2.5% 0.7% 10.8% Inflation, June 2017 y-o-y. Retail Sales, May 2017 y-o-y, Croatia

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1 City Report H1 2017

2 2.5% 0.7% 10.8% GDP Growth, Q y-o-y Inflation, June 2017 y-o-y Unemployment rate, June 2017, Croatia % 3.3% Net Salary April 2017, Zagreb Retail Sales, May 2017 y-o-y, Croatia Industrial production, May 2017 y-o-y, Croatia Economy According to Oxford Economics, the Croatian economy grew by 0.6% in the first quarter of 2017 and private consumption and investment have been the major drivers of growth. Private consumption is set to expand by over 3% and exports will post another strong performance. The economy is expected to continue its growth by an average of 2.7% by the end of the year, supported by stronger exports and further expansion of private consumption and investment. Following debt refinancing problems, the biggest company in the region, Agrokor was put under state management in April. Although this has disrupted consumer optimism, retail sales have increased 7.8% in June y-o-y, which is the highest growth rate in the last decade. In addition, the tourism season could be stronger than expected and provide an even bigger momentum to the wider economy. The noted improvement in the labour market will enable household spending to remain strong to the end 2017, notwithstanding the hit to purchasing power from a return to positive inflation. Investment growth is expected to stay robust throughout 2017, helped by the strong sentiment in the business sector and a supportive monetary policy. The country is set to grow faster than the EU average in the near term, boosted by improved absorption of EU funds.

3 Prime Yields 7.25% 8.25% 9.25% Shopping Centre Office Industrial Due to positive business sentiment, the demand for investment opportunities in Croatia has been stable. Although the majority of investors have kept their focus on the retail segment, we have noted an interest in the office segment as well. Over the previous months, the retail market in Croatia has experienced some turbulence, which was reflected in various shifts among retail chains, including Spar s acquisition of Billa, the announced closure of Konzum stores and Müller s acquisition of Kozmo. In addition, the acquisition of retail assets from the beginning of the year continued, with Austrian Supernova purchasing retail parks in Koprivnica, Sisak and Požega - in project stages, as well as Garden Mall and Cvjetni shopping centres in Zagreb. In the office segment, M7 Real Estate acquired Mani Business Center, spread over 13,900 sq m in the Buzin area of Zagreb. Notable Recent Investment Transactions Sector Property Location Seller Buyer Retail Garden Mall, retail parks Koprivnica and Sisak, Požega land Various cities Heta Asset Resolution Supernova Retail Centar Cvjetni Zagreb HOTO group Supernova Office Mani Business Center Zagreb Mani d.o.o M7 Real Estate

4 Zagreb office stock and supply (sq m) 1,400,000 1,350,000 1,300,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 1,000, H ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Stock Supply Recent completions Increase of construction activity in the past 12 months Property Location Size (sq m) VMD Kuniščak Črnomerec 10,000 Fabrika Trešnjevka 6,500 Two new schemes delivered in Zagreb VMD Kuniščak and Fabrika Future supply will rely on the delivery of smaller scale projects, while the construction of larger projects is still uncertain Market activity was driven by net take-up The most active sectors have been manufacturing and energy, consumer goods, and IT

5 Vacancy rate in Zagreb 25% 20% 15% 10% 5% 0% H Future office projects Prime rental levels ( /sq m/month) Project Location Description Centar 2000 phase D3 Radnička Hotel and offices Crystal Tower Euro Daus Radnička Ilica Radnička Residential, commercial and hotel Sports and business premises 14-15

6 Shopping centre evolution in Zagreb (%) 450, , , , , , , ,000 50, H Stock New supply Prime Shopping centre density in Zagreb 500 sq m Per 1,000 inhabitants No new shopping centers delivered in Zagreb in the first half of 2017 Previous retail schemes were delivered in the secondary cities including Pula, Split and Samobor Future retail projects will mainly take place in secondary cities The construction of IKEA s Designer Outlet Croatia in Zagreb has commenced Existing supermarket chains continued their expansion on the market

7 Future retail schemes in Croatia Property Location Size (sq m) Completion year Designer Outlet Centre 1st phase Rugvica 15, Max Stoja Pula 30,000 - Supernova Zadar expansion Zadar 15, Supernova Požega 18, Demand Rental levels ( /sq m/month) Retailers already present on the market continue with their expansion plans American fast food chain Subway re-entered the Croatian market Polish clothing and household chain Pepco entered the market and opened various stores throughout the country Market entrants Retail scheme City Brand Arena centar Zagreb Subway Point shopping centre / Supernova Buzin Zagreb Pepco Shopping centres High street

8 Industrial stock (sq m) 1,200 1, H Recent completion Scheme Type Size (sq m) Location Distribution Sveta Tex Logistik 40,000 centre Nedelja No new schemes delivered in Zagreb during the first half of the year The most recent and notable development was TEX Logistik in Sveta Nedelja, opened in the second half of 2016 The development of the industrial market is highly dependent on the retail market, which has recently been recording significant activity Due to the shortage of speculative industrial projects, many companies are developing industrial schemes for their own needs Future supply of industrial schemes will mostly be driven by the construction of built-to-suit projects Belgrade City Report Q2 2017

9 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Future industrial projects Project Type Location Croatian Post Distribution centre/ administrative building Velika Gorica Market activity was largely driven by the retail, manufacturing and shipping sectors Due to the shortage of speculative schemes, industrial facilities maintained low vacancy levels, supported by the fact that new industrial schemes were mostly developed for owner occupation purposes Industrial production index Prime rents ( /sq m/month) 120% 100% 80% H % 40% 20% 0% 5 Source: Statistical Office of the Republic of Croatia, 2017

10 Contacts Jana Golubović Senior Research Analyst - SEE jana.golubovic@eu.jll.com Andrew Peirson Managing Director - SEE andrew.peirson@eu.jll.com Tomislav Gregurić Managing Director tomislav.greguric@renova.hr Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.