.
LETO 114,000 Less successful retail projects will continue
burg
to renovate or revise their concept to remain
Ryazan M5 Mall 81,500
REGIONAL CITIES competitive in cities such as Moscow,
Astrakhan Yarmarka 81,000
St. Petersburg, and Yekaterinburg.
An increase in tenant demand triggered
development in the regional cities. In 2011,
In addition to improving quality of shopping
39 shopping centres, with a total GBA of
AVERAGE RENTAL RATES IN MAJOR centres, developers are venturing into
1,685,800 m2, were opened increasing
RETAIL CORRIDORS OF MOSCOW, new formats. In 2012, the opening of the
the new supply of retail space in Russia
Q4 2011 first outlet centres in Moscow (Vnukovo
(including Moscow) to 1,986,180 m2 .
Outlet Village, Outlet Village Belaya
Retail Corridor Rental Rate,
Dacha, Fashion House Moscow) has
US$/m2/pa New retail development was most prevalent
been announced. Developers are also
Tverskaya Ul. 2,500-8,500 in St. Petersburg (11 new shopping centres),
paying more attention to formats such
Petrovka Ul. 2,500-4,000 as well as Novosibirsk and Samara (2
as Retail Parks and Life Style Centres.
Kuznetsky Most Ul. 2,200-3,900 new shopping centres in each). In cities
Stary Arbat Ul. 1,400-3,800 with a population between 500 to 1,000
1st Tverskaya-Yams- thousand residents, the most considerable
1,700-2,800
kaya Ul. increase in the amount of retail space
Pyatnitskaya Ul. 1,400-1,800 was recorded in Orenburg and Ryazan.
Intensifying competition in the retail markets
of large cities has captured the attention
of developers to explore development
opportunities in cities with a population
between 300,000 to 500,000 residents. In
2011, two shopping centres were opened in
such cities, while nine more are planned for
commissioning in 2012 (in Magnitogorsk,
Surgut, Sochi, and Tver). As for cities with
a population below 300,000, Petrozavodsk
and Syktyvkar are radar for developers.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | HOTEL MARKET
HOTEL MARKET
OVERVIEW DEMAND
GROWTH RATE OF NEW ROOM STOCK
SUPPLY IN THE MOSCOW HOTEL Moderately positive trends in the hotel market According to the Tourism Committee of
MARKET IN 2011 in Moscow, forecast in late 2010, were Moscow, 3.99 million of foreign guests
1200 confirmed by 2011 results. The occupancy visited Moscow in 2010. During the first
1000 levels of hotels in the 3-4-5 star segments nine months of 2011 3.4 million foreign
800
have finally reached pre-crisis levels. Positive guests came to Moscow, which is 11.1%
trends support our expectations that the more than the same period in 2010.
600
hotel market will see further recovery.
400
According to Mosgorstat, at the end of H1
200
SUPPLY 2011 the total number of accommodated
0 visitors in Moscow was 2.17 million guests.
In 2011 hotel room stock in Moscow in
Q1
Q2
Q3
Q4
By H1 2011 the growth rate exceeded pre-

the 3-4-5 star segments equaled 29,000
Room Stock crisis level by 20% compared to H1 2010.
rooms, an increase of 4.1% from 2010.
Room Stock Launched This Quarter
Hotel stock excluded hotels located
In terms of leisure and recreational tourism,
close to the international airports of
Moscow is not as competitive as other tourist
Sheremetyevo, Domodedovo and Vnukovo.
centres. Only every third foreign guest who
HOTEL ROOM % BY GRADE: MOSCOW
visited the city declared the purpose of the
70% Eight new hotel properties, adding 1,111
trip as leisure and recreational tourism. The
60% rooms, were put into operation in 2011.
main purpose of travel remained business or
50% professional activities, which accounted for
Only 57% of rooms planned to open in
40% more than 50% of accommodated visitors.
30%
2011 actually opened in the market. The
opening dates for the Azimut Hotel (9
20% In 2011, occupancy level and ADR (average
Varshavskoe Sh.) and the Mercure Arbat (6
10% price per room) growth in the luxury hotel
Smolenskaya Sq.) have been rescheduled
0 segment (+0.7% and +2.5% respectively)
for 2012, whereas DoubleTree by Hilton
increased the RevPAR index. However the
5*
4*
3*
Vnukovo has been rescheduled for 2013.

2010 growth rate of RevPAR slowed down to 3.2%
2011 in 2011 in comparison to 2010 where the
The share of hotels under international
Source: Colliers International RevPAR index increased by 5.5% from 2009.
operators’ management has remained
CHANGE IN HOTEL ROOM CAPACITY unchanged and accounts for one third
of rooms in the 3-4-5 star segments. PERFORMANCE DYNAMICS OF KEY INDICA-
BY GRADE: MOSCOW
TORS IN THE LUXURY SEGMENT (RUR)
20%
International operators are represented in the
15% 15 000 100%
top segment of Moscow’s accommodation
10%
facilities, where 75% of the available 12 000 80%
5%
accommodations are under their control.
0% 9 000 60%
-5% International operators still have a 6 000 40%
-10% low penetration rate in the 3-star hotel
3 000 20%
-15% segment: Only 4% of 3-star hotels are
2008
2009
2010
managed by international operators. 0 0

2007
2008
2009
2010
2011
Sources: Tourism Committee of Moscow
ADR
RevPAR
Occupancy

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | MOSCOW | HOTEL MARKET
For the first time the RevPAR index in PROGNOSIS

PERFORMANCE DYNAMICS OF KEY the luxury and upscale hotel segments
INDICATORS IN THE MIDSCALE SEG- In 2012 we expect a 3.6% increase in the
demonstrated an increase since 2009.
MENT (RUR) supply of 3-4-5 star segment properties.
It can be explained by a 4.6% increase
60% Notably, all new hotel room supply
in ADR compared to the same period
will be managed by chain operators.
50% in 2010. The occupancy level has
The main share of new stock will be
40% remained almost the same (+1% compared
located in the centre of Moscow.
to 2010) for these segments.
30%
20% Despite an increase in the new supply of
10%
PERFORMANCE DYNAMICS OF KEY IN- midscale hotels, there was an insufficient
DICATORS IN THE UPPER UPSCALE AND number of modern-standard hotels.
0
UPSCALE SEGMENTS (RUR)
2004
2005
2006
2007
2008
2009
2010
10 000 100%
Moderate annual growth of new rooms
Leisure and recreation on the market will maintain the balance
Business
Other
8 000 80% of supply and demand for hotel space.
6 000 60%
Moscow’s key hotel indicators signal that
4 000 40% the hotel market continues to show signs
HOTEL PROPERTIES PLANNED FOR 2 000 20% of recovery and continued growth.
OPENING IN 2012
0 0 International hotel operators remained
Name Class Num- Manage-
2007
2008
2009
2010
2011
ber of ment interested in developing new brands

rooms ADR in Moscow as well as in developing
RevPAR
Azimut different types of accommodation.
Azimut Hotel 3* 134 Occupancy
Hotels Source: Colliers International
Accor The education and training

Mercure Arbat 4* 109
Hotels sector is expected to grow.
The largest occupancy level (+10.1%)
Hotel within the
Rezidor increase was reported in the midscale
Park Pobedy
3*-4* 250 Hotel
The implementation of the urban program
hotel-office hotel segment. It resulted in a RevPAR for tourism development, to be rolled out
Group increase of 9.8% compared to 2010. For
center over the new few years, will be essential
Novotel Moscow Accor the past three years the ADR index had to the growth of inbound and domestic
4* 350
City Hotels been decreasing, but according to the tourism. This program will also play a factor
Kempinski Hotel Kempinski results of 2011 the minimum decrease in in influencing the quality of development
5* 210
Nikolskaya Hotels ADR was 0.2%. The highest occupancy in the tourism industry in Moscow.
levels (83.3% to 89%) was observed in the
summer months as well as in September.
PERFORMANCE DYNAMICS OF KEY INDICA-

TORS IN THE MIDSCALE SEGMENT (RUR)
15 000 100%
12 000 80%
9 000 60%
6 000 40%
3 000 20%
0 0
2007
2008
2009
2010
2011
ADR
RevPAR
Occupancy

RUSSIA
– ST PETERSBURG

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG |
INVESTMENT OVERVIEW
SUMMARY Another milestone event in 2011 was in Q3
KEY INVESTMENT MARKET 2011, VTB Bank sold the Passage shopping
INDICATORS, 2011 2011 was a record-breaking year for St.
centre on Nevsky Prospekt to Jensen
Indicator Value Petersburg’s real estate market in terms of
Group for an estimated US$80 million.
Total Investment closed investment transactions. US$2.27
US$2.27 billion billion worth of real estate sale transactions
Transactions
The share of transactions including office
Prime Office Yields 9-10% were closed as a result of pent-up demand
real estate amounted to about 6%. Most of
Prime Retail Yields 9-10% between 2009 and 2010 where the number
these were purchased for owner-occupier
Prime Warehouse of property transactions was relatively
10-11% needs. There was only one transaction
Yields small (US$430 and US$470 million,
completed for investment purposes namely,
respectively), and secondly, to the arrival of
Source: Colliers International the purchase of the Aeroplaza office centre
new major players such as the Fort Group.
with a GBA of 33,000 m2, located in the
INVESTMENT TRANSACTIONS vicinity of Pulkovo Airport, by PAN.
2011’s transactions, including the purchase
BY SECTOR, US$ MILLION of land for residential development, exceeded
2500 2011 saw an increase in prices for
the investment figures from 2007 (US$980
operating assets that generated rental
2000 million) and 2008 (US$930 million) by
income (business centres, shopping malls).
more than a factor of two, and exceeded
1500 Capitalisation rates for high-quality Grade
2010’s investment totals by a factor of five.
A assets reached pre-crisis levels and
1000
steadied in the range of 9-10%. Grade B
Last year’s most dynamic sector was retail.
500 assets ranged from 10.5-12%. Estimated
70% of total investments were in retail
capitalisation rates for Grade A warehouse
0 assets, most of which were already operating
properties were 10-11%, and for Grade B
and profitable. The largest investment
2007
2008
2009
2010
2011
warehouses were between 11% and 13%.

Hotel Office
transaction of 2011 in the commercial real
estate market of St. Petersburg, and Russia
Industrial Retail
as a whole, was the acquisition of the
Residential
operating Galeria shopping and entertainment
centre by the US Morgan Stanley Real
Estate Fund from Meridian Capital. The
transaction amounted to US$1.1 billion, with
a capitalisation rate estimated at 9%.
MAJOR INVESTMENT TRANSACTIONS,

2011
Name Address GBA, m2 Buyer Seller Transaction Quarter
amount, US$
million
Assets of Macromir (operating shop-
ping centres French Boulevard, Fiolent,
Felicita, City Mall, Rodeo Drive, and a 260,000 Fort Group Macromir confidential Q1
shopping centre under development,
Dolgoozerny)
Aeroplaza Sberbank
8 Startovaya Ul. 33,000 PAN 37 Q2
(office centre) Capital
Passage (shop- Jensen
48 Nevsky Pr-t 21,000 VTB Bank 80 Q3
ping centre) Group
Galeria (retail and Morgan
Meridian
entertainment 30A Ligovsky Pr-t 192,000 Stanley Real 1,100 Q4
Capital
centre) Estate Fund

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG |
Demand for residential developments PROGNOSIS

ORIGIN OF INVESTORS(BY COMPLETED remained stable during 2011. Acquisition
TRANSACTIONS), (%) Despite the volatility of global
of land in various stages of readiness for
100% economies and stock markets, trends
housing construction accounted for more
in 2011 will continue in 2012.
80% than 24% of total investment transactions
for the period. Among active buyers of land
60% Investors will stick with investing in
plots for residential development in 2011, the
properties that offer a stable cash flow
40% following deserve a special mention: Etalon
such as the residential property market
Group, Setl City, RBI Holding, CDS Group,
20% and segments of the commercial property
and ZAO YIT Lentek. In early 2012, the land
market like operating business centres
0 cost component in the square metre price
in convenient locations, and shopping
of future improvements (residential property
Before 2008
2008*2010
2011
centres backed by a successful concept.

for sale) for multi-storey apartment blocks
belonging to economy and comfort Grade is in
We expect the arrival of new, professional,
the range of US$200-800 per m2 (compared
Local Western developers in the St. Petersburg
to the city average of US$400 per m2).
Foreign market, particularly in the hotel segment.
The vast majority of transactions (about
Bank lending terms are becoming more
90% of the number of transactions)
CAPITALISATION RATES, (% ) flexible. Most large banks are increasingly
took place with the participation of local
willing to provide finance for construction
25% investors. However, in share of value, about
projects. However, secured loans and
55% was invested by foreign players.
refinancing remain the only genuinely
20%
accessible options. Lending periods
15% will not exceed three to five years and
interest rates were 10-15% in Russian
10% Rubles, or 7-12% in foreign currency.
5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Office
Retail
Industrial

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | INDUSTRIAL MARKET
INDUSTRIAL MARKET
SUPPLY In 2011, 42% of the total number of industrial
TOTAL STOCK AND NEW CONSTRUC- lease transactions were for warehousing
TION (THOUSAND M2) In 2011, only one warehouse was
spaces between 5,000 m2 and 10,000
1200 completed in St. Petersburg: the Phase
m2. 38% of lease transactions were for
II of Osinovaya Roscha logistics terminal.
1000 industrial spaces with areas less than
The project was developed by Sterkh
800 5,000 m2, and 20% was for industrial
corporation in Pargolovo, Vyborgsky district.
spaces of greater than 10,000 m2.
600 The facility, with a total area of 12,600
400 m2, is intended to provide warehousing
The most significant industrial deals of
services and secure storage of cargo.
200 2011 included four lease transactions
0 with areas over 15,000 m2.
Total speculative supply of warehouse
2006
2007
2008
2009
2010
2011
2012F
space (leased and offered for lease) in

TPV Technology Ltd. (LCD-panel
the St. Petersburg warehouse market
Total Stock, as of the begining of the manufacturer), a Chinese company leased
reporting period increased by 1% to 970,000 m2 in 2011.
about 25,400 m2 at AKM Logistics warehouse
New construction The increase was caused by the market
complex in Shushary. The company plans
entry of a warehouse property which had
Source: Colliers International to use the leased space to house its plant
previously been used for the needs of a
where televisions will be manufactured
(owner-occupied) pharmaceutical company
under the Philips and Sharp brand names.
and had not been available for lease.
VACANT SPACE AND NET TAKE-UP
MAN Truck & Bus AG, one of the largest
(THOUSAND M2) In early 2012, the completion of three
European car manufacturers, leased
50 warehouse facilities, including Orion
20,800 m2 at Unipack logistics centre.
Logistics, St. Petersburg Terminal Complex
400
(STC) and Nordway Logistics Park, is
An alcohol distributor leased 17,500
300 expected. After these projects are added
m2 at MLP Utkina Zavod warehouse
to the market, the increase in warehouse
200 and industrial complex. Colliers
space would grow to 109,000 m2.
100
International acted as a consultant on
the aforementioned transactions.
0
DEMAND
In 2011, the total volume of leased One of the largest logistics operators
2007
2008
2009
2010
2011
2012F
transactions in the St. Petersburg’s leased about 27,800 m2 of warehouse

New construction warehouse property market was 180,000 space at St. Petersburg Terminal
Vacant space, as of the begining of the m2 (including the total volume of leased Complex (STC), which is currently under
reporting period
warehouses, mezzanine, and office space). construction. Colliers International
Net take-up in the reporting period
This total surpassed 2010’s value by acted as a consultant for the deal.
3.5%. The total net take-up of warehouse
space was estimated at 160,000 m2. Based on the data from preliminary lease
agreements, in 2011, the occupancy rate
Demand for warehouse space in St. for warehouse facilities currently under
Petersburg changed. The opening of construction was estimated at 38%.
new warehouses and the expansion of
existing facilities meant that manufacturing
companies increased their share of demand
to 32%, surpassing logistics companies who
represented 23% of demand. Retailers who
lease warehouse space for the purpose of
distribution continued to be the most active
players in the St. Petersburg industrial
market representing 45% of demand.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | INDUSTRIAL MARKET
VACANCY RATES PROGNOSIS

SUPPLY AND VACANCY RATES, BY
ZONE (THOUSAND M2) In 2011, net take-up exceeded new supply, Supply of vacant space in St. Petersburg’s
VACANCY (%) which led to a further reduction in vacancy warehouse rental market gradually decreased.
350 18% rates in St. Petersburg’s warehouse
300 16% property market. By the end of 2011, The shortage of available warehouse space
250 14% the average vacancy rate in industrial led to an increase in demand for properties
200
12% and warehouse facilities decreased to under construction. The tendency to enter
10% 6.2%, or approximately 60,000 m2. into pre-lease agreements indicated that the
150
8% market is returning to its 2007 development
100 4% The highest vacancy rate was observed cycle stage, when it was common to enter
50 2%
in the Shushary industrial zone (15.6%), lease agreements early in the construction
0 0%
with vacant space of 50,000 m2. stage of industrial and warehouse properties.
Shushary
Separate industrial zones in the city

Utkina Zavod
Predportovaya
Parnas, Pargolovo
Gorolevo
Obukhnovo
Pulkovskoye Sh.
RENTAL RATES Higher volumes of take-up compared to supply

of new warehouse space led to an increase
Rents crept up in industrial properties
in rental rates. In 2012, due to insufficient
in 2011, against the backdrop of
volumes of new supply and persistent levels
gradually declining vacancy rates.
of demand, rental rates will further increase.
In 2011, average asking rates for Grade A
Russian and foreign investors and
warehouse premises varied in the range of
Total stock of warehouse space in each developers have a growing interest in
zone, thousand m2 US$110-120 m2/pa and US$95-110 m2/pa
purchasing industrial properties, as well as
for Grade B space. For the year, the overall
Vacancy rate, % of total warehouse space implementing the build-to-suit concept. The
in each zone rental rate average increased by 15%.
most likely build-to-suit projects planned
for development between 2012 and 2013
include PNK-KAD (Sophiyskaya Ul.), Pulkovo-
Estate (Pulkovskoye Sh.), AKM Logistics
CHANGES IN ASKING RENTAL RATES*
(Moskovskoye Sh.), and Ultrastar (Suoranda
($/M2/PA)
settlement, Vsevolozhsky district).
120
110
100
90
80
70
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Class A
Class B
Average rental rate

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | OFFICE MARKET
OFFICE MARKET
SUPPLY TAKE-UP AND VACANCY RATES
KEY OFFICE MARKET INDICATORS,
BEGINNING OF 2012 In 2011, 18 Grade A and Grade B office Gross take-up in 2011 amounted
centres (139,000 m2 GBA) were completed. to approximately 150,000 m2.
Grade A stock increased by 73,000 m2,
Metric Measure while Grade B increased by 66,000 m2. The average market vacancy level dropped
Total Stock 1.66 million m2 down to 13% by the end of H1 2011. However,
Take-up 150,000 m2 About 80% of the new office space due to the completion of St. Petersburg
Vacancy Rate 14% was located outside the central part of Plaza, one of the largest projects in the
Rental Rate (Grade A) US$465 m2/pa* St. Petersburg in locations such as St. market, as well as several relatively large
Rental Rate (Grade B) US$368 m2/pa* Petersburg Plaza, Airport City, Vant, projects (LightHouse,Na Parnase, and
*Rental rates, including OPEX, net Beloostrovskaya 6, Na Parnase, Okhta others), the vacancy rate increased to 14%.
Source: Colliers Internationalof VAT.
House, and Balkansky business centres.
RENTAL RATES
STOCK INCREASE In 2012, 20 more properties with a
A small gradual increase in rental
(THOUSAND M2) total rentable area of 191,000 m2 will be
rates for Grade A and B office space
400 completed. The new office developments
was observed due to a decrease in
will be located in different parts of the
300 vacancy rates, as well as small amount
city such as Vasilievsky Island, Pulkovo,
of new office space in the market.
Moskovskie Vorota, Obvodny Kanal, and
200
Sinopskaya Nab. These new projects
Since the beginning of 2011, ruble-
confirmed the trend of expanding
100 denominated rental rates have increased:
business zones around St. Petersburg.
by 9% for Grade B office centres and
0 by 2% for Grade A office centres.
30 Grade A and Grade B office centre
2005
2006
2007
2008
2009
2010
2011
2012F
projects with a GLA of 345,000 m2

Changes in USD rental rates were caused
Source: Colliers International were under construction in 2011.
by the exchange rates changes during
the period (from 30.4 RUB/USD down to
MARKET TAKE-UP (THOUSAND M2) DEMAND
28 RUB/USD in Q1, and from 28 RUB/
AND VACANCY RATES (%) By the start of 2012, vacant space in Grade USD to 32 RUB/USD in Q3–Q4).
300 25% A and Grade B office centres will total
250 20% approximately 230,000 m2. Last year, the LEASE TERMS
200 average vacancy rate was 14.1% (24.7%
15% In most cases, rental rates are
for Grade A and 9.8% for Grade B).
150 denominated in Russian Rubles.
10%
100
Tenants interested in trading up from low-
5% Rental rates in Rubles have an
50 quality office buildings and older Grade A
annual indexation of 7-10%.
0 0 and Grade B business centres, continued
to be a factor influencing demand.
2005
2006
2007
2008
2009
2010
2011
2012F
Landlords increase rental rates when a

property is close to 100% occupancy rate.
Source: Colliers International The market share of large lease
Take-up transactions (with an area over
Vacancy rate 1,000 m2) increased in 2011.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | OFFICE MARKET
TRENDS There was a significant amount of

STOCK INCREASE
office space under construction
(THOUSAND M2) Tenants continue to demand improved
along Moskovsky Pr-t, where a new
office spaces. Business centres with
4000 business area is being formed.
inflexible pricing policies and substandard
engineering systems can not compete with
3000 The properties most sought out by tenants
better quality properties. As a result, it is
include quality and functional Grade B
2000 not uncommon to see a tenant terminate its
business centres without engineering
lease agreement in favour of trading up.
improvements excessive for this Grade
1000
(raised floors, 4-pipe HVAC systems,
Office premises priced at peak rental
and so on), offered at RUB1,100–1,200
0 rates (RUB2,000 m2/pcm) stay on the
m2/pcm, including VAT and OPEX.
market for a very long time or remain
Stockholm
Helsinki
Prague
Warsaw
Moscow
Kiev
St. Petersburg
vacant. Tenants, especialy those from

PROGNOSIS
multinational companies with recognised
brands, prefer to rent office space at 2012 take-up volume is expected to
average market rates. Tenants typically look reach 150,000 m2 to 160,000 m2.
for office space that offers functionality
RENTAL RATES, RUB/M2/PCM and comfort, quality of engineering The projected 2012 stock increase is
systems, good transport accessibility, 191,000 m2. Similar to 2011, it is projected
1400
and is located in a safe environment. that the opening of several projects will
1200 be postponed to 2013. In 2011, stock
1000 IT and construction companies are among increased by 139,000 m2, whereas the
the most active in the rental market. projected stock increase was 170,000 m2.
800
600 Finding tenants for new office centres is still Due to a potential delay in new supply,
challenging for landlords. New office projects
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
vacancy rates may decrease slightly

with a GLA of 15,000 m2 to 20,000 m2 on to12-13%. Average Ruble rental rates are
average, take two or three years to lease out. expected to remain stable; there may be
Class A
Class B fluctuations in rental rates denominated in
US$ due to exchange rate fluctuations.
RENTAL RATES, US$/M2/PA

MAJOR LEASE TRANSACTIONS IN 2011
500
Property Address Grade Tenant Rentable
area, m2
400
3 Konstitutsii Pl. 3 Konstitutsii Pl. B MRSK 6,000
300 5 Rentgena Ul. 5 Rentgena Ul. B Confidential 3,500
Elizavetinsky 14, 13 Linia V. O B T-Systems 3,500
200 14 Nekrasova Ul. 14 Nekrasova Ul. A SPb Renovation 3,100
Q1 2009
Q2 2009
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Prizma Center 5 Voronezhskaya Ul. B Pilon 3,000

Technopolis 40 Pulkovskoye Sh. B Metso 2,970
14 Nekrasova Ul. 14 Nekrasova Ul. A Philip Morris Sales and Marketing 2,400
Class A
Class B Stockmann Nevsky
114 Nevsky Pr-t B NCC 1,900
Rental rates, including OPEX, net of VAT Centre
Sberbank (retail loan applications
Pulkovo Sky 2 Vnukovskaya Ul. B 1,800
processing centre)
Okhta House 44 Industrialny Pr-t B TGK-1 Service 1,800

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | RETAIL MARKET
RETAIL MARKET
MAJOR EVENTS SUPPLY
RETAIL TURNOVER TRENDS
(RUBLES/YEAR) Positive trends in key retail sector In 2011, 320,000 m2 of GBA was put
80 indicators such as completion of new into operation (GLA 200,000 m2) with
space and rental rates continued in 2011. traditional shopping and shopping-and-
60 Retail turnover totalled over RUB 725 entertainment centres accounting for 90% of
billion, which represented a 12% increase new retail space. Total retail stock reached
40 in comparison to pre-crisis levels. 4.51 million m2 (GLA 2.89 million m2).
20 Retail stock continued to grow in the The geographic distribution of retail properties
market. In addition to the completion of by administrative district remained varied.
0
new facilities, numerous “frozen” projects Primorsky, Vyborgsky, Moskovsky, and
2004
2005
2006
2007
2008
2009
2010
2011
announced back in 2006 and 2007 have Nevsky administrative districts accounted
revisited development plans. At present, for 60% of existing shopping centre space.
25 projects were under construction with Ironically, only 27% of the total population
a GLA of 650,000 m2 and a projected resides in the aforementioned districts.
STOCK INCREASE, BY YEAR completion date between 2012 and 2014.
(MILLION M2) The Moskovsky district became the leader
4 The total volume of retail space owned by in terms of retail space availability per
developers has changed thanks to opening 1,000 inhabitants, primarily because the
3 of SEC Akadem Park and SEC City Mall LETO shopping and entertainment centre
(Phase III). Fort Group is now the second was completed and put into operation.
2 largest developer behind Adamant.
Piterland’s mixed-use facility, SEC RIO
1 (currently only the hypermarket is open),
Mercury, and AURA, were all originally
0
announced to be opened in 2011, but
2005
2006
2007
2008
2009
2010
2011
2012
have been postponed until 2012.

Increase
At the begining of the year
MAJOR CHAIN DEVELOPERS

22.5%
NEW SHOPPING CENTRES IN 2011

22.5%
22.5% Name Address GBA, m2 GLA, m2 Developer
LETO (arcade) Pulkovskoye Sh. 102,000 60,500 Sistema-Hals
City Mall, Phase III 5 Ispytateley Pr-t 44,750 26,850 Fort Group
22.5% Osinovaya Roscha Vyborgskoye Sh. / Ring Road 39,560 20,500 Adamant
22.5%
Akadem Park 41 Grazhdansky Pr-t 28,000 23,400 Fort Group
Mercury (Kolpino) 36 Proletarskaya Ul., Kolpino 23,400 16,380 n/a
Adamant
Divny Gorod (Grand
Fort Group
154 Engelsa Pr-t 21,000 13,650 Solomon
Canyon)
IKEA MOS Ligov Ligovsky Pr-t / Obvodny Kanal Nab. 19,900 11,000 Adamant
Konstaninovsky Gusarskaya Ul., Pushkin 12,000 8,400 StroySvet
Solomon
RIO (O'KEY XVI) Salova Ul. / Volkovsky Pr-t 11,690 6,340 Tashir Group
other
O'KEY XIII 17 Nauki Pr-t 10,450 6,950 Dorinda
Source: Colliers International K-rauta X 45 Shuvalovsky Pr-t 6,500 5,700 Rautakesko
TOTAL 319,250 199,670

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | RETAIL MARKET
DEMAND Only 158,000 m2 (GLA) of new retail

RETAIL SPACE AVAILABILITY, M2 PER product is expected to come online
1,000 RESIDENTS Growth in consumer demand and
in 2012, a reduction from previous
1500 the revival of tenant development
years. Such reductions reflect the
programs led to an increase in demand
sharp drop in development during
1000 for premises in quality centres.
the 2009 and 2010 crisis period.
500 A number of operators increased their

The decrease in commissioning volume in
space requirements due to product line
2012 may create somewhat of a shortage
0 extensions. For example, OODJI (OGGI) and
of space in the market and lead to a
O’STIN added men’s and children’s apparel.
Moskovsky
Primorsky
Vyborgsky
Centralny
Nevsky
Admiraltevsky
Frunzevsky
Kirovsky
Kalininsky
Kolpinsky
Krasnoselsky
Vasileostrovsky
Petrogradsky
Pushkinsky
Petrodvortsovy
Average
Krasnogvardeyski
gradual increase in rental rates in 2012

Kesko, after acquiring Intersport stores,
and 2013. It is expected that, in 2012,
increased its store format to 1,000 m2.
rental rates will increase by 5% to 10% for
anchor tenants and up to 15% for arcade
Source: Colliers International All properties opened in 2011 have a 75-95%
operators, in US$ terms. Annual rental rate
occupancy rate. Take-up in 2011 amounted
increases will not exceed 5% to 10%.
RENTAL RATE TRENDS, to 170,000-180,000 m2 (GLA), while in
ANCHOR TENANTS, US$/M2/PA 2010, it totalled 220,000 m2 (90% of all
250 To attract customers, developers were forced
completed space). Modern centres with a
to design and develop new, non-standard
good concept sometimes have vacant space
200 retail formats. Active Sport in SEC Mercury
in non-standard locations at the time of
and Divny Gorod in SEC Grand Canyon
150 opening. However, tenants quickly fill such
are examples of thematic zoned shopping
premises after the facility begins to operate.
100 and entertainment complexes grouping
tenants by a common product group.
RENTAL RATES
50
Average rental rate growth was estimated Increasingly, owners examine the
2005 H1
2005 H2
2006 H1
2006 H2
2007 H1
2007 H2
2008 H1
2008 H2
2009 H1
2009 H2
2010 H1
2010 H2
2011 H1
2011 H2
between 5% to 10% in 2011. business decision involved in changing the

concept of their property or renovating
PROGNOSIS their facilities in order to meet the
needs of customer preferences and
RENTAL RATE TRENDS, ARCADE According to the forecasts of the
intensified market competition. Fort
OPERATORS, US$/M2/PA Ministry of Economic Development and
Group succeeded in changing the concept
2200 Trade, retail turnover growth will be no
of Akadem Park, the company plans to
2000 less than 4% per year until 2014.
reconstruct SEC Felicita during 2012.
1800
1600
1400
1200
1000
RENTAL RATES FOR LARGE TENANTS
2005 H1
2005 H2
2006 H1
2006 H2
2007 H1
2007 H2
2008 H1
2008 H2
2009 H1
2009 H2
2010 H1
2010 H2
2011 H1
2011 H2
Profile Area, m2 Average rental rates, US$ m2/

pa, net of VAT and OPEX
Source: Colliers International Food Hypermarket 6,000-10,000 160-230
DIY 2,500-10,000 150-160
RENTAL RATE TRENDS, ARCADE Food Supermarket 1,500-2,500 220-270
OPERATORS, US$/M2/PA Multiplex 2,000-5,000 160-250
200 Household Goods 1,000-2,500 180-220
Consumer Electronics 1,000-5,500 160-250
160
Fashion & Apparel 500-2,000 300-450 (4-8% of sales )
120 Fitness Up to 3,500 150-200
80 Family Entertainment 700-5,500 100-220
Sportswear 1,000-2,500 180-300
40
Goods for Children 1,000-2,000 250-350
0
Primorsky
Frunzevsky
Nevsky
Kalininsky

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | HOTEL MARKET
HOTEL MARKET
SUPPLY 2011 marked the beginning of the trend to
KEY HOTEL MARKET INDICATORS increase 5-star hotel rack rates. However,
AS OF THE BEGINNING OF 2012 As of 2012, the St. Petersburg hotel market
they have not yet returned to pre-crisis levels.
had 126 properties, with about 18,400
METRIC MEASURE rooms. This number excludes mini-hotels,
Number of Hotels 126 DEMAND
departmental hotels and hostels, as well
Number of Rooms 18,400 as hotels located in suburbs, including in In 2011, tourist flow in St. Petersburg grew by
Tourist Flow in 2011 5.5 million Kurortny and Petrodvortsovy Districts. 8%, to 5.5 million tourists, with the number of
Average Occupancy 63% to 65% foreign visitors increasing by 13%, or 2.6
Source: Colliers International In 2011, the rate of new hotels entering the million tourists, according to St. Petersburg’s
market remained unchanged. Six projects with Committee for Investment and Strategic
PRICE RATES FOR A STANDARD DOU- 915 hotel rooms in total opened in comparison Projects and the Committee for Economic
BLE ROOM, RUB PER DAY, EXCLUDING to six projects with 971 hotel rooms in 2010. Development, Industrial Policy and Trade.
BREAKFAST
While the majority of hotels opened in As of December 2011, the average annual
the central part of St. Petersburg, in 2011 occupancy rate of St. Petersburg hotels
20000
the Pulkovo Airport area saw the opening was 63% to 65%, and can be broken
15000
of the Crowne Plaza St. Petersburg down further by Grade segment:
Airport, the sixth largest 4-star hotel
10000 by room stock and the eleventh largest 5-star – approximately 53%
hotel overall in St. Petersburg.
5000
4-star – approximately 62%
0 In 2011, the distribution of hotels by
Grade remained unchanged. The share 3-star – approximately 68%
January
February
May
July
September
October
November
December
March
April
June
August
of 4-star hotels increased slightly from

36% to 39% of total market share. Demand began to return to the
5* expensive hotel segment.
4* RACK RATES
3*
Source: Colliers International Due to increased competition among
existing hotels, room rates have
not changed significantly.
HOTELS COMPLETED IN 2011

No. Name Address Grade Number of Rooms
1 W Hotel St. Petersburg 6 Voznesensky Pr-t 5 137
2 Crowne Plaza 61-63 Ligovsky Pr-t 4+ 195
Crowne Plaza St. Petersburg
3 6 Startovaya Ul. 4 294
Airport
4 Vvedensky 37 Bolshoy Pr-t P. S. 4 158
5 Demetra Art Hotel 44 Vosstaniya Ul. 4 60
6 Baltiya 3a Smolyachkova Ul. 3 71
TOTAL 915

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | ST PETERSBURG | HOTEL MARKET
SIGNIFICANT EVENTS IN 2011 PROGNOSIS

ROOM STOCK DISTRIBUTION, BY IN-
TERNATIONAL HOTEL OPERATOR Starwood Hotels and Resorts, a new Compared with the 2009 and 2010 period,
AS OF THE END OF 2011 international hotel operator, entered into international hotel operators started
St. Petersburg’s hotel market with luxury to show interest in co-financing the
2500
brand, the W Hotel, on Voznesensky Pr-t. implementation of high-quality hotel projects.
2000
The Crowne Plaza St. Petersburg Airport Foreign investment interest in
1500 on Startovaya Ul. was the first hotel to open hotel projects has increased.
1000
in the airport area. Colliers International
projects that this hotel might be able to In 2012, we expect a 50% reduction
500 draw potential visitors away from the in the number of completed hotel
hotels in the current “Airport Centre” properties, compared to the quantity
0
area located on Moskovsky Pr-t. completed in 2010 and 2011.
Rezidor Hotel Group
Intercontinental Hotels Group
Sokos Hotel
Marriott International
Accor Group
The Rocco Forte Collection
IHI Benelux (Corinthia Hotels Int.)
Orient-Express-Hotels
Kempinski
Stratwood Hotels and Resorts Woldwide
IHG became the second-largest hotel operator Demand for hotels in the more expensive
in the city when the Intercontinental Hotel segment will continue to develop in 2012.
Group increased its hotel presence in St.
Petersburg in terms of the number of rooms Due to the observed trends of increased
(120%), in comparison to 2009 levels. accommodation costs and improved
occupancy indicators, ADR (Average Daily
EXPECTED EVENTS OF 2012 Rate) reached US$170 by the end of 2011.

The opening of the Four Seasons Hotel Lion
Palace (1 Voznesensky Pr-t), rescheduled
for 2012, remains the most awaited event in
the market. This will be the first deluxe hotel
in St. Petersburg, with rack rates expecting
to be higher than the average room rate
in other 5-star hotels by 25% to 30%.

RESEARCH & FORECAST REPORT | 2012 | RUSSIA |
COLLIERS RESEARCH
• 978.6
RUSSIA:
Ekaterina Kutumova
Moscow specification in the best location in the market at the survey date. This should reflect
Colliers International Moscow the level at which relevant transactions are being completed at the time but need not
5, Botanicheskiy Lane be exactly identical to any of them, particularly if deal flow is very limited or made
Moscow 129090 up of unusual one-off deals. If there are no relevant transactions during the survey
Russia period, the quoted figure will be more hypothetical, based on expert opinion of market
TEL +7 495 258 5151 conditions, but the same criteria on building size and specification will apply.
FAX +7 495 258 5152
EMAIL colliers@colliers.ru Prime Net Effective Rent: Prime Net Effective Rent is the lowest rent payable, based on
Vasily Dovbnya
St. Petersburg Space Under Active Construction: Represents the total amount of gross leasable floor
Colliers International St. Petersburg space of properties where construction has commenced on a new development or in
3, Volynsky Lane existing properties where a major refurbishment/renovation is ongoing at the survey date.
191186 Saint-Petersburg Space Under Construction – Inactive: Represents the total amount of gross leasable floor
Russia
Tel. +7 812 718 36 18
Fax + 7 812 718 36 16
vasily.dovbyna@colliers.com Vacant Space: The total gross leasable floor space in existing properties that meet the

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | LEGAL OVERVIEW
RUSSIA LEGAL OVERVIEW

BASIC FORMS OF TITLE leases, mortgages, trust management PRIVATISATION CLAIMS
agreements, etc.). Upon written request and
In Russian law, ownership consists of the A claim arising out of a transfer of assets
for a fee, any party may obtain an excerpt
unlimited rights of the owner to possess, during privatisation would qualify as a claim
for a property containing basic information
use and dispose of property. However, there for a declaration of the transaction as being
about the property and its encumbrances.
are other forms of title, such as the right null and void, being contrary to the law
of so-called “full economic jurisdiction” Before registration, all land plots, buildings, then in effect. The statute of limitations for
(“khoziaystvennoe vedenie”) and the right structures, premises and unfinished buildings a null and void transaction is three years,
of operational management (“operativnoe must undergo technical and cadastral starting from the commencement of the
upravlenie”), which are available only to state registration in the State Cadastre of Real execution of the relevant transaction.
and municipal enterprises. These rights Estate. The cadastre is maintained by the
NOTARIES AND NOTARIAL FEES
extend to the use, possession and disposal Federal Cadastral Agency and contains
of the assets only within the scope of the technical and other information detailing the Generally, notarial certification of real
business activity designated by the owner (the specific characteristics of the property. The estate transactions is not required. Notarial
state) in the company’s founding documents agency is obliged to provide publicly available certification is mandatory only (i) when
and subject to mandatory provisions of law. information in the cadastre to anyone upon required by law (for example, transfer of
For land, the primary forms of commercial request. Furthermore, it has recently become shares in a Russian LLC, annuity contracts,
land use are land leases and land ownership possible to apply for state registration of title spousal consents to the transfer of jointly
(freehold). Other forms of land use rights, by post, and it is also now possible to apply owned real estate, mortgagor consent to
such as the right of perpetual use of a land simultaneously for the registration of title out-of-court foreclosure of mortgaged real
plot are available only to state enterprises, with the register and cadastral registration estate), or (ii) if the parties agree on the
state-funded institutions and residences of with the cadastre. The law also provides for necessity of such certification even if it is
former RF presidents which have historical online access to information in the register not required by law. The notarial fees for
heritage status. The right of lifetime and the cadastre. However, for the register certification of real estate contracts may
inheritable possession of land plots was at least, this option is not yet functional. be a fixed amount or a certain percentage
formerly provided by the state to individuals of a contract’s value. For example, notarial
TRANSFER TAXES
and can now be acquired only by inheritance certification of transactions with a subject
of the respective rights. An easement is a VAT (18%) is payable on property acquisitions requiring appraisal, if notarisation is required
form of title to a land plot owned by another (other than land plots and apartments). The by law (such as an annuity contract) costs
person, consisting of the right to use the buyer can generally credit this VAT against 0.5% of the contract value, while notarial
land for a specific limited purpose. Russian the VAT liability on its own sales (refunds certification of contracts on the alienation
law does not allow for a trust in its Western are provided for by law, but are problematic of real estate costs 0.3% of the contract
meaning, i.e. a split between legal and in practice). The transfer of shares in a value when the contract is concluded with
beneficial ownership. Mortgage and fiduciary Russian company that owns property is children, spouses, parents, or siblings, and
management (trust management) rights to exempt from VAT. Both the sale of property 0.5 % of the contract value and higher
a property are not treated as rights in rem or shares in a company owning the property (depending on the contract value) when the
in Russia. Title to the mortgaged property may incur capital gains tax (20%) for a contract is concluded with other persons.
does not automatically pass to the mortgagee non-resident seller (unless such gain is
LANGUAGE
in the event of default, and a trustee is not exempt from taxation under an applicable
recognised as the legal owner of the property. double tax treaty). Property owners pay For the purposes of state registration and/
a property tax (established by law of RF or notarisation, real estate transactions
constituents but not exceeding 2.2% of the must be executed in Russian. In
BY FOREIGNERS
average annual book value of the property), practice, English is often used as a
Generally, foreigners may directly acquire and land tax payable on freehold land is second and controlling language.
real estate in Russia, with the exception of based on a number of regional coefficients.
ARBITRATION
agricultural land and land plots together
LEASES
with property located on them in border Any transaction involving Russian real estate
areas and specially designated areas. Leases are freely negotiable. Most provisions property must be governed exclusively by
of law pertaining to lease agreements are Russian law. As regards the forum for
REGISTRATION SYSTEMS
optional and may be varied by the parties, but dispute resolution, if a party to a dispute is
To have legal effect, all rights to real estate certain mandatory provisions must be adhered foreign (an individual or a legal entity), and
and transactions giving rise to such rights to. The most important restriction concerns the subject matter of the dispute is (a) a real
(except leases with a fixed term of less the mandatory registration requirement estate property located in Russia, or (b) the
than one year or an indefinite term) must for leases of property for a fixed term of title to such property, or (c) challenging the
be registered in the RF Consolidated State more than 1 year. In order to be effective records in the relevant property cadastre,
Register. The register is maintained by a under Russian law, a lease agreement such dispute shall be exclusively heard and
specialised government agency and contains must contain a definitive description of the resolved by a Russian state (arbitrazh) court
information regarding the owner of the leased property and the amount of rental at the location of such property. However,
property and encumbrances on it (registered payments or a formula for their calculation. if both parties to the dispute are Russian,

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | LEGAL OVERVIEW
but one of them is a Russian legal entity Typically, when a land plot and/or a building
with foreign investment, the dispute would on it is purchased, constructed or is being
fall outside of the exclusive jurisdiction of constructed using financing from a bank or
Russian state (arbitrazh) courts and would a special-purpose loan, the land plot itself,
be eligible for consideration and resolution by together with all the building and structures
an international court of arbitration. In May on the said land plot, are considered to be
2011 the RF Constitutional Court expressed mortgaged together. Such a mortgage
the position that disputes involving Russian arises by operation of law and is registered
real property can be heard in an arbitration simultaneously with the registration of
court (whether international or domestic). title to the respective real property.
The registration of title to Russian real estate
on the basis of an arbitration award should
be possible provided that the arbitration
award is recognised in Russia. Russia is

a party to the 1958 New York Arbitration
Convention and generally foreign arbitration
awards should be enforceable in Russia.
Mortgage and Foreclosure www.salans.com
There have been several important legislative Information contained in this general outline does not constitute
amendments made to the RF laws on a legal opinion and is not meant to be comprehensive. As a
pledge (mortgage) throughout recent years. result of pending and new legislation, laws and regulations
change frequently in Russia and are often subject to
According to these amendments, the parties
to a mortgage agreement may now agree an sought regarding all aspects of real estate in Russia.
out-of-court foreclosure procedure at any
time, rather than in the event of a default.
The arrangement may also be incorporated
directly into a mortgage agreement at the FOR MORE INFORMATION
outset. In this case a notarised consent of PLEASE CONTACT:
the mortgagee for the out-of-court procedure
is required. The mortgagee may take Anna McDonald
possession of the property (or sell it to a third Partner
party) at a price equal to the market value Co-Head of Real Estate – Russia
of such a property, which is determined in T: +7 495 644 0500
accordance with the RF laws on valuation E: amcdonald@salans.com
activity, without having to foreclose via a
public auction. Although these changes Andrei Soukhomlinov
appear on the face of it to substantially Partner
simplify and expedite foreclosure, the practice Co-Head of Real Estate – Russia
of their application remains undeveloped and T: +7 495 644 0500
there are still certain exceptions in which E: asoukhomlinov@salans.com
out-of-court foreclosure is prohibited by
law (for example, where the collateral is
a cultural landmark, residential premises
owned by individuals, or agricultural land).

RESEARCH & FORECAST REPORT | 2012 | RUSSIA | TAX SUMMARY
RUSSIA – TAX SUMMARY

GENERAL PROVISIONS subject to Russian corporate profits tax at a similarly to transactions on sale of shares
In a view of economic recovery the general rate of 20% except for the following. in Russian RE companies. Amendments
Russian government is focused on the intoruced to Russia – Switzerland DTT also
economic stabilisation and modernisation Capital gains received by a Russian or impose withholding tax of 20% on REIF
as well as integration with more developed foreign shareholder from the sale of shares units sale or redemption. Intermediary
economics. As part of this new transfer in a Russian company owned for a period income payable by Russian REIFs to Swiss
pricing regulation and consolidated of five years or longer is subject to Russian unitholders are qualified as dividends
tax reporting were introduced starting corporate profits tax at a rate of 0% . 1 subject to withholding tax of 5 – 15%.
from 1 January 2012. Also starting from
2012 Russia has introduced compulsory Where shares in a Russian company are sold Similar changes may be introduced in future
IFRS reporting for public companies. by a foreign shareholder, any capital gain to other DTTs and incorporated in new
arising on such transaction will be subject to DTTs based on the model DTT developed
The current main focus of Russian fiscal tax at 20% if more than 50% of the Russian by the Russian government in 2010.
policy development is systematisation of company’s balance sheet is comprised of
the existing incentives and exemptions Russian real estate (RE) property. This tax Tax Depreciation
and minimisation of opportunities can be reduced to zero under a number Fixed assets and intellectual property
for tax evasion, in particular: of double tax treaties (DTT) concluded with an initial value of over RUB 40,000
by Russia with other countries. However, and a useful life of over one year can
• introduction of tax incentives for innovation under some DTTs (e.g. with the UK) Russia be depreciated for tax purposes.
and human capital development; has taxing rights for such capital gains.
A company may depreciate fixed assets
• revision of taxation rules for Furthermore, changes were introduced to over their useful economic life using the
transactions with securities, the existing DTT with Cyprus, Luxembourg straight-line or reducing balance method. The
financial instruments and debt; and Switzerland so that zero rates on useful economic life (determined by law) of
capital gains from the sale of shares in RE RE assets is usually more than 30 years.
• replacement of property tax with real estate companies will no longer be applicable. In
tax charged on the fair value of assets; the case of Cyprus such amendments will When a company starts depreciating a RE
enter into force after 4 years from the year asset, it can elect to deduct a “depreciation
• introduction of tax evasion of ratification of the Protocol by both parties premium” (a one-off capital allowance) in
prevention mechanisms. and as for Luxembourg and Switzerland, the amount of 10% of the depreciable asset’s
the amendments will enter into force value (30% for assets with useful lives
Another focus of the Russian government starting from the year following the year of between three and twenty years). Therefore,
is to simplify tax administration to ratification. Presently it is not clear when it is important that the value of an asset is
help creating favorable investment the mentioned Protocols should enter into properly allocated between the building and
environment for foreign investors. force. DTTs between Russia and Germany, other assets (internal systems, lifts, etc.)
Austria, the Netherlands are still intact.
At the same time the tax authorities are still The standard tax depreciation allowance
applying a stronger approach to taxpayers for In the recent years structures involving real is then calculated on the basis of
the purposes of sustaining tax yields for the estate ownership via real estate investment historical cost of the asset decreased
Russian budget: increased attention is being funds (REIFs) have become widespread in by tax depreciation premium.
paid to the nature of tax losses incurred by Russia. An REIF’s profits are not subject
companies; there are increased challenges to to CPT until they are remitted to investors. Russian statutory and IFRS accounting could
tax planning schemes applying the substance Moreover, income of a foreign investor be different from tax depreciation due to
over form approach to the transactions. from participation in an REIF (intermediate deviations between IFRS, statutory and tax
income, income from unit redemption or accounting principles (e.g. interest costs
CORPORATE PROFITS TAX sale) may be exempt from withholding are capitalized for accounting purposes
AND CAPITAL GAINS tax in Russia under a number of DTTs. but can be expensed for tax purposes).
The Russian corporate profits tax (CPT)
rate remains one of the lowest in Europe In connection with the above it should Accounting depreciation is deducted from
- 20%. CPT is calculated on a net basis be noted that recently signed Protocols the Russian company’s accounting profits
(income net of deductible expenses, to DTTs with Cyprus and Luxembourg which directly impacts the profit distributable
if they are economically justified and introduce Russian withholding tax (20%) by the company through dividends. This
properly supported via documentation). on income received from REIFs in the form may create a “cash trap” issue in a Russian
of intermediary payments or as a result of subsidiary when not all cash generated by
There is no special capital gains tax in Russia. sale or redemption of REIF units. In the case real estate can be distributed to shareholders
Capital gains received by Russian resident of Cyprus income from sale of units should through dividends. In this case, other
corporations from the sale of property or become subject to tax only after 4 years from ways of cash distribution, e.g. interest,
shares in property holding companies is the year when the Protocol enters into force, management fees, upstream loan could be

considered. However, each of these solutions of the Russian company’s share capital; or Cross-border transactions:
has its own tax and other implications and
therefore should be carefully planned. • the above debt is instead owed to a -B
etween related parties
Russian affiliate of the FLE: or (regardless of the volume);
Interest Expenses
Interest expenses are not capitalised into the • a debt is guaranteed by an above -W
ith a party that is resident of a
initial value of fixed assets and should instead FLE (or its Russian affiliate); “black-listed” offshore jurisdiction
be deducted for Russian profits tax purposes (minimum total volume of transactions
on the last day of each reporting period or • and an unpaid loan amounts to more with one party is RUB 60 mln).
included in tax losses carried forward. than three times the net assets of the
Russian receiver of the debt (12.5 times Domestic transactions between
Interest expenses are deductible for Russian for banks and leasing companies). Russian entities:
profits tax purposes provided that they are:
Interest found to be excessive under -B
etween related parties (starting from
• economically justified and incurred in 2014 minimum total volume of transactions
these rules is treated as a dividend,
relation to revenue-generating activities; with one party is RUB 1 bln ); 2
meaning that it will be non-deductible
for profits tax purposes and subject to
• compliant with thin capitalisation rules; -B
etween related parties if one party is
withholding tax at 15% (or a lower rate if
subject to mineral extraction tax, corporate
a double tax treaty (DTT) is applicable). profits tax (CPT) at a 0%-rate or CPT
• compliant with established arm’s
length principles; and exemption (minimum total volume of
The tendencies following from the recent transactions with one party is RUB 60 mln);
Russian arbitration court practice evidence
• the transactions involved in financing that the Russian tax authorities have started
structures have business purpose -S
tarting from 2014 – between related
paying more attention to the financing parties if one party is subject to special
and are properly documented.
structures involving foreign “sister” economic regime (minimum total
companies. Although such structures do not volume of transactions with one party
Under current arm’s length principles, interest
technically fall under the scope of Russian is RUB 60 mln.) or special tax regime
should be deductible as long as the rate does
thin capitalization rules, the latter might still (minimum total volume of transactions
not deviate by 20% from the average level of
be applied if the tax authorities are able to with one party is RUB 100 mln).
interest charged on loans issued under similar
(comparable) terms in the same period. prove that the actual creditor of a Russian
debtor is a foreign shareholder, while Parties are considered related for transfer
the financing company is actually a mere pricing legislation purposes if the relationship
From 1 January 2011 until 31 December 2012
“conduit” used for tax minimization purposes. between these parties can influence the
either if comparable loans cannot be found or
conditions and results of transactions
at taxpayer’s choice the maximum deductible
Tax Losses between these parties, and/or, the economic
interest on loans denominated in foreign
results of their business activity.
currency is calculated as the refinancing rate Losses may be carried forward for 10 years.
of the Central Bank of Russia multiplied by All tax losses (including carry forwards)
A taxpayer is obliged to notify the tax
0.8 (currently, 6.4% based on a refinancing can be deducted for tax purposes in actual authorities about controlled transaction not
rate of 8% effective in January 2012) amount. Losses from the sale of a RE asset later than 20 May following the calendar
are tax deductible in equal instalments over year in which the transaction occurred.
The maximum deductible interest on loans the remaining useful life of the asset.
denominated in Russian rubles is determined
For non-payment or incomplete payment of
as refinancing rate of the Central Bank of Transfer pricing regulations tax as a result of application of prices that
Russia multiplied by 1.8 (i.e. 14.4% based on
Starting from 2012 new rules on transfer deviate from the market level, the penalties
a refinancing rate effective in January 2012).
pricing came into force, whereby under are set at 40% of the unpaid tax . 3
Additionally, financing transactions certain conditions, the transaction may be
considered as controlled for tax purposes. New transfer pricing rules allow five
with Russian and foreign affiliated
methods which can be used by tax
entities and offshore companies may
With respect to such transactions, the authorities during a tax audit to review
be subject to new Russian transfer
taxpayer has the responsibility to prepare the prices applied by a taxpayer:
pricing regulations (see below).
documentation substantiating market rate of
the prices applied in controlled transactions. 1) Comparable uncontrolled
Thin capitalisation rules apply when:
price (CUP) method
• a Russian company has an outstanding debt Under the new rules on transfer 2) R
esale price method;
to a foreign company (FLE) which owns pricing the following transactions of RE
(either directly or indirectly) more than 20% companies are deemed to be controlled: 3) Cost plus method;

4) Transactional net margin method; If the appropriate documents have not been VALUE ADDED TAX (VAT)
submitted by the recipient, the income payer
5) Profit split method. Output VAT
must withhold tax. If tax is withheld even
The standard VAT rate in Russia is 18%,
CUP method has priority over other. Methods though treaty relief is available, a refund claim
payable to the budget on an accruals basis.
2-5 may only be used if the method of may be filed by the foreign recipient. This is,
The sale of residential RE property and land
comparable market prices is not applicable however, a time-consuming process and there
plots is not subject to Russian VAT. The
or if its application would not allow for a is no certainty that a refund will be obtained.
sale of development services by developers
reasonable conclusion as to the compliance organizing construction of residential
of actual prices with arm’s length prices. Dividend Distributions properties under shared construction
Under the Russian Tax Code, dividends agreement is also exempt from VAT.
Consolidated tax reporting paid by a Russian company to a Russian or
Starting from 2012 the Russian Tax Code a foreign company are subject to Russian The sale and lease of commercial RE property
permits filing of consolidated profits tax withholding tax at source. This tax is to be is generally subject to VAT. However, the
returns by consolidated groups of taxpayers withheld and transferred to the Russian lease of property to foreign citizens or legal
(hereinafter – CGT) which is a voluntary budget by the Russian income payer. entities accredited in Russia is exempt from
association of profits tax payers based VAT if the foreign citizens are residents of/
on the agreement on CGT establishment. The tax rate on any dividends foreign legal entities are incorporated in
Profits tax is payable on the cumulative tax distributed from a Russian company countries included in a list provided by the
base of a CGT. Transactions within a CGT to its Russian parent is 9%. Government of the Russian Federation.
are not subject to transfer pricing rules.
This is mandatory and the taxpayer
However, the dividend income received
Participants of a CGT must meet must apply this exemption.
by a Russian company from its Russian
specific requirements, in particular, total or foreign subsidiary may be taxed
The sale of shares (as well as other
aggregated amount of taxes payable at 0% if certain criteria are met: securities, including units in REIFs) and
should be above RUB10 bln, revenue
equity interests in limited liability companies
above RUB 100 bln, value of assets above • the recipient of the dividends owns at least and the contribution of property in the
RUB 300 bln. Period of existence of a 50% of the charter capital of the distributor; form of an investment (i.e. into the charter
CGT may not be less than 2 years.
capital of the company, into a simple
• the investment has been owned by partnership – joint activity arrangement
Only a Russian legal entity may be a CGT the recipient for at least 365 days. – etc.) are exempt from VAT in Russia.
participant provided that it holds in other
CGT participants or is owned by another It should be noted, that the 0% rate is Input VAT (VAT-able Sales)
CGT participant for not less than 90%, not applicable if the foreign subsidiaries
and is not in the process of reorganization Input VAT (VAT on purchases and
of the Russian companies are situated in expenses) is recoverable if a number of
/ liquidation / insolvency procedure and
the offshore jurisdictions, per the list of requirements are met. The recoverability
its net assets exceed charter capital.
the Russian Ministry of Finance. Currently of input VAT does not depend on it having
such list includes, for example, Cyprus, been paid to the supplier or on import.
WITHHOLDING TAX
British Virgin Islands, Lichtenstein.
Russian source income, which is not Input VAT is not recoverable in respect
attributable to a permanent establishment, Dividends distributed by Russian companies of expenses or assets used in the
such as rent, royalties, interest and to foreign companies are taxed at a general manufacture or sale of products exempt
dividends paid to a foreign legal entity, rate of 15%, which can be reduced based from VAT, including expenses or assets
is subject to withholding tax. incurred in non-production activities.
on the provisions of an applicable DTT.
There is no withholding tax on the This VAT may be deducted for profits tax
Other Income
repatriation of profits from a local Russian purposes (if incurred in an acquisition
office (Branch or RO) to its head office. Interest, royalties and leasing income paid by
of current assets) or should be included
a Russian company to a foreign company are in the initial value of fixed assets.
Withholding taxes may be reduced or subject to Russian withholding tax at a general
eliminated if the recipient is tax resident rate of 20%. In some cases this rate can be In certain circumstances input VAT
in a country operating a double tax treaty reduced if applied to certain types of income recovery may be denied if the supplier
arrangement with Russia. In order to be (e.g. interest income from state bonds). has not paid over their output VAT.
eligible for DTT relief, the foreign recipient
company must submit a tax certificate Withholding tax on the above payments Generally under current legislation,
to the Russian income payer confirming can also be reduced based on the the taxpayer can offset VAT on capital
it is resident in the treaty country. provisions of an applicable DTT. construction assets (RE), before the taxpayer

has completed building the RE asset. business grounds for having foreign legal Moreover, according to the mentioned
entities in such structures are unclear, the Resolution, initial registration of title
OTHER RELEVANT TAXES tax authorities may charge additional taxes as to real estate constructed under an
Property Tax if all entities in the structure were Russian. investment (or other) agreement may
only be performed by the entity holding
Property tax is levied on property of Russian
Construction rights to the land plot under real estate.
companies, REIFs and property of PEs
of foreign companies situated in Russia,
In several cases Russian tax authorities The above approach may lead to tax
qualifying as fixed assets, which includes
are unwilling to allow tax deduction of treatment of operations under investment
buildings, but does not include land and
certain construction-related expenses or agreements similarly to sale and purchase
RE under construction. The maximum rate
offset of corresponding input VAT. This agreements with regard to future real
is currently 2.2% of the average net book
in particular relates to construction costs estate. In particular, in such a case
value of fixed assets, but actual rates vary
incurred before the official construction receipt of funds from an investor would
depending on the region in question.
permit has been obtained or after the no longer be regarded as a tax-exempt
object has been commissioned. investment contribution but would rather
Foreign legal entities with no PE in Russia
are liable to pay Russian property tax only be treated as an advance payment
on RE assets located in Russia (on the It is also a common situation when a (subject to VAT at the moment of receipt
basis of inventory value of such assets developer building residential or commercial in case of commercial real estate).
determined by Russian authorities). RE in Russia is obliged to construct
and transfer several RE objects to local It is not presently clear whether the tax
Property tax constitutes a deductible authorities (e.g. engineering, transport or authorities would attempt to apply the
expense for profits tax purposes. social infrastructure). The tax authorities above Resolution in order to impose
tend to challenge tax deduction of additional taxes on construction companies.
RE assets of REIFs are also subject to construction costs and offset of input VAT Arbitration court practice should be
property tax. The management company relating to such objects. However, a draft constantly monitored in this regard.
of REIF is obliged to pay property tax law is currently under consideration in
expensed by the assets of a REIF. Russia, which may enable a developer to In order to ensure tax efficiency of
deduct such infrastructure costs for CPT construction projects in Russia, proper
Land Tax purposes, if they have been incurred under documentation and justification of arguable
agreements with municipal authorities. expenses, and of the method of recognition
Land tax is a local tax payable on land
which is owned by a company. The tax of income, should be elaborated.
Another common issue closely investigated
basis is the cadastral value of the land by the tax authorities is commonly late
which is set by corresponding local land Financing
recognition of income under long-term
authorities on 1 January each year. A Russian company can only distribute
construction agreements by construction
companies, whereas under Russian tax rules dividends if it generates sufficient profits
The tax rate depends on the specific purpose in its statutory accounts. At the same time
such income should be recognised evenly
of the land. The maximum rates are 0.3% a company owning RE is likely to have
through the entire period of construction.
for land used for housing purposes and a significant non-monetary depreciation
1.5% for other types of land. However, expense, leading to low accounting
It should also be noted that the RF Supreme
specific rates are set up by the local profits. As a result, the company will be
Arbitration Court Plenum has issued a
authorities. This is a self-assessed liability unable to distribute all of its available
Resolution of 11 July 2011 №54 concerning
and is payable in quarterly instalments. cash via dividends (“cash trap”).
legal treatment of contracts regarding real
estate to be constructed or acquired in
Land tax is deductible for profits tax purposes. This issue can be mitigated if equity finance is
future. According to the Resolution, when
considering cases related to investment in part or in full substituted by debt financing.
Land plots constituting assets of REIFs are
contracts in the sphere of real estate
also subject to land tax. The management At the same time tax deduction of interest
construction, the courts should apply the
company of a REIF is obliged to pay land expenses may be limited by general
civil regulations on real estate sale and
tax expensed by the assets of the REIF. interest deductibility rules, as well as thin
purchase agreements, construction contracts
or joint activity (simple partnership). capitalisation rules (see “Interest expenses”).
SPECIFIC REAL ESTATE ISSUES Therefore, accurate structuring of the intra-
Legal Structure Herewith, if not stated otherwise, the courts group financing structure is required in order
Due to the high tax burden on dividends should treat agreements on investment into to maximise the interest expense deduction
and capital gains in Russia, RE project real estate construction (i.e. investment for Russian project companies and minimise
structures often involve foreign legal entities contracts, shared construction contracts) the tax burden arising upon profits distribution
in jurisdictions with favourable tax regimes as sale and purchase agreements with via interest (in particular Russian withholding
or Russian REIFs. At the same time, if the regard to future real estate objects. tax on interest paid to non-residents).

Operation
Local legislation in most Russian regions
provides substantial tax incentives
(reduced profits tax, property tax and
land tax rates) for companies investing in
RE in the territory of the corresponding FOR MORE INFORMATION ON REAL
region. The tax effect from utilisation of ESTATE SERVICES IN RUSSIA,
such incentives may be significant. PLEASE CONTACT:
In order to apply the regional tax incentives Natalia Malioutina

a project company should meet specific Partner
requirements stipulated by regional
law and prepare proper documentation KPMG in Russia and CIS
confirming its eligibility for the incentives. 10 Presnenskaya Naberezhnaya,
Block C, Moscow, 123317
Management Russia
The management structure of a group
involving Russian project companies T: +7 495 937 4477
may be connected with tax risks. M: +7 916 104 1655
E: nmalioutina@kpmg.ru
If foreign group companies are managed www.kpmg.ru
from the territory of Russia, this may lead to
the loss of tax residence of these companies
in jurisdictions of their incorporation and
creation of a taxable permanent establishment
status in Russia. As a result additional
tax costs may arise for the group.
In order to minimise the above risks it

is necessary to elaborate an effective
management structure. This involves
setting up appropriate contractual
arrangements between the management
company and project companies and
elaborating a reasonable methodology
for management fee determination.
1. This applies to shares acquired by companies from 1 January 2011
2. Minimum total volume of transactions with one party for FY 2012 and for FY 2013 is RUB 3 bln. and RUB 2 bln. respectively
3. For FY 2012 - 2013 penalty is not applicable. For FY 2014 - 2016 penalty is set at 20% of the unpaid tax.

RESEARCH & FORECAST REPORT | 2012 | SERBIA
SERBIA

RESEARCH & FORECAST REPORT | 2012 | SERBIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: During the second half of 2011, Economy: It is expected that by the end
Serbia’s economy was impacted considerably of 2012, the inflation rate will return to
by the global economic and monetary the targeted value of 4% (+/-1.5%) as
crisis in the EU. This resulted in a high prescribed by the National Bank. GDP is
unemployment rate and compressed GDP forecast to moderately grow by 1.5 %.
growth to about 2.5%, while the inflation
rate (from September to December 2011) Office: Depending on the outcome of the
trended downward to a year over year EU candidacy status negotiations, if the
(y-o-y) level of 7% in December 2011. outcome is positive, it is expected that the
demand for office space will increase as
Office: During H2 2011, the Belgrade new foreign occupiers look to enter the
office market continued shifting in favour Serbian market. Growth of supply of Grade
of tenants. No new Grade A or Grade B A office development is also projected to
office buildings came on market in H2 increase through the delivery of several
2011, following a similar pattern in H1 pipeline projects in the Belgrade market in
TRENDS 2012
2011 and net rents remained stable. 2012 and 2013. Grade A and B rental levels
are expected to stay consistent with current
GDP GROWTH
Retail: Belgrade’s H2 2011 retail market market rates for the next six months.
PRIME PRIME was uneventful due to a lack of completion
YIELDS OFFICE RENTS of shopping centres. Despite interest Retail: Belgrade’s retail market is still
shown by new retailers to enter and considered underdeveloped in comparison
expand in the Serbian market, the Serbian to other countries in the region. The
retail supply is still not adequate to announcement of new retail projects set
satisfy the requirements of new entrants to come online in the next three years will
and remains a barrier to entry. balance demand and supply for modern
retail space. During 2012 modern shopping
Residential: During H2 2011, the centre rents will be mainly driven by the
residential market of Belgrade and Serbia start of construction of retail projects
was further impacted by the global and their expected delivery dates.
economic crisis. Evidence of the impact
Increasing could be seen in the downward trend Residential: Present sales and rental
Stable in the number of delivered residential prices are expected to remain stable
Decreasing apartments in new deliveries per year. with the potential of a decline until the
end of H1 2012. A government support
programme to stimulate demand for
residential units is also expected to have
a positive impact on the demand side.

RESEARCH & FORECAST REPORT | 2012 | SERBIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY Total industrial production from January
2010 2011 2012 to November 2011 was 2.1% above the
Although still above the inflation target of the
GDP % 0.95% 2.01% 3.04% previous year. The highest increase in
Serbian National Bank (NBS), the inflation rate
CPI % 6.17% 11.26% 4.33% industrial production, from November 2010
decreased in Q3 2011. This was largely due
Unemployment % 19.57% 20.84% 20.61% to November 2011 was recorded in the
to the weakening of food prices, low aggregate
electricity, gas, steam and air conditioning
Source: IMF/CIA World Fact Book/FocusEconomics demand and monetary policy measures.
supply sector at 30.5%, followed by the and
Population 7 120 666 In accordance with NBS expectations, the
mining and quarrying sector at 15.5%.
Top 3 Cities 1 558 651 21.89% inflation rate from September to December
Belgrade 1 154 589 16.21% 2011 trended downward. In December 2011,
In 2011, export trends in Serbia indicated
Novi Sad 221 854 3.12% y-o-y inflation came to 7% exceeding the
a growth of 16% y-o-y compared with
Nis 182 208 2.56% National Bank target of 4.5% (+/-1.5%).
2010. Major Serbian foreign trade
partners for exports include Germany,
The latest official labour force survey
Italy and Bosnia and Herzegovina.
GDP GDP % ANNUAL published in November 2011 revealed that
(BILLION)CHANGE the overall unemployment rate edged 4.5%
Downgraded purchasing power in Serbia
higher in comparison to figures in October
100 6 negatively impacted retail turnover. According
2010. Unemployment reached 23.7%.
80 4 to the Statistical Office, in the first 11
months of 2011, retail turnover recorded
60 2 The GDP rate declined to 2.5% at the end of
a current price decline of 7% y-o-y and
Q3 2011 from a previous estimate of 3%.
40 0 a constant prices decline of 16.7% y-o-y
20 -2 compared with same period in 2010.
During 2011, estimated net FDI inflows to
0 -4 Serbia totaled 4.6% of GDP and reached
PROGNOSIS
approximately €1.5 billion, an increase of
2007
2008
2009
2010
2011e
2012f
Source: NBS, Raiffeisen Bank, UniCredit Bank,

about 77% in comparison to 2010. The We expect the inflation rate to hit its targeted
largest FDI inflow in 2011 was related to the value of 4% (+/-1.5%) by the end of 2012
UNEMPLOYMENT % acquisition of the main Serbian retail chain, as prescribed by National Bank. The pace
24 Delta Maxi Group, by Belgian Delhaize Group. of inflation decline will be significantly
20
influenced by the international environment.
In the period from July to September,
16
average net wages rose by 2.1% in real terms, GDP will increase by 1.5% in 2012 as a
12
y-o-y. According to the latest data from the result of private sector investment and
8
Statistical Office, average net wages in Serbia modest contributions from net exports.
4 amounted to € 426 in December 2011.
0 Total FDI inflow will reach €1.6 billion
After the stability of the Dinar in July, based on announced FDI investments
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012f
2013f
Source: NBS, Raiffeisen Bank

caused by the influx of FDI, from September from the following companies: Pharmas
to October, the Dinar appreciated, rising (Croatia), Calzedonia (Italy), Bosch
UNEMPLOYMENT % from RSD101.2-100.6 against the Euro. (Germany) and Cooper Tires (USA).
Following the appreciation the Dinar
18
depreciated in November and December
15
with the exchange rate against Euro
12 fluctuating between RSD102.6-102.9.
9
6
3
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012f
2013f
Source: NBS, Raiffeisen Bank

RESEARCH & FORECAST REPORT | 2012 | SERBIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Belgrade SUPPLY Looking at the breakdown of demand of
Total Stock 660,000 m2 office by size in Belgrade in H2 2011, offices
During H2 2011, the Belgrade market did
Take-up 23,145 m2 sized between 100-200 m2 made up 34%
not witness the delivery of any Grade A or
Vacancy 20.9% of the market, followed by office premises in
Grade B office buildings. Due to a challenging
Prime Headline Rent €16 m2/pcm sizes of between 300 m2 to 500 m2 (23%)
economic situation in Serbia, the Belgrade
and 1,000-2,000 m2 (20%). The remaining
Source: Colliers International market was subject to a delay in the delivery
demand for office space can be divided into
of a few offices currently under construction.
premises up to 100 m2 (10%) and premises
RENT AND VACANCY MARKET sized between 500-1,000 m2 (13%).
The total Grade A and Grade B office
INDICATORS inventory in Belgrade stood at 660,000
€/m2 % VACANCY/AVAILABILITY
m2 GLA in H2 2011. Grade A space (62%)
30 comprised 420,000 m2 GLA and Grade B The Belgrade office market was over-
20
25 (38%) was approximately 240,000 m2 GLA. supplied and vacancy rates at the end of
15 20 2011 remained high. In H2 2011, the overall
15 Geographically, 75% of total Grade A and vacancy rate for Grade A and Grade B
10
Grade B stock was located in Belgrade’s office space stood at 20.9%. The Grade A
10
5 Central Business District (CBD), while the vacancy rate declined to 18.9% over the
5
Broad Centre comprised of about 16%. The last six months, while the Grade B vacancy
0 0 remaining 9% was related to office space rate moderately increased from 23% at
located in suburban areas of the capital. mid-year to 24.4% by the end of 2011.
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Prime Headline Rent DEMAND Total vacant Grade A and Grade B office
Vacancy Rate space in Belgrade amounted to 135,720
The office market continued to shift
m2 of leasable space, which breaks down
towards a tenant driven market in H2
to approximately 80,100 m2 of Grade A
2011. Numerous examples of renegotiated
space and 55,600 m2 of Grade B space.
VACANT GRADE A VACANCY RATE leases in favour of tenants were apparent
GRADE B GRADE A as a strategy to retain clients and avoid
YIELDS
OFFICE SPACE AND B long vacancy periods for landlords.
(THOUSAND) In comparison to H1 2011, estimated yields
%
Demand has decreased slightly in comparison for Grade A and B office space remained
200 30 to H1 2011, based on observations of flat during H2 2011. At the end of 2011,
160 25 the number of inquiries for leasing estimated yields for Grade A office properties
office space in the Belgrade market. in the Belgrade market ranged between
20
120 9-9.5%, while Grade B estimated yields
15 In terms of demand for office space ranged from 9.5-10.5%, with expectations
80
10 in Belgrade, the New Belgrade area to stay at present levels in 2012.
40 remains the most requested destination,
5
followed by the downtown area.
0 0
Throughout H2 2011, office space
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
demand was driven by companies in a

variety of industries such as professional
Source: Colliers International services, finance, insurance and real
estate (FIRE), media and publishing, trade,
retail and warehousing, engineering,
architecture and construction.

RESEARCH & FORECAST REPORT | 2012 | SERBIA | OFFICE MARKET
RENTS PROGNOSIS
NEW DELIVERIES AT BELGRADE
OFFICE MARKET (THOUSAND M2) In comparison to the rental levels in H1 2011, EU candidacy is expected to have a
70 net rental levels for Grade A and Grade B positive impact on the overall investment
60 office space in Belgrade remained stable. climate in Serbia. This will also result
50 in an upturn in the supply of Grade
40
In H2 2011, the highest asking rental rates A office developments in 2012.
30
for Grade A office space in the New Belgrade
area reached €16 m2/pcm. However, asking Stagnation of rental rates for Grade A
20
net rents for Grade A office premises in the and Grade B office space is expected
10
CBD ranged from €10-16 m2/pcm depending in the next six month period.
0
on the micro-location. In the Broad Centre,
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
on the other hand, average asking rental Presently, Belgrade has 51,000 m2 of Grade
rates ranged from €12-16 m2/pcm. A office space under construction which is
set for delivery over the next two years. New
Grade B office rents in the CBD ranged from supply of Grade A office space will be located
TENANT SIZE PROJECT LOCA-
€9-14.5 m2/pcm, while rents in the Broad within the New Belgrade business area. These
(m2) TION
Centre area recorded asking net rents in the deliveries will include the headquarters of
New
Sunguard 650 Red Stripe range from € 8 m2/pcm to €10 m2/pcm. two foreign banks, Raiffeisen Bank (21,000
Belgrade
m2) with a scheduled completion date of H1
Omla-
LIDL 465 dinskih
New During H2 2011, Colliers recorded average 2012 and Banca Intesa (30,000 m2) with an
Belgrade rental rates for Grade A office space in the expected completion date by the end of 2013.
brigada
Academia New CBD zone from €12-14 m2/pcm. The same
1,000 Ktitor rental levels for Grade A were recorded in the
de Lusso Belgrade
New Broad Centre area of New Belgrade. Grade
Sitel 3,300 Blue Centre B buildings were leased for €7-12 m2/pcm.
Belgrade
Idea Plus
New
Communi- 377 Red Stripe
Belgrade
cations
KWS seme New
250 Red Stripe
yu doo Belgrade
GIZ pravna New
230 Grawe
reforma Belgrade
Down-
Diwanee 250 Resavska town
area
JSC
Zarubezh- Down-
stroytech- 250 B2 town
nology RZ area
Dinter
New
Du Pont 300 Airport City
Belgrade
New
Bion B 200 Savograd
Belgrade

RESEARCH & FORECAST REPORT | 2012 | SERBIA | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Belgrade SUPPLY Prime high street retail units remained
Total Shopping Centre Stock 160,000 m2 the most preferred type of retail space
The second half of 2011 was relatively
Prime Headline SC Rent €70 m2/pcm for new market entrants in the Belgrade
uneventful for Belgrade’s retail market as
Prime Headline High Street market. H2 2011 saw the opening of
€110 m2/pcm no new deliveries of modern shopping
Rent fashion brands Quiz and Gap in the main
centres came on market. Given no
Source: Colliers International pedestrian zone: Knez Mihajlova Street.
new supply in H2 2011, the gross
leasable area totaled 168,000 m2.
TRADITIONAL SC STOCK BY LOCATION Cineplexx cinema entered the Serbian market
by taking over the cinema space in Delta
8% After acquiring the largest domestic retail
5% City. Shoe brand Nine West and fashion
chain, Delta Maxi (Belgium company),
brands Monsoon and Napapijri Geographic
Delhaize Group continued expanding the
opened their first stores in Delta City. New
Tempo hypermarket network throughout
market entrants in Usce shopping mall
Belgrade in H2 2011. The opening of the
included Quiz, the shoe brand Deichmann,
third Tempo (11,000 m2) in Ada Ciganlija
followed by beauty brand, Yves Rocher.
in December 2011 generated high levels
of consumer attention due to the lack of
YIELDS
87% hypermarkets in this part of Belgrade.
Comparable transactions required to
Outside Belgrade, two secondary cities saw calculate yields in the Serbian market are
New Belgrade Area
the addition of retail parks. The delivery scarce. However, taking into consideration
Downtown Area of the second phase of Delta Retail Park market risks compared to the region, as
Other (13,500 m2 GLA) in Kragujevac, brought well as the risk level of the property sector,
international brands such as Takko, we estimated that the current applicable
Deichmann and JYSK. Additionally, the third yields would range from 9-10%.
phase of a retail park in Pancevo (13,500
CHANGE IN SC STOCK OVER TIME m2 GLA), developed by the international
(THOUSAND) investment fund Aviv Arlon Group, opened
300 with DIY and Top Shop. Finally, Israeli fashion
250 brand H&O entered the Serbian market.
200
During the second half of 2011, retail
150
warehousing continued to develop in the
100 form of supermarkets and hypermarkets. In
50 December 2011, Roda Cash and Carry (4,500
0 m2 GBA) was opened in Zrenjanin featuring a
supermarket, several retail units and a café.
2005
2006
2007
2008
2009
2010
2011
Inc Pipeline
DEMAND
After the market’s retail expansion peaked
between 2007 and 2009, Belgrade
experienced a slowdown due to the global
economic crisis as evidenced by the delay in
the delivery of several modern retail projects.
Despite high levels of interest from retailers

to enter and expand in the Serbian market,
current supply was satisfactory to meet
their needs and plans were therefore
postponed. Belgrade remained a well
sought-after location for retailers as a point
for first market entry due the city’s high
population density and above average wages.
Alternative cities for retail expansion included
Novi Sad, Nis, Kragujevac and Subotica.

RESEARCH & FORECAST REPORT | 2012 | SERBIA | RETAIL MARKET
VACANCY AND RENTS The Verano Group has also announced

RENTAL LEVELS AT BELGRADE construction of the Trosarina Shopping
MARKET During the past six months, rent levels on
mall (52,000 m2 GLA) and a mixed-
Belgrade’s high streets remained consistent
120 use project called Block 34 (23,500
with rent levels recorded earlier in 2011.
m2 GLA). Both are scheduled for
100 Rents in the prime high street area ranged
delivery during the first half of 2014.
80 from €50-110 m2/pcm, while secondary
60 high street rents ranged from €15-40 m2/
Downtown Belgrade will witness the
pcm. Rent in the least preferred retail
40 delivery of Rajiceva shopping mall (18,500
locations, peripheral zones, registered
20 m2) which is scheduled for H1 2014.
rental rates between €5-10 m2/pcm.
0
Outside Belgrade, the pipeline of retail projects
Modern SC Prime Secondary High demand and lack of supply for
High Street High Street included BIG CEE retail park/shopping centre
Belgrade’s retail market meant that rental
Source: Colliers International (28,500 m2 GLA) which is expected for
rates were landlord driven and remained
delivery by the end of 2012. The delivery of
Shopping GLA Developer Scheduled high with no detectable decrease.
the fourth phase of Aviv Arlon Retail Park
Centre (sq m) opening Excluding anchor tenants, net rental
date
Pancevo (5,000 m2 GLA) is planned for H1
levels within modern shopping centres
2012, as well as the first phase of Fashion
Belgrade
22 000
Plaza
H1 2014
ranged between €25 and € 70 m2/pcm.
Plaza Centres House Outlet centre with a gross leasable
Trosarina area of 15,000 m2 (Black Oak Developments)
52 000 Verano H1 2014 Belgrade retail prime high street vacancy
Mall which is set for delivery in Q1 2012.
rates were approximately 10% due to limited
GTC Ada GTC supply of modern shopping centres. Two
35 000 H1 2014 Delta Real Estate announced the start of
Mall Serbia existing international style shopping centres
Delta Delta Real construction of Delta Planet shopping mall
60 000 H2 2015 saw zero vacancy rates in Belgrade.
Planet Estate which will be located in the Autokomanda
FMP area. The centre will feature 70,000 m2 GLA
35 000 FMP TBA PROGNOSIS
Project and will begin construction at the end of 2012.
Rajiceva Belgrade’s retail market will continue
Shopping 18 500 ABD H1 2014 to offer great development potential. During 2012 modern shopping centres rents
Mall However, due to a challenging political and will be dictated by construction starts and
Plaza Plaza economical situation in Serbia, it is hard their expected completion dates. Still, the
40 000 H1 2014
Visnjica Centres to predict if announced retail projects will limited modern shopping centre supply will
Block 34 23 500 Verano H1 2014 come to market by their scheduled dates. keep existing rental rates in the upper range
with no major changes in vacancy rates.
There are two significant retail projects
in the pipeline in Belgrade announced by
Israeli company, Plaza Centres: Belgrade
Plaza (22,000 m2 GLA) and Plaza Visnjica
(40,000 m2 GLA) with opening expected
in the first half of 2014. However, the first
shopping centre by Plaza centres in Serbia
is expected in Kragujevac, called Kragujevac
Plaza (22,000 m2 GLA). The opening of
Kragujevac Plaza is scheduled for Q1 2012.

RESEARCH & FORECAST REPORT | 2012 | SERBIA | RESIDENTIAL MARKET
RESIDENTIAL MARKET
SUPPLY The type of new residential development
SALE PRICES INCLUDING VAT (8%) most in demand were two bedroom
OF RESIDENTIAL UNITS IN NEW During H2 2011, the Belgrade and Serbian
apartments with an average size of 60 m2.
DEVELOPMENTS BY BELGRADE residential market was further impacted
MUNICIPALITIES (THOUSAND €) by the global economic crisis as 30%
Another government measure put in place
fewer residential apartments were
to stimulate demand of residential units
delivered to the market in comparison
4.0 was in their home loan equity criteria.
to the quantity delivered in 2010.
3.5 The government reduced the required
3.0 equity to purchase a house from 5-10%
2.5 According to Statistical Office data,
as well as removing the age limit for
2.0 the period from January to November
potential credit applicants entirely.
1.5 marked 45% less building permits issued
1.0 for residential projects in Serbia in
Advertised prices for new residential
0.5 comparison to the same period in 2010.
projects in Belgrade have not dropped
0
significantly. However, in H2 2011, there
Vracar
New Belgrade
Zemun
Zvezdara I
Zvezdara II
Dedinje
Senjak
Vozdovac
Banovo Brdo
The government announced plans to adopt

was a 5-15% sales price decrease among
measures to support the construction
medium to higher quality residential
industry by means of issuing long-term
projects in the city to entice buyers.
Zvezdara I includes area closer to Vracar area
housing loans in 2012 in order to encourage
Zvezdara II includes Mirijevo area demand for apartments. The government also
Gross sales prices for medium to higher
announced it will continue the construction
Source: Colliers Research quality apartments in new developments
of ‘affordable’ residential apartments in
in the New Belgrade area were priced
17 cities across Serbia. These ‘affordable’
between €1,650 m2 and € 1,850 m2,
apartments are large-scale residential
representing a decrease of about 10-12% in
projects constructed in average locations
comparison to H1 2011 prices. While high-
and offered for sale at affordable prices.
end project prices cost up to €3,000 m2.
DEMAND AND SALES PRICES
The Banovo Brdo area saw a 10% price
According to H2 2011 data from the decrease in H2 2011 compared to H1 2011
Association of Serbian Banks, the level with prices ranging from €1,600-1,800
of indebtedness of its citizens, based m2. Prices in the Dedinje and Senjak
on housing loans denominated in the areas stabilized with new developments
national currency, Dinars (RSD), modestly ranging from €2,500-3,500 m2.
increased by 5% compared to the preceding
period from January to June 2011. The Vracar area also did not experience
changes in sales prices. Mid to higher quality
Sales of residential units in Belgrade during apartments in new developments ranged from
the second half of 2011 dropped due to €1,800-2,200 m2 and more exclusive projects
the consequences of the global economics in the area reached €3,500-4,000 m2.
crisis. Sales levels decreased anywhere
between 5% and 15% depending on the Finally the Vozdovac and Zvezdara areas
location of the dwelling. Sales prices of also remained stable with gross sales
residential units also decreased in H2 prices ranging from €1,300-1,800 m2
2011 as potential credit buyers pulled (Vozdovac), €1,600-1,850 m2 (Zvezdara)
back and cash buyers stepped in. and €1,350-1,600 m2 (Zemun).

RESEARCH & FORECAST REPORT | 2012 | SERBIA | RESIDENTIAL MARKET
RENTS The government will continue the construction

RENTAL LEVELS OF RESIDENTIAL of ‘affordable’ residential apartments in the
UNITS IN NEW DEVELOPMENTS BY Rents in the Belgrade market down-
New Belgrade settlement of Dr Ivana Ribara
BELGRADE MUNICIPALITIES trended by 5-10% in H2 2011, depending
scheduled to be completed in H1 2012.
(€) on location, quality and level of
Furthermore, a residential building by Tempo
finishes in the residential unit.
14 Company (10,500 m2 GBA) and the Block
12 29 residential project (11,600 m2 GBA) by
Expatriate areas such as Dedinje and
10 the Building directorate of Serbia, are both
Senjak, achieved the highest rents for
8 expected to be completed in H1 2012.
residential units ranging from €12-13 m2/
6 pcm. Dedinje’s rents declined by 10% as a
The first phase of the residential project, Golf
4 consequence of the new supply that came
8, (8,200 m2) will come to market in H1 2012.
2 on market in H2 2011 thereby broadening
0 the rental range to €6-13 m2/pcm. Senjak’s
The residential market in the New Belgrade
Vracar
New Belgrade
Senjak
Banovo Brdo
Dedinje
rental rates ranged from €8-12 m2/pcm.

area will continue to grow and represent
and important location in Belgrade’s
Rents in the in-demand area of Vracar
residential market. Several new, large
stabilized in the range of €7 m2/pcm to €12
Source: Colliers Research mixed-use projects are expected to be
m2/pcm. Due to a lack of new developments
delivered in this municipality such as West
of residential units, New Belgrade
65 project (47,500 m2 GBA) and a residential
recorded a 10% decrease in rental rates
project by Neimar V (12,500 m2 GBA).
in comparison to H1 2011 levels. Rents in
New Belgrade ranged from €6-10 m2/pcm.
Two residential projects by Pluto Capital,
LiveIn Dorcol in downtown and Harmony
The Banovo Brdo area experienced
apartments in Vracar area, were announced
modest declines in rents averaging about
for development in Belgrade in H1 2012.
5% with a new range of €5-10 m2/pcm.
The higher end of that range applies to
2012 will also bring several high-
luxury residential units in the area.
end residential projects to the market,
concentrated in the Vracar area such as the
PROGNOSIS
residential – office project (3,000 m2 GBA)
The highest concentration of active by Living Good located in Novopazarska
residential sites under construction are Street, Energogroup residential project
located in the municipalities of Vozdovac, (2,880 m2 GBA) in Smiljaniceva Street
New Belgrade, Vracar and Dedinje. and the residential project (1,600 m2 GBA)
in Krunska Street by City Properties.
The largest residential project under
construction in the Belgrade market is in Due to the new government regulations
Vozdovac, on the site of former barracks for subsidised loans, it is expected that the
called “Stepa Stepanovic”. This large scale residential market will pick up in 2012.
mix-used project that is being built by
the Government will bring approximately The present sales and rental prices
4,600 ‘affordable’ residential apartments are expected to remain stable with the
to the market. The completion of the possibility of a moderate decrease by
first phase is scheduled for Q1 2012. the end of the first half of 2012.
Delivery of the whole project is expected
to be completed by the end of 2013.

RESEARCH & FORECAST REPORT | 2012 | SERBIA
COLLIERS RESEARCH
• 978.6
SERBIA
Mirjana Mandic
Belgrade Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.
Market Researcher space of properties where construction has commenced on a new development or in
Blvd. Mihajla Pupina 115d existing properties where a major refurbishment/renovation is ongoing at the survey date.
11070 New Belgrade
Serbia Space Under Construction – Inactive: Represents the total amount of gross leasable floor
TEL + 381 11 313 99 55 was ongoing, but activity has since stopped for a period of three months or longer.
FAX + 381 11 313 99 58

RESEARCH & FORECAST REPORT | 2012 | SERBIA | TAX SUMMARY
SERBIA – TAX SUMMARY

CORPORATE INCOME TAX Fixed assets classified under the first group >> import of goods into Serbia.
AND CAPITAL GAINS are depreciated using the straight-line
method, while declining balance method A taxpayer is any entity that independently
Corporate income tax is levied at a 10% flat is prescribed for fixed assets in the other
rate on resident and non-resident entities. supplies goods and services in the
groups. A depreciation rate of 2.5% is applied course of doing business.
A resident entity is a legal entity which is to the purchase value of a first group fixed
incorporated or has a place of effective asset where the real estate is classified.
management and control on the territory Each entity whose turnover in the previous 12
of Serbia. Resident legal entities are liable months (sales of goods and services excluding
for payment of tax on their worldwide THIN CAPITALISATION sales of real estate and equipment used in
income in the country. Non-resident Interest and related expenses towards related performing business activity) exceeds RSD 4
entities pay tax on the income generated entities are deductible up to four times million is obliged to register for VAT. An entity
through a permanent establishment on the value of the taxpayer’s equity (limit for whose turnover in the previous 12 months or
the territory of Serbia (branches). banks is 10 times the bank’s equity). The forecasted turnover in the following 12 months
non-deductible amount of interest expense is between RSD 2 and 4 million may opt to
The tax period is usually the calendar year. A may not be carried forward any longer be registered for VAT (small undertakings).
corporate tax return has to be submitted by and represents a permanent difference.
10 March of the following year for the then Only the first transfer of newly built buildings (i.e.
previous year, whereas corporate income tax WITHHOLDING TAXES buildings built as of 1 January 2005) is subject
is to be paid during the year through monthly to VAT at the rate of 8% (residential building)
advanced payments (by 15th of the month or 18%. Supply of land, as well as renting of
Withholding tax at the rate of 20% is deducted land is exempt from VAT without credit.
for the previous month). However, based from dividends, share in profits, liquidation
on the request, the taxpayer may change surplus, royalties, interest, capital gains
its tax year to any 12 consecutive month and lease payments for real estate and PROPERTY TAX
period if the foreign owner has financial other assets derived by non-residents on
year which differs from the calendar year. In Serbia tax on property is paid by the
the territory of Serbia. Withholding tax may titleholder of property rights (ownership,
be reduced by double taxation treaties. right of use, etc.). Companies pay property
Taxable income is established on the basis of tax at the maximum rate of 0.4% per year
accounting profit disclosed in the annual income If a non-resident taxpayer receives capital on the net book value of land and completed
statement, in accordance with International gains from a Serbian resident, other non- development property as at 31 December.
Financial Reporting Standards, and is subject resident, resident or non-resident individual
to further adjustments in the tax balance. or open investment fund on the territory of REAL ESTATE TRANSFER TAX
Serbia, 20% withholding tax has to be paid
Capital gains are disclosed separately in the if not provided otherwise by a respective Second and all future transfers of real-estate
tax balance and are subject to a 10% tax. double taxation treaty. The non-resident property, as well as the first transfer of
The capital gain is the difference between taxpayer has to submit a special tax return real-estate property built before 1 January
the sale and purchase price of assets (real within 15 days of generating the capital 2005, are subject to transfer tax at the
estate, securities, intellectual property gains via proxy, based on which the Tax rate of 2.5%. The taxpayer is the seller.
rights, investment units). If such difference Authorities assess the tax liability. However, the buyer may assume liability of
is negative, a capital loss is reported. paying this tax, but this has to be stipulated
DOUBLE TAXATION CONVENTIONS in the sales and purchase agreement.
LOSSES
As at 1 January 2012, Serbia has 49
Losses generated from business, financial effective double taxation conventions
and non-business transactions, excluding on income and capital: Albania, Austria,
capital losses, may be carried forward for Azerbaijan. Belarus, Belgium, Bosnia &
up to five subsequent tax periods and can Herzegovina, Bulgaria, China, Croatia,
be offset against future taxable income. Cyprus, Czech Republic, Denmark, Estonia,
Losses carried forward into the future are Finland, Germany, Greece, Hungary, Iran, FOR MORE INFORMATION ON REAL
not cancelled by mergers, acquisitions, spin- India, Ireland, Italy, Kuwait, Latvia, Libya, ESTATE SERVICES IN SERBIA, PLEASE
offs nor other organisational changes. Lithuania, Macedonia, Malta, Moldova, CONTACT:
Montenegro, Netherlands, North Korea,
Capital losses may be carried forward for five Norway, Pakistan, Poland, Qatar, Romania,
years and offset only against capital gains. Russia, Slovakia, Slovenia, Spain, Sri Lanka, Igor Loncarevic
Sweden, Switzerland, Turkey and Ukraine.
Agreements with Egypt, France, Great KPMG d.o.o. Beograd
TAX DEPRECIATION Kraljice Natalije 11
Britain and Malaysia cover the avoidance
For corporate income tax purposes, fixed of double taxation of income only. 11000 Belgrade
assets are divided into five groups, with Serbia
depreciation rates prescribed for each group: VAT T: +381 11 20 50 570
Group Depreciation rate E: iloncarevic@kpmg.com
VAT is levied on the following:
I 2.5%
II 10%
>> supply of
goods and services by a
III 15% taxpayer on the territory of Serbia in
IV 20% the course of doing business, and
V 30%

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA
SLOVAKIA

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: Despite the European Economy: 2011 brought political instability
economic slowdown, Slovakia’s economy to Slovakia as the latest government fell
maintained a favourable position as the in October after losing market confidence.
main economic indicators were positive Progress will be muted until the next
and demonstrated a stable outlook. election which takes place in March. The
GDP growth rate is projected for just
Investment: 2011 reflected an appetite under 5.0% in 2012, subject to the risk of
for core properties as well as active further economic contraction in the EU.
equity players waiting for the right The harmonization of production, export
investment opportunities. growth and domestic demand forecast
for 2013 and 2014 show positive signs
Office: 40.0% of all transactions were for the three year planning horizon.
made up of renegotiations as occupiers
preferred to renegotiate more preferable Investment: For 2012, the uncertainties
lease terms rather than relocate. in the international debt markets and the
TRENDS 2012
expectation of a recession in Europe will
Industrial: Leasing activity improved strengthen the position of equity buyers
GDP GROWTH
in 2011, following lower transaction and the continuation of a re-pricing
PRIME PRIME levels in 2010. Demand remained driven process for almost all asset classes.
YIELDS OFFICE RENTS by logistic service providers, and the
automotive and electronics industries. Offices: We can expect that tenants will
try to benefit from favorable conditions
Retail: Tenants remained cautious in terms and renegotiate their lease agreements
of their financial results and still looked or decide to move to cheaper locations.
to cut costs. Prime projects, locations Rents are expected to remain at their
and the best conditions were still the current level, although rents in older
most sought after in terms of demand. premises may decrease slightly.
Industrial: In 2012, we expect a cut-back
VOLUMES RETAIL RENTS in production and retail sales, resulting in a
PRIME INDUSTRIAL RENTS fall in take-up later in the year. We expect
a greater trend toward companies thinking
about optimization rather than expansion.
Increasing
Stable
Decreasing Retail: Increasing pressure on the quality
of shopping centres will continue in
2012. For this reason, retail rents in
less attractive locations or shopping
centres may decrease further.

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
Key Economic Figures SUMMARY Slovakia’s structural fiscal balance peaked at
2010 2011 2012 around 6.5% in 2010 as revenues collapsed
Despite the economic slowdown, Slovakia is
GDP % 4.02% 3.25% 1.10% and spending continued. A growth in exports
still positioned for economic growth compared
CPI % 0.70% 3.56% 1.84% will bring improvements in both the fiscal
to countries in the rest of Europe. Economic
Unemployment % 14.38% 13.36% 12.32% balance and total debt levels of the country.
indicators show a positive and stable outlook.
Adopting the Euro, there is very little risk
Population 5 440 078 An enthusiastic FDI model guided the
of currency shocks to Slovakia’s public
Top 3 Cities 757 307 13.92% country closer to total integration into the
debt. With an even age profile of debt over
Bratislava 431 061 7.92% supply chains of western Europe and by
the next 10 years, government funding
Kosice 234 596 4.31% extension, the ability to benefit from their
issues are not expected to deteriorate.
Presov 91 650 1.68% GDP profiles. Early adoption of the Euro
Source: IMF/CIA World Fact Book/FocusEconomics was driven by the need to assimilate to a
PROGNOSIS
Economic Make-up western standard of living and the stability
Sector GDP Labour that comes along with Euro integration. Due to politically instability, the latest
Agriculture 3.8% 3.5% government fell in October after losing
Industry 34.8% 27.0% Exports accounted for nearly 79.0% of market confidence. Political progress
Services 61.4% 69.4% GDP in 2011 and are projected to reach and reforms will be muted until the next
88.0% of GDP by 2015. Slovakia is very election which takes place in March.
KEY ECONOMICS INDICATORS dependant on the economic recovery of In the short term, unemployment will trend
20%
other countries in western Europe who are upward. On the other hand long-term
struggling to re-establish their own internal prospects for lower levels of unemployment
growth following the Eurozone crisis. in Slovakia are bright. The unemployment
10%
rate is expected to fall below 13.0% in 2012.
Slovakia was an early eastern European
0% adopter of the euro which meant that its Inflation is projected to decrease in 2012
unit costs of production were locked in and to under 2.0%, as consumer prices fall.
-10% the country could not use monetary policy
to adjust domestic demand to counter The GDP growth rate should register
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
externalities. Therefore Slovakia has had to just shy of 5.0% in 2012, subject
adjust the cost factors of production internally. to economic risk in the EU.
Unemployment rate

The need for higher productivity and
lower unit costs of production have
suppressed employment and wage growth
in comparison to industrial production.
GDP DRIVERS
Despite a strong recovery from production
20% and exports, suppressed domestic demand,
(shown in retail sales), has caused a
10%
drag on the country’s GDP recovery.
0%
Since the beginning of 2011, the
-10% unemployment rate declined from
14.4% to the current level of 13.4%.
-20%
The CPI inflation rate reached its peak
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
in 2011 and has increased to 3.6%.

Industrial production % change
Volume of exports of goods and services
GDP Real % change
Retail Sales

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures - Slovakia SUMMARY PROGNOSIS
Investment Turnover €580.6 million 2011 reflected an appetite for core properties In 2012, international debt market uncertainty
Prime Office Yields 7.5% as well as active equity players waiting and the expectation of recession in Europe
Prime Retail Yields 7.25% for the right investment opportunities. will strengthen the position of equity buyers
Prime Industrial Yields 9.0% and facilitate the re-pricing of assets.
Banks were willing to lend on quality
assets but were politically insensitive We expect bank lending and investment
PRIME (NET INITIAL) YIELDS
to promoting lending overall. activity to be slower during H1 2012
12%
across the region. Selective prime lending,
10% €580 million was transacted in real estate however, will continue in Slovakia.
investments in 2011 in comparison to €51
8% million in 2010. Slovakia registered a number The lack of bank financing may create
of closed transactions, particularly prime new opportunities for equity owners in
6%
properties with prime tenants such as the the form of mezzanine loans, as long
4% acquisition of the shopping centre Aupark by as there is a senior loan provided.
Unibail-Rodamco, the Auto Logistics Park in
H1 2005
H2 2005
H1 2006
H2 2006
H1 2007
H2 2007
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
2012f
Lozorno by Czech Property Investments and Yields will need to represent fair value
the office building Aupark Tower by Heitman. and enable cash generating returns.
Office Gone are the days of yield pricing
Industrial
In H1 2011, Slovakia saw a land transaction compression. In turn this could lead to a
Retail SC
for future residential development and also softening of yields, although current prime
witnessed the success of start-up flats: small yields currently represent fair value.
flats at reduced prices aimed at first-time
INVESTMENT VOLUME home buyers. The success of the small
(MILLION €) flats demonstrated a targeted product is
600 still in demand for residential solutions.
500
400
300
200
100
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: RCA
KEY INVESTMENT TRANSACTIONS

Deal Value Vendor Purchaser
Million
€
Aupark
85.6 HB Reavis Heitman
Tower
Sekyra JF Ham- Sekyra
60.1
porfolio ilton Group
Unibail-
Aupark 302.0 HB Reavis
Rodamco
Auto
AIG Inter-
Logistics 72.9 CPI
national
Park

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Slovakia SUPPLY VACANCY/AVAILABILITY
Total Stock 1.05 m2 In 2011, the total modern stock of industrial The industrial vacancy rate has declined
Take-up 207,500 m2 premises reached 1,051,860 m2. Over the from 7.4% in the beginning of 2011,
Vacancy 5.3% year 46,300 m2 was added to the market. to the current level of 5.3%.
Prime Headline Rent €4.14 m2/pcm
Source: Colliers International Approximately 66.0% of total stock was Vacant industrial space totaled 55,400
located in the Bratislava region, 22.0% m2 by the end of 2011. Most of this
in the Trnava region, 6.0% in the Trenčín space was located in the Prešov region
TOTAL STOCK BY REGIONS
region and the rest was split among the (17.0%), followed by the Trenčín region
3%
2% 1% Prešov, Košice and Žilina regions. (13.0%) and Bratislava region (6.0%).
6%
The largest share of total stock by RENTS
developer was held by ProLogis (38.0%),
Rents remained stable throughout the
providing 402,000 m2 of leasable Grade
year. Monthly headline rents for logistic
A premises, followed by HB Reavis with
22% premises ranged between €3.6 m2/pcm
11.0% and CPI with 11.0%. The remaining
and €4.14 m2/pcm. Monthly headline rents
market share of stock is below 10% and
for office space in industrial halls ranged
is held by several smaller developers.
66% between €8.0 m2/pcm and €8.5 m2/pcm.
There are two new developments under
PROGNOSIS
Bratislava Prešov construction: A speculative development
Trnava Košice in VGP Malacky (14,500 m2) and a tailor- In early 2012, we expect a slowdown
made development for Schnellecke (26,300 in production and retail sales, resulting
Trenčín Žilina
m2) in Pointpark Properties Lozorno. in a fall in take-up levels. We expect
more companies to think about
DEMAND optimization rather than expansion.
TAKE-UP / VACANT SPACE After weaker leasing activity in 2010,
(THOUSAND M2) Industrial supply will increase in 2012 as
the situation in the industrial market
new developments are under construction.
120 improved in 2011 as demand increased
100 with overall take-up reaching 207,500 m2
Vacancy will rise softening rents. For
80 . This is a significant increase compared
new developments, we expect that
60 to take-up in 2010 (43,200 m2).
developers will require a longer rental
40 period and higher rental prices, reducing
Demand continued to be driven by
20 their viability in the short-term.
logistic services providers, and the
0
automotive and electronics industries.
In terms of the future development
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
of industrial premises, we see

Key Transactions in 2011:
Total Occupational Market Activity (Take-up)
potential sites in the Žilina and Košice
Vacant Space regions as new viable locations.
>> DHL
lease – Goodman International,
Source: BRF / Colliers International Senec (9,400 m2)
TAKE-UP / VACANT SPACE >> Samsung lease extension –

(THOUSAND M2) ProLogis, Galanta (17,500 m2)
1080
1040 >> Faurecialease – Goodman
10%
1000 International, Košice (22,600 m2)
8%
960
6% >> Whirpool
lease – Pointpark,
920
Lozorno (18,500 m2)
880 4%
860 2% >> Tesco
lease extension - ProLogis,
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
0% Galanta (35,000 m2)
Total Competitive Stock

Vacancy Rate

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Bratislava SUPPLY VACANCY/AVAILABILITY
Total Stock 1.45 m2 The quantity of new office space delivered The vacancy rate for Bratislava increased
Take-up 43,300 m2 in 2011 was higher than the quantity to 11.2% in 2011, which equaled more than
Vacancy 9.1% of new supply in 2010. Approximately 160,000 m2 of vacant space. The increase
Prime Headline Rent €15 m2/pcm 70,000 m2 of new office space was was caused by new supply combined with
Source: Colliers International completed in 2011, representing a 22% tenants withdrawing from older premises.
increase compared to the previous year. The lowest vacancy rates were recorded in
CHANGE IN STOCK OVER TIME Bratislava V (4.2%), followed by Bratislava
(MILLION M2) The largest new projects completed in I (11.5%) and Bratislava II (11.6%).
1.5 2011 were: CBC III-V (22,600 m2), Westend
1.3 Square (17,800 m2) and Jarošova BC (10,300 In 2011, the Grade A office space vacancy
1.0 m2). The projects that were completed rate increased to 10.9% and the Grade
0.8
in Q4 2011 were Trinity Phase 1 (3,371 B vacancy rate increased to 11.7%.
m2) and MicroStep-HDO (3,500 m2).
0.5
RENTS
0.3
Total modern office stock now exceeds 1.45
0.0 Monthly rents for Grade A range from:
million m2. Grade A office space accounted
- €13-16 m2 /pcm for City Centre
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
for 58.6% of stock and the remaining 41.4%

- €11 - 13 m2/ pcm for Inner City and
was Grade B office premises. 83,000 m2
- €9 -12 m2 / pcm for Outer City.The average
Total Competitive Office Stock A Class of new office space is expected to enter
headline rent is now €11 m2 /pcm. Landlords
Total Competitive Office Stock B Class the market over the next two years.
and developers continued to provide
discounts and incentives to keep their existing
DEMAND
clients and to attract potential tenants.
In 2011, 99,000 m2 of office space
ANNUALISED TAKE-UP MID-YEAR transactions occurred. This represented a PROGNOSIS
BASIS (THOUSAND M2) 35% decrease compared to the previous year
100 Tenants will try to benefit from
(153,600 m2). 40.0% of demand was made
favourable conditions and renegotiate
80 up of renegotiations as occupiers preferred to
their lease agreements or decide to
reach new deal terms instead of to relocate.
60 move to lower cost locations.
40 The IT sector was the most active
We are expecting a greater divergence
20 during the year generating 45.0% of
in supply between Grade A and Grade
the transaction volume, followed by the
0 B projects. The vacancy rate in B Grade
manufacturing and construction sectors
offices will rise slightly, as tenants prefer
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
(11.0%) and professional services (11.0%).

favourable terms for higher quality premises.
Total Occupational Market Activity (Take-up)
In Q4 2011, take-up amounted to 33,000 m2.
Lease Transactions Rents are expected to remain at
Similar to previous quarters, the majority
Source: BRF / Colliers International current levels, although rents in older
of transactions (63.0%) closed in Q4 2011
premises may decrease slightly.
were in office units of less than 500 m2.
ANNUALISED TAKE-UP, MID-YEAR Units in the range of 501 m2 to 1,000 m2
BASIS (€/M2) accounted for 17.0% of signed deals in
25 16% Q4 2011 and 20.0% represented leases
14%
20
12%
signed for units larger than 1,001 m2.
15 10%
8%
10 6%
4%
5
2%
0 0%
H1 2008
H2 2008
H1 2009
H2 2009
H1 2010
H2 2010
H1 2011
H2 2011
Average Headline Rent

Vacancy Rate A Class
Vacancy Rate B Class

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Bratislava SUMMARY PROGNOSIS
Total Shopping Centre The Slovakian retail market was characterized Although consumption remains weak
474,700 m2
Stock
by stability. Tenants continued to examine developers stay committed to bringing their
how to realign their real estate strategy and projects to market. Up to 60,000 m2 of retail
Prime Headline High Street cut costs, keeping a watchful eye on financial space is under construction and scheduled
€40 m2/pcm
Rent
results. Although retailers continued to for delivery in 2012. The majority of this
demand prime projects, in prime locations and supply will be traditional shopping centres.
under the best conditions, more consideration
TOTAL SC STOCK BY LOCATION
was given to retail floorspace densities The largest retail properties in planning are
densities in terms of the number of shops/ project Centrál (36,000 m2) in Bratislava III,
13%
retail outlets a local market could sustain. project 3Nity (10,000 m2) in Bratislava II
21% and Avion IV Phase with an Ikea extension
SUPPLY (19,300 m2). Retail park Korzo (14,000
m2) is expected to be completed at the
Retail supply in Bratislava reached 474,700
beginning of 2012 in Bratislava II.
10% m2 in 2011. Two new projects opened,
offering an additional 23,000 m2 to the
This will improve the quality and choice
market. In Q2 2011, project Retro opened
of shopping centres in Bratislava, putting
45% adding 15,000 m2 and in Q3 2011 project
11% downward pressure on rents in retail
Glavica opened adding 8,000 m2.
premises in less attractive locations.
Bratislava I
Traditional shopping centres account for
Retail project location, developer experience
Bratislava II 84.0% of total retail stock. The majority
and “track record“ and the structure of the
Bratislava III of retail stock is located in Bratislava
tenant mix will play an ever more important
II district (46.0%) and in Bratislava V
Bratislava IV role in the success of centres in the future.
(21.0%). The lowest amount of stock
Bratislava V is located in Bratislava IV, representing
only 10.0% of total stock in Bratislava.
RENTS
CHANGE IN STOCK OVER TIME –
BRATISLAVA (THOUSAND M2) For the past few months rental rates
in shopping centres and high street
500
locations have remained stable.
400
300 Average high street rents range from

€35-40 m2/pcm. Retail rents in quality
200
shopping centres, with a good location, high
100 footfall, well thought out concept and a good
0 mix of tenants averaged around €35 m2/pcm
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Average rents in traditional shopping

centres in Bratislava can be broken down
Traditional SC Stock as follows, but retailer/unit type:
Specialised SC Stock
Source: Colliers International >> Fashion units: €11 m2 /pcm to €35 m2 /pcm
SELECTED PROJECTS PLANNED >> Sport units: €10 m2 /pcm to €31 m2 /pcm
FOR 2012
Project Size (m2) Developer >> Shoes units: €13 m2 /pcm to €34 m2 /pcm
P13 Korzo SP 14,000 Alfa Group
Central 36,000 Immocap >> Lingerie units: €30 m2 /pcm to €38 m2 /pcm
Avion
4,600 Inter Ikea
(IV. Phase) >> Fast
food units: €18 m2 /
3nity 10,000 VARA Group pcm to €37 m2 /pcm
Source: Colliers International >> Café units: €27 m2 /pcm to €39 m2 /pcm

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA
COLLIERS RESEARCH
• 978.6
SLOVAKIA Yield = first years’ net income/purchase price (prior to deducting fees and taxes).
Diana Liptajova period, the quoted figure will be more hypothetical, based on expert opinion of market
Europeum Business Center
Suché Mýto 1 a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
Bratislava 811 03 either the rent-free period or fit-out contribution available at the time of the survey date.
Slovakia Average Headline Rent: Average Headline Rent represents the average open-market tier of
TEL +421 259 980 980
FAX +421 259 980 981
EMAIL research@colliers.sk Total Competitive Stock: Includes the gross leasable floor space in all A and B class buildings.

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | LEGAL OVERVIEW
SLOVAKIA LEGAL OVERVIEW

BASIC FORMS OF TITLE property. Following fiscal decentralisation,
FOR MORE INFORMATION
municipalities administer real estate tax.
With some exceptions, land may be owned, PLEASE CONTACT:
used and transferred freely in Slovakia.
LEASES
The most common title to real estate is full Olga Humlová
ownership (“vlastnícke právo”, ius proprietas), Leases in the Slovak Republic are freely Partner
which is similar to a “freehold” title and negotiable, but are subject to certain Head of Real Estate – Slovakia
entitles the owner to a full range of perpetual mandatory provisions of the Civil Code T: +421 220 660 111
rights to use and enjoy real property. It is also and the Act on the Lease and Sublease E: ohumlova@salans.com
possible to use real estate on the basis of (i) of Non-Residential Premises. These
an easement (“vecné bremeno”) or (ii) a lease mandatory provisions may not be varied by
(“nájomné právo”), which can be either for a contract. The most important restrictions
definite or for an indefinite period of time. concern lease commencement and
termination rights, where the contractual
ACQUISITION OF REAL ESTATE freedom is limited, or even excluded.
BY FOREIGNERS
RESTITUTION CLAIMS
With limited exceptions concerning forestland
and agriculture land in the outer areas of There are comprehensive restitution laws
a municipality (“extravilán”), foreigners in the Slovak Republic. All deadlines for
may freely acquire real estate in Slovakia claims have passed. However, certain
as of May 1, 2004. Foreigners who are proceedings may still be pending.
EU nationals may acquire commercial real
estate directly; they may also directly acquire NOTARIES AND NOTARIAL FEES
forestland and agriculture land in the outer
Legal agreements establishing the sale of
areas of municipality, but only under certain
real estate and the transfer of usufruct
conditions. Indirect acquisitions may be made
rights to real estate (such as easements,
through the establishment of a Slovak legal
pre-emption etc.) that are to be registered
entity, such as a limited liability company
in the Cadastral Register do not need to
(spoločnost s ručením obmedzeným), which
be in notarial form to be enforceable in the
may be wholly owned by a foreigner.
Slovak Republic. However, in certain cases,
the signatures of transferors in such legal
REGISTRATION SYSTEM
agreements have to be certified by a notary
The Cadastral Register (“kataster public, local municipality or advocates.
nehnuteľností”) discloses the property owner
and indicates the extent to which the land LANGUAGE
is encumbered by mortgages and other
Any document that is to be submitted to any
servitudes. Any right in rem acquired on a
Slovak state authority (such as the Cadastral
contractual basis becomes effective through
Register or the Commercial Register) must
registration in the Cadastral Register as of
be translated into Slovak. However, it is
the day the registration decision is issued.
common for English or other languages to be
Registration is performed by cadastral
used as a second and governing language.
offices (“správa katastra”). As a general rule,
“good faith” purchasers of real estate are
entitled to rely upon information contained
in the registers, unless such information is
proven to be unreliable. Non-binding data
from the Cadastral Register is also available
online. Accelerated registrations (subject Fluent in Real Estate
to higher fees) of any changes relating
to real estate registered in the Cadastral www.salans.com
Register take a maximum 15 days. Information contained in this general outline does not constitute
a legal opinion and is not meant to be comprehensive. As a
TAXES
change frequently in Slovakia and are often subject to
Presently, there is no real estate transfer tax, varying interpretations. Professional advice should be
sought regarding all aspects of real estate in Slovakia.
inheritance tax or gift tax applicable in the
Slovak Republic. Value Added Tax may be
payable in certain cases on the transfer of real

RESEARCH & FORECAST REPORT | 2012 | SLOVAKIA | TAX SUMMARY
SLOVAKIA – TAX SUMMARY

GENERAL There is no separate capital gains tax in Tax Losses
Slovakia and gains on the disposal of fixed
The Slovak tax system has been relatively Tax losses may be carried forward and
assets and intangibles are included in a
stable since the implementation of major utilized for seven years if the loss was
taxpayer’s total income. On disposal, the
tax reforms effective from 2004. The incurred after 31 December 2009. Tax losses
taxpayer can deduct the net tax value of the
amendment to the income tax law passed at incurred in tax periods ending before or on 31
assets (after accumulated depreciation) and
the end of 2007 introduced some potentially December 2009 may be carried forward over
associated disposal expenditures. Taxable
significant changes in a number of areas five years. Under current rules there are no
income can be reduced by tax losses available
including transfer pricing documentation restrictions on the amount of loss which can
for utilisation. Losses on the sale of buildings
requirements. In 2009 an amendment to be utilised each year. Prior to 2004 highly
are generally tax deductible but losses on the
the Slovak tax legislation introduced a new complicated tax loss rules applied which
sale of land are not deductible. With effect
tax treatment for business combinations significantly restricted loss carry forwards
from 1 January 2011 capital gains on sale of
effective from 1 January 2010. In and imposed reinvestment requirements. The
real estate, rental income or other income
December 2010 the Parliament approved ability to utilise tax losses is unaffected by a
from real estate situated in Slovakia is also
an amendment to the Slovak tax legislation change of ownership of a company but can be
under the local rules subject to income tax
introducing tax on emissions quota and, affected by a merger or other reorganisation if
also if both parties involved in the transaction
among other changes, defining withholding a main purpose is to obtain a tax advantage.
are Slovak tax non-residents not having
tax as the final tax with certain exceptions, a permanent establishment in Slovakia.
with effect from 1 January 2011. The Thin Capitalisation
amendment to the Income Tax Act effective In the case of a sale of shares in a Slovak Thin capitalisation rules originally included
from 1 January 2012, among other changes, company held by a non – Slovak shareholder, in the income tax legislation which were
amended the tax treatment of financial the double tax treaties Slovakia has concluded supposed to apply from 1 January 2010
leasing and modified certain aspects of tax with other countries normally provide for the were deleted from the Slovak tax legislation
depreciation. The amendment to the VAT right to tax the capital gain in the jurisdiction by an amendment to the Slovak Income Tax
legislation passed in 2009 introduced the of the shareholder. However, some double tax Act and thus did not come into effect.
possibility of VAT grouping and accelerated treaties allow the gain to be taxed in Slovakia,
VAT refunds for qualifying taxpayers. In either generally in the case of the double tax WITHHOLDING TAX
addition the EU VAT Package was passed by treaty with Germany, or specifically in the
the Parliament and implemented with effect Dividends
case that a Slovak company which is being
from 1 January 2010. The amendment to disposed of comprises substantial real estate Dividends are currently not subject to any
the VAT Act effective from 1 January 2011 as in the case of the double tax treaty with withholding tax if paid out of profits generated
extended the period for the application of Ireland. There is no concept of fiscal grouping from 1 January 2004 onwards. Dividend
capital goods scheme to real estate from for corporate income tax purposes in Slovakia. withholding tax is applicable at the rate of
10 to 20 years and temporarily increased 19% for profits generated prior to this date.
the basic VAT rate from 19% to 20%. Tax Depreciation This is generally reduced under double tax
treaties to which Slovakia is a party. To
As of 1 April 2012 all the VAT payers, tax Depreciation of fixed assets is calculated on
apply the reduced rate, it is advisable for the
advisors and attorneys at law will have an a straight-line or accelerated basis, using
payer to be in possessions of a tax residence
obligation to file the VAT returns (as well rates laid down in legislation. Depreciation is
certificate of its shareholder. Dividends
as other filings) with the Tax Authorities based on categorisation of assets into groups
paid to EU/ EEA resident companies are
electronically. Any electronic filing has to with depreciation periods between four and
exempt from Slovak withholding tax if the
be signed by a qualified electronic signature 20 years. In the first year of tax depreciation
terms of the Parents-Subsidiary Directive
(QES) that can be acquired by a user from an only the proportional part attributable to the
as applied in Slovak law are met.
accredited certification body. Alternatively, respective taxable period can be used as a
the VAT return can be filed electronically tax deductible asset. Buildings are normally
Interest, Royalties and Intangible Services
without the QES and then delivered to depreciated over 20 years. It is possible to
the Tax Authorities as a hard copy. This decide to interrupt (not claim) depreciation Under Slovak domestic legislation, withholding
procedure shall be applied based on a of tangible assets in any particular year. tax of 19% applies on payments of interest,
written agreement with the Tax Authorities. This prolongs the depreciation period. royalties and fees for intangible services
Land is not depreciated for tax purposes. made abroad. This is generally reduced or
CORPORATE INCOME TAX eliminated under the double tax treaties to
AND CAPITAL GAINS It is also possible to divide a fixed asset which Slovakia is a party. However, in order
into separate detachable components if to apply the treaty rates, the payer should
CIT in Slovakia is levied on all taxable income the acquisition value of each respective have a certificate of tax residence of the
at the standard corporate tax rate of 19%. component is higher than EUR 1,700 and, recipient. Furthermore, the Interest and
Income is computed as taxable revenues in the case of certain components of real Royalties Directive fully applies in Slovakia.
reduced by eligible costs incurred to generate, estate, to depreciate them separately in
assure or maintain taxable income. a different tax depreciation group.

With effect from 1 January 2011, withholding VALUE ADDED TAX (VAT) VAT Grouping
tax is regarded as the final tax with certain
General Provisions Regarding Real Estate According to an amendment to the
exceptions, e.g. certain income of tax non-
tax law passed in February 2009,
residents listed by the tax legislation. The basic VAT rate was temporarily
VAT grouping is possible in Slovakia
increased from 19% to 20%. Generally
with effect from 1 January 2010.
SECURITY TAX the sale of the property is subject to VAT
in Slovakia if sold within five years of first
Payments to an entity which has or Applications for VAT group registration should
occupancy permit or first use. The sale
may have a permanent establishment in be filed by the member of a group who is
of building land is also subject to VAT.
Slovakia are subject to a 19% security appointed as the representative of that group.
The standard VAT rate in Slovakia is with
tax. This is not applied if the receiving The tax authorities should register the VAT
effect from 1 January 2011 set at the rate
entity holds a certificate proving it makes group with effect from 1 January of the
of 20% for building land and buildings.
advance payments of tax, or from 2007 calendar year following the year in which the
onwards if the receiving entity has its application for registration was submitted if
To the extent real estate sales do
registered seat or address in the EU. the respective application has been filed by
not meet these conditions they are
31 October of the current calendar year.
VAT exempt but the supplier has the
BUSINESS COMBINATIONS
option to choose to charge VAT.
Should the application for the VAT group
With effect from 1 January 2010,
registration be filed after 31 October of the
taxpayers in Slovakia may decide that in Rental of real estate is exempt from VAT but
current year, the tax authorities will register
the case of certain business combinations the supplier may elect to charge VAT if the
the group with effect from 1 January of the
the fair value will be used not only for supply is made to a VAT registered entity.
second year following the calendar year in
accounting, but also for tax purposes.
which the application for the registration of
The VAT payer who acquires the immovable
the VAT group was filed. This means that
In such a case the revaluation difference property with an intention to use this property
the first VAT groups may exist in Slovakia
arising from the restructuring must be for both business and non-business purposes
from 1 January 2010 subject to filing the
included in the taxable base in line with the is as of 1 January 2011 only entitled to deduct
respective application by 31 October 2009.
tax law, but on the other hand the company the proportional part of the input VAT in the
may depreciate assets from their fair value value that corresponds with the scope of the
VAT grouping can positively affect the cash
and must not continue in the tax depreciation business use of the respective property.
flow of companies in a VAT group since
of assets from their tax residual value. In
VAT will not be charged on transactions
addition, the amortisation of goodwill may The amendment of the Slovak VAT Act
between the group members.
under certain conditions be tax deductible. effective from 1 January 2012 also amends
the provisions on the adjustment of the
VAT Refund
TAX ON EMISSION QUOTA VAT deduction in respect of capital goods,
specifically buildings, building land, flats and Slovak entities may apply for a refund
Tax on emission quota applies to emission
commercial premises or parts of thereof. of VAT incurred. Generally the refund
quota issued for 2011 and 2012.
takes approximately 90 days if the
The taxpayer shall adjust the VAT deduction supplier is a monthly VAT payer.
REAL ESTATE TAX
in the VAT period that subsequently
Real estate tax is in general applied to follows the VAT period during which According to an amendment to the VAT
companies and individuals owning land this taxpayer put the capital goods i.e. legislation passed in February 2009, VAT will
and buildings. The tax is based on the buildings, building land, flats, commercial be refunded to qualifying taxpayers within 30
area of the land and building, number of premises, into use, where the taxpayer days of the deadline for filing the tax return for
floors of a building, usage and location. changes the scope of use of these capital the respective taxable period. The new rule
There is considerable flexibility for local goods for the business purposes and the should effectively accelerate VAT refunds for
authorities in setting the rates of tax. purposes other than the business purposes, eligible VAT payers by 30 days as compared
regardless of the fact whether the VAT from with previous rules. The accelerated refund
REAL ESTATE TRANSFER TAX AND these capital goods has been deducted mechanism should be applied to VAT payers
OTHER TRANSFER TAXES AND DUTIES proportionally based on the originally whose taxable period is a calendar month,
intended purpose of the capital goods. who have been registered for VAT purposes
Real Estate Transfer Tax was abolished
for at least a period of 12 months before
from 1 January 2005. There are no
The aim of this amendment is to achieve claiming the excess tax deduction, and
significant stamp or other duties
the uniformity of the approach towards who did not have any outstanding liabilities
on the transfer of land or buildings.
the adjustment of the VAT deduction towards the state budget and towards
Acquisition of shares in Slovak
where the taxpayer changes the scope social/health insurance institutions during
companies is not subject to any transfer
of use of the capital goods regardless 12 calendar months before the end of the
tax or significant stamp duties.
of the VAT amount deducted on the calendar month in which the excess VAT
acquisition of the respective goods. deduction arose. Taxpayers who comply with

these conditions will have to note this in the to apply to transactions between Slovak
respective VAT return. For other VAT payers and foreign related parties. The Slovak tax
the refund procedure remains unchanged. authorities are however of the opinion that
they have other mechanisms under general
Slovakia applies the capital goods scheme to Slovak principles to challenge non-arm’s
modify VAT recovery on assets if the use of length prices between Slovak entities. FOR MORE INFORMATION ON REAL
a building changes within a 20-year period. ESTATE SERVICES IN SLOVAKIA,
Based on transfer pricing principles the PLEASE CONTACT:
Slovak Act on Value Added Tax (VATA) remuneration of the supplier should reflect
the risks borne and functions performed. Zuzana Blazejova
– General Rule for Determining the
In principle any method recognised Senior Manager
Place of Supply of Services
by OECD could be used for the price
The amendment to the VAT legislation passed determination (e.g. cost plus, resale minus, KPMG in Slovakia
in October 2009 introduces a change in comparable uncontrolled price). It should Dvorakovo nabrezie 10
the general rule for determining the place be stressed however, that regardless of the 811 02 Bratislava
of supply of services (i.e. the “place of method used if the price charged for the Slovakia
taxation”). The new rules stipulate that the service or goods supplied is significantly
place of supply of service to a taxable person different compared to the prices charged T: +421 2 599 84 111
(so – called B2B – business to business for similar transactions by independent M: +421 905 740 000
service) is the place where the customer is companies, the tax authorities would E: zblazejova@kpmg.sk
established; and the place of supply of service probably challenge the structure in place. www.kpmg.sk
to a person other than a taxable person
(so – called B2C – business to consumer Formal transfer pricing documentation
services) remains in the Member State of the requirements are effective from 1
service supplier. Exceptions to the general January 2009. The Ministry of Finance
rule will apply for specific kinds of services. issued guidelines to transfer pricing
documentation rules which should be
There are also changes to the determination followed by related parties in Slovakia.
of: the date of supply for services received
from foreign suppliers (where the person
obliged to pay tax is the recipient of the
service); date of supply of services procured
in one’s name but on behalf of another
person; and also the date of supply of
partially and recurrently supplied services.
TRANSFER PRICING
Prices use in transactions between related
parties must comply with arm’s length
principles. Under the Slovak tax law, if the
agreed price for a transaction is different from
a fair market price and the difference would
lead to the decrease of the taxable base of
the Slovak related party, a fair market price
will be substituted for tax purposes. Related
parties are generally defined as economically
or personally connected individuals or legal
entities. Economic connection is understood
as a participation of more than 25% in share
capital or voting rights. Personal connection
is understood as a participation in the
management or control of the other person.
From 1 January 2004 to 19 July 2005,

and again from 15 December 2005, strictly
transfer-pricing rules do not apply between
Slovak entities although these continue

RESEARCH & FORECAST REPORT | 2012 | UKRAINE
UKRAINE

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
Economy: Economic growth continues, Economy: GDP growth is expected to
however, economic forecasts for 2012 slow down to 3.5% (compared to 5% in
are being continually downgraded. 2011) and inflation to speed up in 2012.
Investment. Kiev market: In 2011 the Investment. Kiev market: Investment

vacancy rate slightly decreased from 14% demand is expected to stabilise, first of
down to 13.5%. Rents in Grade B and C all, in the retail and office sectors.
office buildings stabilised, but grew in
Grade A stock by an average of 3-5%. Offices. Kiev market: A significant increase
in new supply, particularly of Grade A office
Offices: New supply constituted 85,000 space, is expected in 2012-2013. In case of
m2 of office space in 2011 as six office timely delivery of announced office projects,
buildings were completed. This is 20,000 vacancy may increase and rents remain
m2 higher than in 2010 when 12 business flat/decrease. However, in case of untimely
centres were completed. Thus, by the delivery of large office schemes, rents may
TRENDS 2012
end of 2011 the total office stock in slightly increase in all Grades, as a result of
Kiev amounted to ca. 1,290,000 m2. declining vacancy driven by stable demand.
GDP GROWTH
PRIME PRIME Retail. Kiev market: Retail turnover increased Retail. Kiev market: Despite a number of new
YIELDS OFFICE RENTS in 2011 compared to the previous year. projects being announced for completion
Insignificant new supply resulted in a during 2012-2013, we should keep in mind the
decreasing vacancy rate – from 3.5% down to previous years’ tendency to extend the final
1.7%. In H1 2011 a moderate growth of rents completion dates. As a result we expect the
was observed, in H2 2011 rents remained flat. vacancy rate to remain at 2011 levels. Given
a stable economic situation in 2012, rents
Industrial. Kiev region: Due to the low should remain at the levels achieved in 2011.
supply of new premises and increasing
demand, the vacancy rate decreased Industrial. Kiev region: A gradual
from 19% to 17%. Rents stabilised. decrease of the vacancy rate and the
VOLUMES RETAIL RENTS stabilisation of rents are expected.
PRIME INDUSTRIAL RENTS Hotel. Kiev market: The increase in demand
for hotels pushed up the average room Hotel. Kiev market: In 2012 the commissioning
Increasing occupancy in the top-end hotel segment. of several top-end hotels is expected in Kiev,
Stable which will increase their total stock by 60%.
Decreasing

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | ECONOMIC OVERVIEW
ECONOMIC OVERVIEW
2010 2011 2012 While Ukraine looks to be recovering from Current consensus is that industrial
GDP % 4.19% 4.70% 4.80% the crisis its main risk is its relationship with, performance and GDP are set to stabilise
CPI % 9.37% 9.29% 9.06% and dependence on, Russia for gas. Ukraine over the next few years. However, as
Unemployment % 8.10% 7.79% 7.37% gets considerable transit fees from Russia as mentioned above the energy pricing
Source: IMF/CIA World Fact Book/FocusEconomics the latter exports its gas to Europe. Moscow, dispute makes us believe that there are
Population 45 888 000 however, wants Kiev to transfer control of downside risks to this at least in 2012.
Top 3 Cities 5 233 470 11.40% the Ukrainian gas pipeline to Russia. The fact
Kiev 2 786 518 6.07% that Ukraine is totally dependent on Russia The rapid increase of Ukrainian government
Kharkiv 1 440 676 3.14% for its domestic supplies is creating a tricky debt to GDP from 2007 has been mostly
Dnipropetrovsk 1 006 276 2.19% situation. Markets remain uncertain as to due to its political policy of domestic energy
what kind of balancing act will be reached. subsidy. Until this matter is resolved with
the IMF, debt reduction is not due soon.
Economic Make-up Ukraine is looking at a considerable increase While a 40% debt/GDP ratio is slight
Sector GDP Labour in gas prices in Q1 of 2012 which is leaving in the EU, Ukraine is currently all but
Agriculture 9.4% 15.8% it exposed on two fronts. Firstly, it will locked out of normal debt markets with
Industry 33.6% 18.5% impact industrial performance as little 1 year bonds yielding near 15%, hence
Services 57.0% 65.7% modernisation of industrial processes have the urgency with the IMF resolution.
Source: IMF/CIA World Fact Book/FocusEconomics been carried out making Ukrainian industry
rather energy inefficient. Secondly, the
KEY ECONOMICS INDICATORS Ukrainian government is rather reluctant
30% to let gas prices float freely and it still
subsidises domestic consumption.
20%
10% It is this second point which is upsetting

0% the IMF. Having given Ukraine considerable
assistance in 2008, the IMF does not want
-10%
to see these funds used as political capital
-20% when they were intended for economic
reform. Hence the suspension of further
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
pay-outs until the matter is resolved.

Unemployment rate
Source: IMF,
FOREIGN TRADE AS % OF GDP

30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Current Account Balance

Volume of imports of goods and services
Volume of export of goods and services
Source: IMF,

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | INVESTMENT OVERVIEW
INVESTMENT OVERVIEW
Key Investment Figures - Ukraine SUMMARY Some activity was observed in the industrial
*Investment Turnover US$430 million market. Several deals involving both logistics
Ukraine’s property investment market showed
Prime Office Yields 12% complexes and land plots for industrial
positive dynamics in nearly all segments
Prime Retail Yields 11% development were closed. A total of about
of commercial real estate. Among closed
Prime Industrial Yields 14% 50,000 m2 warehouse and industrial premises
transactions the largest share comprised
were acquired for owner occupation in 2011.
Source: Colliers International end-users acquisitions and land plots bought
for development. There were very few pure
BANK LENDING
UKRAINE: (€ THOUSAND) investment transactions*. Amongst others
INVESTMENT MARKET TURNOVER these include: the acquisition of 50% of BC Temporary excess liquidity, observed in H1
1 000 Leonardo (2nd phase) by Esta Holding and 2011 in Ukraine’s banking system, changed
800
the sale of SC Kvadrat on Lukianovka. to high deficit of funds closer to the end of
the year. Consequently, interest rates that
600 Kiev total transaction volumes in 2011 were decreasing in H1, started to grow by
400 comprised about US$400 million, which the end of the year. While, in H1 a number
200
is twice as much as the previous year. of banks were demonstrating readiness to
finance development projects, already in
0 H2 the opposite tendency was observed.
Several transactions were closed in the
2006
2007
2008
209
2010
2011
retail market. One of them is the ESTA By the end of Q3 banks significantly
Holding deal acquiring TSUM (Central reduced the financing of new projects.
Department Store)**. Also, the Ukrainian
PRIME (NET INITIAL) YIELDS, KIEV DIY chain Novaya Liniya sold one of its PROGNOSIS
stores in Kiev (GLA ~ 5,000 m2), as grocery
25% Continuing investment demand for operating
retailer Fozzy Group bought the building.
20% prime assets in retail market of Kiev;
15% Several sizable acquisitions of land plots
Investment demand for high-quality
suitable for retail development also took
10% retail development projects will expand
place. Two good examples are transactions
5% to non-central districts of Kiev;
of 4ha and 4.5ha for shopping centre
0% developments in the central part of Kiev.
Investors’ interest for retail projects
The centrally located land plots which
2006
2007
2008
2009
2010
2011
2011
2012F
will expand beyond Kiev - to cities with

changed their owners in 2010-2011 are soon
Office population of one million and above;
expected to enter an active phase of project
Retail (SC)
development. As the availability of these
Industrial The closing of several transactions
plots has diminished, investors’ interest is
Source: Colliers International involving operating real estate assets,
likely to shift to non-central districts of Kiev
particularly, in retail and office segments;
and centrally located land plots in cities with
a population of one million and above.
Given the continuing trend of decreasing
vacancy in the industrial/logistics
Signs of recovery were also observed in
sector, there may be a renewal of
the office market as several owner occupier
interest for operating warehouse
office deals were closed in 2011. Buyers were
schemes, which enjoy low vacancy.
predominantly financial companies. Since
more and more office buildings are offered for
sale at reasonable prices, we expect several
more transactions to be closed in 2012.
Prime (Net Initial) Yields, Kiev

2007 2008 2009 2010 2011 2012F
Office 9-9.5% 9-9.5% 15-18% 13-15% 12% 11.5%
Retail SC 9.5-10% 10-11% 14-17% 12-14% 11% 11%
*Transaction involving acquisition
Industrial 10.5-11% 10-12% 17-19% 14-16% 14% 14%
of income generating, operational
real estate assets.
**Transaction cannot be considered

as a pure investment transaction,
since the property was acquired
for its redevelopment.

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | INDUSTRIAL MARKET
INDUSTRIAL MARKET
Key Industrial Figures - Kiev Region SUPPLY DEMAND
Total Stock 1,050,000m2 New supply of warehouses in the entire Kiev The total take-up of warehouse space
Take-up 220,000 m2 region (inc. city of Kiev) comprised about constituted 220,000 m2 in 2011, out
Vacancy 17% 140,000 m2 in 2011, which is comparable of which sale transactions comprised
Prime Headline Rent €5.3 m2/pcm to the new supply figures in previous years 50,000 m2. The average transaction
Source: Colliers International (2010 – 143,000 m2, 2009 – 137,000 size equalled 5,500 m2, which is in line
m2). New supply for the open market with the 2010 indicator of 5,400 m2.
equalled 100,000 m2. The largest among
TOTAL STOCK AND NEW SUPPLY, them are Amtel (42,000 m2), Unilogic Warehouses located in Zhytomyr (M-
2006-2012F (MILLION M2) Park (22,000 m2), and the temperature 06), Kovel (M-07) and Brovary (M-01)
1.6 controlled warehouse Arctica (17,000 m2). directions were in high demand in
1.4 2011. Currently large warehouse space
1.2 New supply for owner occupation was sections (10,000 m2 and more) are
1.0
0.8
limited to 38,000 m2. Out of this, 35,000 m2 available for lease mainly in warehouse
0.6 are vegetable storage facilities, and 3,000 complexes in Brovary region (M-01).
0.4 m2 are for storage of frozen products. Also
0.2 noteworthy in 2011 is the postponement of The largest share in the overall demand
0.0 two warehouses (15,000 m2 and 30,000 m2) structure is comprised of retailers (58%)
2006
2007
2008
209
2010
2011
2012F
until 2012. Previously, the commissioning of and logistics service providers (31%).
these warehouses was announced for 2011.
Total Stock as of beginning of the year Already commissioned Grade A warehouses
New supply during the year Thus, by the end of 2011, the total stock were in greatest demand in 2011: more
Source: Colliers International of warehouse space in Kiev and the than 90,000 m2 were leased out in these
Kiev region amounted to 1,270,000 m2. complexes. Renting space in finished schemes
Out of this, approx. 1,050,000 m2 are allows tenants to minimise their risks related
INDUSTRIAL STOCK AND SATURATION
warehouse space for the open market. to untimely commissioning of warehouse
IN SELECTED CEE CAPITALS
complexes. It is worth noting that during 2011
8 000
7 000
Warehouse space commissioned in 2011 a new trend was observed when tenants
6 000 has the following distribution by direction: were relocating to premises of higher quality.
5 000 47% - between Zhytomyr (M-06) and
4 000 Odesa (M-05) highways; 23% - Kharkiv
3 000 direction (M-03); 16% - Brovary direction
2 000
1 000
(M-01); and 14% - Kovel direction (M-07).
0
In the beginning of 2011 the highest
Moscow
Praguw
Warsaw
Bucharest
Kyiv
concentration of speculative supply was

observed in Brovary region; there was about
Total Stock, ths m2 95,000 m2 of warehouse space waiting for
GLA / 1,000 inhabitants tenants. Such high vacancy was explained
by significant new supply of warehouse
space, commissioned in Brovary region in
DEVELOPERS, BY COUNTRY OF ORIGIN
2009-2010. As a result, in the beginning of
(% OF NEW SUPPLY DURING
2011 rental rates in these warehouses fell
THE YEAR)
sharply, helping to attract the first tenants.
100%
For example, more than 50% of space in
80% the warehouse complex Terminal Brovary
60% (49,000 m2) was leased out in 2011.
40%
20%
0%
2007
2008
209
2010
2011
2012F
Foreign companies
Ukrainian companies

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | INDUSTRIAL MARKET
Among major warehouse sale transactions PROGNOSIS

TOTAL STOCK AND NEW SUPPLY, of 2011, we should mention the purchase
2006-2012F (MILLION M2) New supply in 2012 is expected to match
of the logistics complex Plazma Logistic
14% 2011 levels at around 150,000 m2, of
by a Ukrainian pharmaceutical company
which 140,000 m2 is for open market;
for its own occupation. Plazma Logistic,
with a total area of approximately 20,000
there is continuing high demand
16% m2, was built in 2008 and is located in
47% for warehouse sections comprising
Borispil direction (M-03). Also, the company
areas of 6,000 m2 or less;
Epicenter K acquired a 13ha land plot with
administrative and warehouse premises of
demand for warehouse space is
approx. 20,000 m2 in Vasilkivskyi rayon of
expected to be driven by relocation
the Kiev region. Moreover, the company May
23% and expansion transactions;
purchased a warehouse complex (9,000
M-06/M-05 m2) in Obukhiv for its own occupation.
a gradual decline of the vacancy
M-03 rate is anticipated;
A new tendency was observed on the market:
M-01
multinational manufacturing companies are
M-07 showing interest in land plots suitable for rents are expected to remain stable.
construction of warehouse and industrial Insignificant decrease of rents is possible
premises. In particular, a 7ha land plot in a number of warehouses on Eastern
was acquired in Odesa direction (M-05) bank where the highest concentration of
TAKE-UP, DISTRIBUTION for construction of a plant bakery. warehouse space has been preserved;
BY TYPE OF TENANTS
100% RENTS AND VACANCY given the current shortage of quality
warehouse space in regional cities of
80% Over 2011 the vacancy rate has moved Ukraine, particularly in Dnepropetrovsk
from 19% (at the beginning of the year) and Donetsk, warehouse development
60% down to 17% (at the end of the year). in the regions is possible.
40%
During 2011 rents in the warehouse
20%
market have been stabilising. Rental rates
in warehouses on the Western bank of
0% Dnieper have been fluctuating at around
US$5-7 m2/pcm. The highest rents here
2006
2007
2008
2009
2010
2011
– at a level of up to US$7 m2/pcm – are

Logistic operators observed in Grade A warehouses located
Retailers within a 10-km zone around Kiev. The rents
Distributors get lower (in Zhytomyr direction, M-06)
Other the further away from Kiev you are.
On the Eastern bank of the Dnieper, in the

RENTS AND VACANCY
Brovary direction, a high concentration of
$/m2
speculative supply is observed. Rents reached
25 30%
the historical minimum to below US$4 m2/
25% pcm in the beginning of 2011. However,
20
20% as occupancy in warehouses increased
15 over the year rents were going up as well.
15%
10 By the end of the year they stabilised at
10% US$5-5.5 m2/pcm. In the Borispil direction
5 5% rental rates are higher, they stay at a level
0 0%
of US$6-6.5 m2/pcm. This is explained
by low vacancy in Borispil warehouses:
2005
2006
2007
2008
2009
2010
2011
the total vacant space comprises no more

Average rent, class A and B than 5,000 m2; and is a sublease.
Vacancy rate

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | OFFICE MARKET
OFFICE MARKET
Key Office Figures - Kiev SUPPLY Market saturation indicator remains low
Total Stock 1,330,000 m2 in Kiev compared to other capitals of
New supply constituted 85,000 m of office
2
Take-up 170,000 m2 Central and Eastern Europe. In terms

space in 2011. Six office buildings were
Vacancy 13.5% of square meters per 1,000 residents,
commissioned (GLA):
Prime Headline Rent €33 m2/pcm the amount of office space in Kiev now
- Rialto BC (15,500 m2)
stands at 475 m2, less than one-quarter
Source: - BC on Saksaganskogo/Pankovskaya*
of the amount in Prague or Warsaw.
(9,600 m2)
TOTAL STOCK, NEW SUPPLY AND - Premium Center* BC (38,000 m2),
A substantial supply of new office space
TAKE-UP (THOUSAND M2) - BC on Baggovutovskaya(3,700 m2)
is expected in 2012-2013. Given the timely
1 400
- Schekavitsky BC (8,600 m2)
commissioning of all announced projects for
- an office building on Druzhby Narodov
1 200 this period, approx. 270,000 m2 of new office
(7,000 m2) and
space will be supplied to the market, out of
1 000 - 101 Tower* BC (45,000 m2).
which 160,000 m2 are Grade A office space.
800
600 This is 20,000 m2 higher than in 2010 when
*Business centres that were officially
12 business centres were completed. Thus,
400 commissioned , but not yet ready
by the end of 2011 the total office stock in
200 for the tenants to move in.
Kiev amounted to approx. 1,290,000 m2.
0
2006
2007
2008
2009
2010
2011
Total stock as of beginning of thr year

New supply during the year
Take-up
Major Office Buildings Delivered in 2011
Name Address GLA, m2 Developer
Premium Center BC* 6, Lepse blvd. 38,000 Ukrainian developer
Rialto BC 18, Novokonstantinovskaya str. 15,500 Istil
TAKE-UP, DISTRIBUTION BC on Saksaganskogo/ Intersection of Saksaganskogo, 70
BY BUSINESS SECTOR 9,600 Ukrainian developer
Pankovskaya* and Pankovskaya, 16b
25% Schekavitsky BC 23-25, Frunze str. 8,600 Stolitsa
BC on Baggovutovskaya 23, Baggovutovskaya 3,700 Ukrainian developer
20% Office building on Dru-
19, Druzhby Narodov blvd. 7,000 Ukrainian developer
zhby Narodov
15%
101 Tower BC* 57, Tolstogo str. 45,000 KAN Development
10% Major Office Buildings Announced to be Delivered in 2012-2013
101 Tower BC 57. Tolstogo Str. 45,000 KAN Development
5% Gulliver BC (former
1, Sportivnaya sq. 55,000 Ukrainian developer
Continental)
0% Toronto BC 79, Gorkogo str. 36,000 Toronto-Kiev
BC on Moskovskyi ave. 28a, Moskovskyi ave. 22,000 Lincorn
Pharmacy
IT
Finance
Media
Trade
Agriculture
BC on Reznitskaya str. 2, Reznitskaya str. 35,000 KAN Development

Forum Victoria Park BC 7, Ahtyrsky lane 8,000 Forum Management Group
Senator BC 101, Stolichnoye highway 20,000 DeVision
Sigma BC 6, Lepse blvd. 18,000 Midland
Total stock as of beginning of thr year
New supply during the year Horizon Podol BC 9, Naberezhno-Khreschatyska str. 16,000 ISA Prime Development
Take-up BC on Frunze str. 69-71, Frunze str. 12,000 UBK
BC on Verbovaya str. 21-23, Verbovaya str. 8,700 Solidarnost

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | OFFICE MARKET
DEMAND RENTS AND VACANCY

TAKE-UP, DISTRIBUTION BY GRADE
OF BUILDING Total office space take-up amounted Growing demand coupled with minimal new
to 170,000 m2 in 2011, which is a 40% supply pushed the vacancy rate from 14%
18% increase compared to 2010 (120,000 down to 13.5% in 2011. As a result rents went
29% m2). This demand was mostly driven up somewhat. In H2 2011 the augmented
by companies from the financial, new supply resulted in increasing vacancy:
pharmaceutical, IT and media sectors. from 12.5% to 13.5%. Rental rates in Grade B
and C stabilised, but grew in Grade A stock
The share of international companies in the by an average of 3-5% (as a result of the
structure of total take-up comprised 53%, temporary shortage of available premises).
while in 2010 this indicator constituted 76%.
In other words, a new tendency was observed PROGNOSIS
53% in 2011: the decreasing share of international
By the end of 2011 a new tendency
Class A companies and increasing share of Ukrainian
was observed with tenants shifting to
Class B companies in the total demand structure. This
a more conservative approach in their
was mainly caused by a significant amount of
Class C recruitment planning, which will dampen
purchased office space acquired by Ukrainian
demand for office space accordingly.
companies. There was practically no take-
up coming from companies for the first time
TAKE-UP, DISTRIBUTION BY COUNTRY Given the timely delivery of all announced
entering the Ukrainian market in 2011 – less
OF ORIGIN projects for 2012-2013, a considerable
than 1% (just as in 2010) of the total take-up.
increase of Grade A new supply - about
160,000 m2 of office space - is expected.
In 2011 we also observed a strengthening
tendency of the buying office space for
If this significant increase of Grade A new
occupation. Companies acquiring offices
supply is realised in 2012-2013, rents in
47% 53%
for their own occupation were mostly
Grade A may stabilise/decrease. However,
from the financial and media sectors. The
if these projects do not meet their projected
share of purchase transactions for owner
delivery dates, rents may slightly increase
occupation comprised 30% of total take-
in all Grades, as a result of declining
up, the share of lease transactions 70%.
vacancy driven by stable demand.
Foreign companies Grade B office buildings comprised the largest
Ukrainian companies share of the total demand structure – 53%,
Grade C took the second place – 29% and
the least number of transactions was closed
in Grade A office buildings – 18%. This
VACANCY RATE can be explained by low supply of Grade A
buildings – around 14% of total Kiev office
20% stock; at the same time, vacancy in Grade
A buildings is the lowest at about 3-4%.
15%
10%
Base rental rates for Kiev office premises, US$/m2/pcm

5%
Grade H2 2009 H1 2010 H2 2010 H1 2011 H2 2011
0% Grade A 28-35 30-38 32-38 32-38 33-38
Grade B 13-20 15-26 17-26 19-26 19-26
2005
2006
2007
2008
2009
2010
2011
Grade C 8-13 8-15 10-15 12-16 10-16


RESEARCH & FORECAST REPORT | 2012 | UKRAINE | RETAIL MARKET
RETAIL MARKET
Key Retail Figures - Kiev SUPPLY The major projects that are expected in 2013
Total Shopping Centre are River Mall and Kiev Mall. The opening
700,000 m2 2011, especially the first half of the year,
Stock of the four-storey SEC River Mall, located at
showed positive dynamics in developers’ and
Prime Headline SC Rent US$130 m2/pcm Dniprovska naberezhna, is expected in H1
investors’ activity in the retail sector. In H2
Prime Headline High 2013. Anchor tenants are foods supermarket
US$160 m2/pcm 2011 market activity was somewhat reduced
Street Rent and entertainment zone with an aquapark
by crisis expectations, although this did not
and multiplex Planeta Kino (including the
affect the development progress of major
only IMAX on the left bank of the Dnieper).
retail projects. Certain market resilience to
TOTAL STOCK AND NEW SUPPLY IN external shocks is explained by low retail
SC/SEC OF KIEV, (THOUSAND M2) Also in 2013 we expect the opening
space saturation. Yet access to bank financing
of the largest regional SEC on the left
1000 for development projects in retail and other
Dnieper bank of Kiev – SEC Kiev Mall.
commercial real estate segments remains
800 Main anchor tenants are a hypermarket
very limited. In most cases developers
(area 13,000 m2) and entertainment zone
600 have to rely on their own funds. When
(area 14,000 m2) including a theme park,
400 developers’ own resources are insufficient
ice rink, bowling, multiplex and billiards.
the main source of financing is investor
200
capital, which is mainly of local origin.
0
Although these schemes are planned to
complete in 2013, recent history shows
As of January 1, 2012, the total shopping
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012F
us that completions tend to be delayed.

centre stock in Kiev stands at approximately
Such a scenario is possible for those due
Total stock as of beginning of thr year 700,000 m2. In 2011 supply of new retail
New supply during the year on the market between 2012-2014.
space was limited to the commissioning
of two shopping centres. These are SEC
DEMAND
Dream Town, 2nd phase (GLA ~ 45,000
SATURATION BY RETAIL SPACE (SC/ m2), and SEC InSilver (GLA ~ 10,000 m2). Nearly all quality retail space in Kiev gets
SEC) IN SELECTED CEE CAPITALS absorbed by the market. This is evidenced
(M2 / 1000 INHABITANTS) From 2012-2014 about 740,000 m2 of new by a decreasing vacancy rate – from 3,5% to
retail space is expected to be commissioned, 1,7% during the year. Obviously, limited new
700
which will double the current amount of supply also upholds the low vacancy rate.
600
supply in Kiev. However, we should keep
500
400
in mind the previous years’ tendency Retail turnover was demonstrating stable
300
to extend the final completion dates. growth during the year. According to the
200 State Statistics Committee of Ukraine, the
100 Given the timely completion of all announced country’s retail turnover increased by 14.7%
0 shopping centres for 2012, new supply is in 2011 compared to 2010. Retail turnover in
expected to provide an additional 180,000 Kiev during the same period grew by 16.5%
Warsaw
Prague
Budapest
Moscow
Bucharest
Kyiv
Sofia
Belgrade
m2 of retail space. In particular, the opening and constituted about UAH 86 billion.
of SC RayON is expected in August 2012.
The shopping centre is located at one Although retail turnover growth is a positive
of major intersections of Troyeschyna, trend, there were some not so optimistic
SATURATION BY RETAIL SPACE Bal’zaka, Lavrukhina and Hradyns’ka trends as expectations of another European/
(SC/SEC) IN MAJOR UKRAINIAN CITIES streets. Hypermarket Silpo and electronics financial crisis had a negative impact on
(M2 / 1000 INHABITANTS) supermarket Comfy are anchor tenants. SEC retailers’ activity. In H2 2011, retail operators
Marmelade is expected to be completed in became much more restrained in their
250 Q3 2012. The six-storey shopping centre is development plans as demand fell from
200 located at the intersection of two important retailers across the pricing brackets.
city highways – Borschagivska and Hetmana
150
streets. Foods supermarket and fitness club
100 Sport Life are anchor tenants. The largest
50 retail projects that Kiev awaits in 2012 are
Ocean Plaza and Gulliver (former Continental).
0
Kyiv
Dnipropetrovsk
Lviv
Donetsk
Odessa
Kharkiv
Zaporizhia

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | RETAIL MARKET
MARKRT ENTRY RENTS AND VACANCY

PRIME RENTS, KIEV
$/M2 In 2011, Kiev witnessed much more new As a result of increasing demand for
450
brands entering the retail market than in quality retail space the vacancy rate
400 2010. Among the brands which opened decreased from 3.5% to 1.7% during 2011
350 their first stores in Kiev in 2011were: and a moderate growth of rents was
300 observed overall, even though H2 2011
250 Clothing: German company New Yorker saw demand somewhat restrained leading
200 – one of the few companies developing to a stabilisation - or in some projects
150 its brand via a parent company - opened a minimal reduction - of rents.
100 its first two stores. Such brands as St.
50 Marine, Naracamicie, Finn Flare, Oysho PROGNOSIS
0 launched their first stores as well. Turkish
Further development of the retail market
company FIBA Group, which owns a
2006
2007
2008
2009
2010
2011
will largely depend on the economic

management franchise of Marks&Spenser
situation in the country. Our forecasts are
Prime street rent stores in Ukraine, opened its first two GAP
Prime traditional SC rent based on the assumption that estimated
stores. Two brands in the “medium plus”
macroeconomic indicators will not vary much.
Source: Colliers International price range - Noa Noa and Pepe Jeans
- appeared in Kiev shopping centres;
A significant increase of new supply is
VACANCY RATE IN SEC/SC OF KIEV expected toward the end of 2012 and
Footwear: Russian retail chain CentrObuv
during the course of 2013 compared to
opened the first of several stores in
6% 2011. If these projects are completed
Kiev with its brands CentrObuv and
5% according to their projected deadlines
Centro. Also, the first store of Nine
the vacancy rate may increase.
4% West opened on Khreschatyk;
3% Rental rates in 2012-2013 will most likely
Accessories: SIX, I am, Claire’s and
remain at levels achieved in 2011 or, if
2% Diva opened in the market;
new projects are completed on time, rents
1% may decrease as availability rises.
Cosmetics: Russian retail chain L’etual
0% purchased Ukrainian brands Bonjour
Retailer activity will concentrate on the
and Brocard. The first Christian Dior
2007
2008
2009
2010
2011
quality retail projects of Kiev and in cities

store was opened on Zankovetksa str.
with a population of one million and more.
Vacancy rate
MARKET WITHDRAWAL’
Source: Colliers International In 2011 several retailers withdrew from
the market. In particular, the Russian
retail chain of mobile phones Euroseti
and Ukrainian operator of appliance and
consumer electronics MegaMax. In both
cases the main reason for withdrawaling
was the stronger position of competitors.

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | HOTEL MARKET
HOTEL MARKET
SUPPLY to manage the hotel. Once reconstruction
KIEV 4-5 STAR HOTELS works are over the hotel will open under the
The Kiev hotel market comprises 50 classified
Hotel No. of Category Renaissance Marriott brand. Hilton (five-star,
Rooms hotels (1-5 star), totaling 6,620 rooms. The
257 rooms) and Holiday Inn (four-star, 210
InterContinental 272 5
number of hotel rooms in classified hotels per
rooms) are also expected to open by the end
1,000 inhabitants in Kiev stands at 2.4. For the
Hyatt Regency 234 5 of 2012. One more hotel, however, without an
purpose of comparison, the same indicator
Premier Palace 289 5 international operator management, will open
for Warsaw equals 6.7 and Bucharest – 6.
Opera 138 5 in February 2012 – it is Autograph (four-
Radisson Blu 255 4 star, 272 rooms) at 35, Predslavinska St.
Just one hotel with an international operator
Riviera 80 4
opened in Kiev in 2011 – the Ibis hotel located
Podol Plaza 57 4 Currently, there are a total of 20 three-
on Shevchenko blvd. (3 stars, 212 rooms).
Dnipro 186 4 star hotels in Kiev. Only one of them is
Another important hotel opening, however,
President-Hotel Kyivskyi 338 4 managed by an international operator – it
without an international operator took place
Natsionalyi 78 4 is Ibis hotel, which opened on August 15,
in December 2011 – hotel «Cosmopolite»
Kiev 190 4 2011. In the short-term one more three-
in SEC Bolshevik (4 stars, 160 rooms).
Salyut 82 4 star hotel under international operator
Perlyna Dnipra 34 4 management is expected to be delivered
Currently, Kiev offers 15 top-end hotels
Visak 42 4 to the Kiev market – a Ramada. In April
(4-5 star). Only three of them are managed
Cosmopolite 160 4 2012, DeVisioin Group is planning to open a
by international operators: two five-star
325-room hotel under the Ramada Encore
hotels operating under InterContinental (272
brand (Windham Hotel Group), as a part of
rooms) and Hyatt Regency (234 rooms)
the multifunctional Domosphera complex.
KIEV TOP-END (4-5*) HOTEL ROOM brands, and one four-star hotel operating
SUPPLY under the Radisson Blu brand (255 rooms).
DEMAND
3 000
In 2012 it is expected that several more In 2011 we observed a gradual increase in
2 500
top end hotels under international operator demand for hotels in Kiev. Demand (number
2 000
management will be delivered to the Kiev of rooms sold) for top-end hotel rooms
1 500 market. These include: Fairmont (five- increased by 16% in 2011 compared to
1 000 star, 258 rooms), the opening of which is 2010. Consequently, occupancy in top-end
500 planned for March 2012. Sheraton Kiev hotels has risen, on average, up to 62%.
0 Olympiysky Hotel (five-star, 190 rooms) will A gradual increase of up to 10% of ADR
open before EURO-2012 and become a part (average daily rate) has also been observed.
2004
2005
2006
2007
2008
2009
2010
2011
2012F
of NSC Olimpiyskiy. Hotel Leipzig (four- The annual average of ADR constituted
5* hotels, # of rooms star, 180 rooms), which is currently under US$270 in the top-end hotels of Kiev.
4* hotels, # of rooms reconstruction, is expected to open by the
Source: Colliers International end of 2012. The developer of this project is
planning to bring an international operator

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | HOTEL MARKET
EURO 2012 PROGNOSIS

NUMBER OF FOREIGN VISITORS
UKRAINE (MILLION) It is now less than half a year In 2012 several top-end hotels with
30 before the start of EURO 2012. around 1,500 rooms are expected to
25
be commissioned in Kiev, which will
It is noteworthy that according to UEFA increase current supply by 60%;
20
requirements, Ukraine must provide 18,185
15
rooms in 3-5 star hotels for UEFA family, In 2013-2014, Kiev expects the openings of
10 out of which 7,300 must be in Kiev, 5,575 in the following top end hotels: Sofitel (five-
5 Donetsk, 2,765 in Kharkiv and 2,545 in Lviv. star, 276 rooms), Swissotel (five-star, 513
0 rooms), AZIMUT (four-star, 235 rooms)
An additional 63,000 rooms are needed and Crowne Plaza (four-star, 225 rooms).
2003
2004
2005
2006
2007
2008
2009
2010
to host EURO 2012 visitors, out of

which 22,550 are required in Kiev. We also anticipate an increase in demand
and occupancy in 2012, especially during
According to Government officials, more the EURO 2012 championships when
than 80% of 3-5 star hotel rooms for UEFA hotel space will be at a premium;
family guests have already been booked.
The remaining 20% will be provided by Given the overall economic situation and
hotels currently under construction. supply/demand balance in the hotel market
we expect the stabilisation of ADR, at
As for the additional 63,000 rooms for least until several new hotels currently
football fans, 22,550 of them required under construction are completed.
for Kiev, have been already booked in
hotels of Kiev and the Kiev region.
There is still a 25% shortage of rooms

for fans in the other hosting cities
of Donetsk, Kharkiv, and Lviv.

RESEARCH & FORECAST REPORT | 2012 | UKRAINE
COLLIERS RESEARCH
• 978.6
UKRAINE: Yield = first years’ net income/purchase price (prior to deducting fees and taxes).
Irina Orlova period, the quoted figure will be more hypothetical, based on expert opinion of market
Senior Analyst conditions, but the same criteria on building size and specification will apply.
Colliers International Ukraine

19-21 Bohdana Khmelnytskogo Str. a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of
01030 Kyiv, either the rent-free period or fit-out contribution available at the time of the survey date.
Ukraine Average Headline Rent: Average Headline Rent represents the average open-market tier of
Tel: +38 044 499 0000
Fax: +38 044 499 0009
irina.orlova@colliers.com

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | LEGAL OVERVIEW
UKRAINE LEGAL OVERVIEW

BASIC FORMS OF TITLE Registry of Transactions (Deeds). Land is PRIVATISATION CLAIMS
registered in another land rights registry.
Ownership under Ukrainian law provides A claim arising out of the transfer of
Mortgages are recorded in a separate state
for the rights of owners to possess, use and assets through privatisation procedures
mortgage registry. These registrations are
dispose of property. However, there are other would qualify as a claim for recognition of
to be consolidated into a single registry
forms of title, such as the right of operative such transaction as null and void on the
for all rights to real estate (including land),
management, which are available only to grounds of its non-compliance with the law
as well as transactions from which such
state-owned and municipal enterprises. These then in effect. However, such claim can
rights arise (except for real property leases
represent the rights of use, possession and only succeed if the court recognises the
with a term of less than three years). This
disposal of the assets only within the scope of transaction as null and void and the bona
Unified State Registry of property rights
business activity specified by the owner (the fide purchaser principle does not apply.
and encumbrances is not yet operable but
state) in the company’s founding documents
is scheduled to be operational in 2013
and subject to mandatory provisions of NOTARIES AND NOTARIAL FEES
law. As regards land, the primary forms of AND TRANSFER TAXES
VALUE ADDED TAX
commercial land use are land lease and land
Mortgages, the alienation of real property,
ownership (freehold); however, agricultural Generally, sales of real property between
and leases of real property in excess of three
land may not be owned by foreigners, and legal entities are subject to 20% VAT. VAT
years must be certified by a notary. The
ownership of other types of land by foreigners does not apply to sales of greenfield. Sales
notarial duty for certification of alienation of
is also limited. Other forms of land use rights of residential premises (except for first
real property is 1% of the contract value. The
(including the right of permanent use of a sales of newly constructed or significantly
notarial duty for certification of a mortgage
plot of land) are available only to state-owned reconstructed or repaired residential real
contract is 0.01% of the contract value. The
and municipal enterprises and institutions, property by constructors) are not subject
notarial duty for notarisation of leases is 0.01%
public organisations of disabled persons and to VAT. Contributions of real property to the
of the contract value but in practice may reach
religious organisations. Easements, servitudes authorised capital of a Ukrainian company
up to 0.1-0.2% (the same comment applies
and superfices rights for construction also are subject to 20% VAT. The VAT paid by the
to the notarisation of mortgage contracts).
are registrable land rights. Mortgage rights to purchaser (if a VAT payer) may be generally
The buyer of property (except for land plots)
property are not treated in Ukraine as rights credited against VAT liability on its own sales
must also pay, upon closing, a contribution
in rem. Consequently, title to mortgaged or refunded from the state budget; however,
to the national pension fund (amounting to
property does not automatically pass to VAT refunds appear to be very problematic
1% of the contract value of the property).
the mortgagee in the event of default, but in practice. Sales of shares in return for
can pass if so specified in the agreement. funds in a Ukrainian company which owns
LANGUAGE AND LAW
Fiduciary management (“pravo dovirchoi real property are exempt from VAT.
vlasnosti” in Ukrainian) is also a registrable For the purposes of state registration and/or
right in respect of real property, but not yet LEASES notarisation, real estate transactions need to be
in respect of land (fiduciary management executed in Ukrainian and governed by Ukrainian
Leases are freely negotiable, subject to the
has been rarely used to date in Ukraine). law. Dual language options are possible.
inclusion of certain mandatory provisions.
The most important restriction concerns
the mandatory registration requirement for
BY FOREIGNERS
real property (buildings, premises) leases
Foreigners may directly acquire real estate
in excess of three years with the State
in Ukraine subject to certain restrictions,
except for agricultural land. However,
Registry of Transactions (Deeds) and the
notarisation of the same. Land lease is Fluent in Real Estate
in order to acquire land from state or regulated by specific legislation setting
municipal ownership, a foreign legal entity forth a number of mandatory conditions, www.salans.com
will be required to establish a permanent including notarisation and subsequent Information contained in this general outline does not constitute
representation office with specific tax registration in a separate land register. a legal opinion and is not meant to be comprehensive. As a
status in Ukraine, and receive approval
change frequently in Ukraine and are often subject to
from government and local authorities. CONSTRUCTION LAW varying interpretations. Professional advice should be
Wholly-foreign owned Ukrainian entities sought regarding all aspects of real estate in Ukraine.
A construction works permit is required
may acquire real estate, but land ownership
only in the case of constructions of
generally requires another layer of Ukrainian
categories IV and V complexity per the FOR MORE INFORMATION
entities (i.e. grandchild entities).
Ukrainian code (mainly large residential PLEASE CONTACT:
buildings, trade and entertainment centres,
REGISTRATION SYSTEM
commercial office buildings, industrial Myron Rabij
Currently, to have legal effect, all real and production premises). Otherwise, a Partner
estate acquisitions (except land) must developer should simply fill in a construction Head of Real Estate – Ukraine
be registered with a municipal bureau of works declaration form and submit it to the T: +380 44 494 4774
technical inventory, as well as with the State respective authorities for registration. E: mrabij@salans.com

RESEARCH & FORECAST REPORT | 2012 | UKRAINE | TAX SUMMARY
UKRAINE – TAX SUMMARY

GENERAL PROVISIONS is determined using special tax rules. companies. Dividends received by Ukrainian
corporate shareholders from Ukrainian-
Effective from 1 January 2011, Ukrainian tax
From a CPT perspective, most business controlled businesses and foreign controlled
legislation has been codified into the Tax
related costs are deductible for tax affiliates located in non-tax haven jurisdictions
Code of Ukraine (the “Tax Code”). As a result,
purposes, with some exceptions for are exempt from CPT provided the former
the Ukrainian tax system has undergone
costs whose tax deductibility is restricted hold a shareholding of not less than 20% of
certain changes and developments, including
(e.g., costs of receptions, celebrations the capital in the dividend paying company.
in terms of tax rates, rules of depreciation,
and similar events for advertising and
introduction of new taxes (like real estate
promotion purposes) or disallowed (e.g., Capital Gains
tax), etc. Similar to previous tax legislation,
contractual penalties and expenses not
provisions of the Tax Code remain, to a There is no separate capital gains tax, but
connected with business activity).
great extent, ambiguous and may be further gains on the disposal of fixed assets and
subject to numerous interpretations. intangibles are added to the taxpayer’s
The Tax Code introduced the following
mainstream income (gains from the sale
novelties with regard to the deductibility
The major taxes and statutory charges in of real estate property are taxed at regular
of expenses for CPT purposes (the
Ukraine include corporate profits tax (CPT), CPT rate). For the seller, profit on the
full list of non-deductible expenses
value added tax (VAT), personal income tax sale of assets is added to the mainstream
is much more comprehensive):
(PIT), withholding tax (WHT) and unified income subject to corporate income tax
social charge (USC). In addition, land tax, at normal rates. On disposal, the taxpayer
>> expenses incurred on consulting, marketing
real estate tax, state duties, and statutory can deduct the net tax value of the assets
and advertising fees paid by Ukrainian
charges are associated with real estate and and associated disposal expenditures.
companies to non-resident service providers
land owning and disposition in Ukraine.
(except for payments made to Ukrainian
In case of a sale of shares in a Ukrainian
permanent establishments of non-residents)
CORPORATE PROFITS TAX company held by a non-Ukrainian shareholder
in excess of 4% of sales proceeds (net of
AND CAPITAL GAINS typically the double tax treaties Ukraine has
VAT and excise duty) of the previous year.
concluded with other countries provide for
The current CPT rate is 21%. If the above service fees are paid to non-
a taxation right of respective capital gains in
resident service providers located in the
the jurisdiction of the shareholder. However,
The indicated CPT rate is to so-called black-listed offshore jurisdictions
in some double tax treaties sales of shares
decrease gradually as follows: (the list of such jurisdictions is to be
in a Ukrainian company, the value of which
established by the Cabinet of Ministers of
relates primarily to immovable assets, may
>> 19% since 1 January 2013 Ukraine) they will not be deductible for CPT
be subject to a 15% WHT in Ukraine.
purposes regardless of the amount paid;
>> 16% since 1 January 2014
Tax Depreciation
>> fees
for engineering services paid to
CPT is calculated on a self-assessed and non-resident service providers (except for The Tax Code provides for 16 groups of
currently adjusted basis for each reporting payments made to Ukrainian permanent fixed assets and six groups of intangible
period. The reporting period consists of establishments of non-residents) in assets which can generally be depreciated
three full calendar months (a quarter). excess of 5% of the customs value of the under one of five depreciation methods
imported equipment, as well as engineering chosen upon the tax payer’s discretion.
CPT is levied on the worldwide income of service fees paid to non-resident service
all legal entities that are resident in Ukraine providers located in black-listed offshore The Tax Code specifically provides for
for CPT purposes. The taxable CPT base jurisdictions or to non-residents who are the following methods of depreciation:
is calculated as adjusted gross worldwide not beneficial owners of the engineering
income less deductible expenses and tax service fees are not tax-deductible; 1) the straight-line method, whereby the
depreciation allowance. Gross worldwide annual depreciation amount is determined
income includes any income from the sale >> advance
payments for goods and services by division of the depreciable value
of goods (works, services), gains from made both to residents and non-residents by the term of the asset’s usage;
dispositions of fixed assets, foreign exchange cannot be included into deductible expenses.
gains, gratuitous transfers and other taxable 2) the residual value reduction method,
receipts that are received or accrued by Subject to certain limited exceptions, whereby the annual depreciation amount is
the taxpayer in the reporting period either dividends paid by a Ukrainian company are determined as the product of the residual
in cash, in kind or in intangible form. Such usually subject to advance CPT at a standard value of the object as of the beginning of
gross worldwide income is then adjusted CPT rate that is paid on or before the dividend the reporting period or the initial value
to factor certain items that are exempt distribution. The advance CPT can be credited as of the date of commencement of the
from taxation in Ukraine (e.g., dividends against current or future CPT liabilities of depreciation, and the annual depreciation
received from Ukrainian companies, etc.). the Ukrainian company. Ukrainian companies rate. The annual depreciation rate shall
The taxable CPT base of certain taxpayers enjoy full participation exemption in relation be calculated as the difference between
(e.g., banks, insurance companies, etc.) to dividends received from other Ukrainian one and the result of the root of the

degree of the number of years of the In practice, the Ukrainian Parliament often (or refundable from) the budget. If a taxpayer
term of the asset’s usage taken on the enacts legislation that effectively “cuts makes both supplies subject to VAT (VAT-
result of the division of the disposal off” operating losses available for carry- able) and VAT-exempt supplies, the input VAT
value of the object by its initial value; forward. Specifically, pursuant to the 2007 credit is determined on a pro-rata basis.
Budget Law, pre-2006 operating losses
3) m
ethod of accelerated reduction of a which were not utilised in 2006 could not A Ukrainian company must be registered
residual value, whereby the annual amount be utilised in 2007, or in subsequent tax for VAT purposes if its VAT-able supplies
of depreciation shall be determined as periods. The 2012 Budget Law did not exceed the threshold of UAH 300,000
a product of the residual value of an introduce any loss carry-forward restrictions. (approximately USD 38,000) for any 12-month
object as at the beginning of a fiscal However, it remains possible that further period preceding the particular date.
year or the initial value as at the date of tax losses carry forward limitations may
the beginning of depreciation accrual be enacted by special tax laws later. VAT is applicable to acquisitions of real estate,
and annual depreciation allowances to e.g., purchase of a building, purchase of a
be calculated on the basis of the term In addition, please note that if the taxpayer building together with a land plot; purchase
of the asset’s usage, and doubled; reports losses during four subsequent of a building to be demolished, etc., but not
tax periods (quarters), the tax authorities to the supply of housing (except for its first
4) the cumulative method, whereby the may perform an ad hoc tax audit. supply), acquisition of undeveloped land or
depreciation amount is determined as the land transferred separately from a building.
product of the depreciable value and the Capital losses (i.e., losses realised on the
cumulative factor. The cumulative factor sale of securities and corporate rights) Supplies of certain goods and services are
shall be calculated by dividing the number are accounted for separately and can exempt from VAT. For example, transactions
of years remaining till the end of the term be used to shelter capital gains realised related to disposal of shares and/or
of the asset’s usage by the sum of the in subsequent taxation periods without participatory interests in Ukrainian entities
years of the term of the asset’s usage; any limitation. However, cumulative are classified as VAT exempt transactions.
net capital losses realised on the sale
5) the production-based method, whereby the of one type of securities (e.g., shares) Restrictions Regarding
monthly depreciation amount is determined may not be set off against capital gains Obtaining a VAT Refund
as the product of the actual monthly realized on the sale of another type of
volume of products (work, services) and securities (e.g., investment certificates). Generally, input VAT can be recovered by the
the production depreciation rate. The VAT payer provided it was paid in connection
production depreciation rate shall be VALUE ADDED TAX (VAT) with the purchase of (i) goods or services
calculated by dividing the depreciable value which are used in the VAT-able business
In general terms, VAT is levied on the supply
by the total volume of products (work, transactions of the VAT-payer, or (ii) fixed
of goods and services, provided the place of
services) the enterprise expects to produce assets that are used by the VAT-payer in its
their supply is located in Ukraine, and on the
(perform) using the depreciable object. VAT-able business activity. To be eligible
importation of goods and services to Ukraine,
for VAT credit (i.e., a deduction from output
at a rate of 20%. Starting from 1 January
Costs incurred in connection with VAT), VAT paid should be supported by
2014 the VAT rate will be reduced to 17%.
construction/acquisition of fixed (production) VAT invoices or customs declarations. VAT
assets are generally tax depreciated. Annual invoices can only be issued by VAT payers.
Export supplies of goods and related services
costs related to repair, reconstruction,
are zero rated. VAT charged on goods and
modernisation and other improvements VAT can potentially be recovered by
services imported by Ukrainian VAT taxpayers
of fixed assets may be deducted for means of (1) a credit against output
from non-residents (with no permanent
CPT purposes within the limit of 10% VAT, or (2) a refund from the budget.
establishment in Ukraine) is collected
of the total book value of all groups of
through the reverse-charge mechanism. This
depreciable fixed assets as of the beginning There are certain restrictions in respect
mechanism implies self-assessment and
of reporting year. Costs above this limit of VAT refunds in cash. Specifically:
payment of VAT by the Ukrainian importer
should be included into the tax value of
in (or for) the tax period (month) by the
the fixed assets and depreciated. >> aperson must be registered as a VAT
Ukrainian importer as and when the goods or
services are imported to Ukraine, and this paid payer at least 12 months prior to filing
Tax Losses for a VAT refund in cash except for
VAT can usually be claimed as an input VAT
credit in the subsequent tax period (month). in-put VAT incurred on the purchase/
In Ukraine, operating and capital losses (i.e. construction of fixed assets, as determined
losses realised on the sale of securities and by the Cabinet of Ministers of Ukraine;
Under the VAT provisions, VAT payable to the
corporate rights) may be carried forward to
state budget is determined as the difference
the first quarter of the following tax year. No >> VAT-abletransactions for the 12-month
between VAT collected from customers
loss-carry back is allowed. It appears that this period preceding the date of filing a VAT
(output VAT) and VAT paid to suppliers (input
approach can be used without time limitations. refund request must exceed the amount
VAT). Input VAT can be credited against VAT
liabilities in computing the final VAT payable to of VAT claimed as a refund in cash

except for in-put VAT incurred on the REAL ESTATE TAX

purchase/construction of fixed assets;
At present there is no real
estate tax in Ukraine.
>> a VAT payer cannot claim a cash refund of
VAT that would exceed VAT actually paid to
Starting from 1 July 2012, real estate tax will
its suppliers in the preceding tax periods FOR MORE INFORMATION ON REAL
be levied on the owners of residential real
(including the first 12 months of operation). ESTATE SERVICES IN UKRAINE, PLEASE
estate if the area of the property exceeds
CONTACT:
minimum thresholds (120 square metres
In practice, the government has been very
for apartments, 250 square metres for
inconsistent in providing VAT cash refunds, Craig A. Richardson
stand-alone houses). The tax rates should
and it can be very difficult to receive a Head of Tax and Legal
be determined by the local authorities per
cash VAT refund. Only VAT receivables
1 square metre. The tax rate for real estate
that are audited and confirmed by the tax KPMG in Ukraine
with an area below 240 square metres for
authorities are eligible for conversion. 11 Mykhaylivska Str.,
apartments and 500 square metres for
stand-alone houses may not exceed 1% of the Kyiv, 01001,
UNIFIED SOCIAL CHARGE Ukraine
minimum monthly wage established as of 1
The USC rate (which currently incorporates January of the reporting (tax) year (currently
various pension and social security charges) – UAH 1,134 (approximately USD 140)). The T: +380 44 490 5507
due from a company varies from 36,76% tax rates for apartments and stand-alone F: +380 44 490 5508
to 49,7% of the salaries paid to employees houses larger than 240 and 500 square E: craigrichardson@kpmg.ua
and depends on the assigned class of the metres respectively shall not exceed 2.7% www.kpmg.ua
company’s occupational risk. However, of the minimum monthly wage established
the tax base for the calculation of such as of 1 January of the reporting (tax) year.
charges is currently capped at UAH 18,241
(approximately USD 2,280) (UAH 18,598/ OTHER ISSUES
USD 2,325 starting from 1 April 2012) per
As a related matter, it should be noted
person per month. Companies are also
that upon acquisition of the real estate
liable for withholding a 15% PIT (17% in
the following charges will apply:
case the individual’s income exceeds 10
minimal wages) along with USC of up to
State Duty
3.6% due by employees (but, again, the
payroll withholdings – other than for PIT Land: 1% of sale price
– apply only up to the capped amount). Real estate: 1% of sale price
WITHHOLDING TAX Pension Fund Duty

Certain income (mostly passive-type 1% of sale price of real estate
income such as interest, dividends,
royalties, rents and similar payments) Statutory Fees
paid to non-resident persons from
Statutory fees are payable by all legal
Ukrainian sources is generally subject to
entities and individuals in respect of the
a 15% withholding tax, unless mitigated or
issuance of certain real estate documents
reduced by a relevant double tax treaty.
by state authorities and notaries
(including formalisation of title documents,
LAND TAX
certifications of sale and purchase
In general terms, land tax is levied on land agreements, etc.). The rates vary depending
owners or land users (where land is owned on the nature of the executed deed.
by the state or municipal authorities and is
rented to such users). The specific rate of Statute of Limitations
land tax is calculated individually depending
The Ukrainian tax law provides for a three-
on the nature and location of the land, and
year statute of limitations. Generally, tax
is paid on an annual basis. The tax rates
underpayments identified after the elapse
also vary from one administrative district
of a three-year period can no longer be
to another. The land tax rates tend to be
enforced. However, this statute does not
relatively small for the rural areas, but can
apply if an intentional underpayment of tax
be significant for large cities. Land tax rates
is proved or if returns for a particular period
are usually smaller for agricultural lands, and
were not filed with the tax authorities.
bigger for lands of industrial designation.

kpmg.pl
KPMG in Poland
Gdańsk Kraków Wrocław

Warszawa Poznań Katowice
© 2012 KPMG Sp. z o.o., a Polish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
www.colliers.com

2012 Research Forcast Report Eastern Europe

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2012 Eastern Europe Real Estate Review

Representative Transactions in 2011

Almaty Northwood Investors Sahaviriya Steel Group Plc

Budapest Poland, Czech Republic, Hungary, Romania Russia

Frankfurt Unibail-Rodamco Panattoni

Czech Republic USA

Subsequently we have seen economic As we look further forward it is, however,

110% Loan Deposit Ratio (LDR) threshold,

Multi-use Portfolio Development Land

Source: Colliers International

Between 86,000-114,000 m² was delivered RENTS

DEMAND overriding feeling of caution in the markets

y-o-y growth (20,000 m²). There were

Source: Colliers International

the penetrate the Czech retail market.

The major demand trends seen in 2011 are

segment of the retailer, as luxury brands

had a positive impact on the country’s

FDI ANNUALLY (IN MILLION EURO) Investments as a percentage of GDP

Source: Bank of Albania, INSTAT

and inner city registered €24.5 m2/

Interest for office space from foreign

during H2 2011, the German DIY chain, especially in secondary locations.

Specialized SC Nevertheless tenant’s still prefer high

ALBANIA – TAX SUMMARY

PRIME INDUSTRIAL RENTS Retail: The retail property market remained

Gross domestic product, constant prices

EXTERNAL TRADE PERFORMANCE

Change in Volume of Exports

Buyers did face some challenges sourcing

Source: Colliers International

are mainly considering build-to-suit projects,

Rental levels stabilised during H2 2011. Prime

Source: Colliers International

PRIME HEADLINE RENT (€/M2)

Source: Colliers International

High-quality premises appeared in both with better accessibility and attractiveness.

mainly due to the completion of new

Rents will remain stable or even

Housing, water, electricity, gas and other fuels

RENTS New supply will be dominated by three

“Third Wave” shopping centres with

Newly built brick residential projects in the Sofia suburbs

Newly built brick residential projects in the Sofia central areas

Old built brick residential projects in the Sofia central areas

the vacant stock. This indicated that the

The graph represents that buyers SALES PRICES

Parking space / garage

Green areas, kindergarten

Colliers’ internal analysis indicates that

BULGARIA - TAX SUMMARY

Investment: Investment volumes in 2011 Investment: Positive changes and

Current Account Balance as % of GDP

Source: IMF, Focus economics

We expect a positive investment climate

Source: Colliers International

Active developers in the Zagreb office Prime headline rents are

Total occupational market activity (Take up)

Source: Colliers International

m2) opened in Varaždin and Cvjetni Trg (7,500

Notable upcoming shopping centre

Due to negotiating power shifting to

By 2013 we expect to see further shopping

A move towards energy efficient and

>> The current SPV entities might be