Article that appeared in Finance on 21. January 2014

In Ljubljana you will struggle to find office projects that would attract institutional investors. 

Office projects have certain rules that must be followed when developing project for institutional investors. It looks like Slovenia overlooked those rules.

According to the director of Slovenia Invest Real Estate Agency, Slovenian real estate developers do not have sufficient experience to meet institutional investors requirements. The biggest mistake is that part/parts of the building are for sale. If a single part is sold the game is over, because investors are interested only in whole ownership. But we have an exception, Mega center 1 on Verovškova, Center was sold to Unicredit real estate fund Real Invest by Austrian developer. The second most common mistake is that developers just do not understand investors. Funds do not want to accept any risk of vacant space. Investors require fully occupied building with quality tenants.

In Ljubljana parking is essential.

Successful and experienced real estate developers do a complete market research before land purchase, explains Jacqueline Stuart. Plan of renting the place is included. Every market is specific including Ljubljana real estate market. Very few employees are using public transport to get to the office so parking spaces are essential. Very important is also that temperature is adjustable.

Buyers are looking for simplicity and safety

There are a lot of institutional investors. We have pension, insurance, real estate and health funds, we have connected individuals and families. Their requirements are simple – low risk and acceptable yield. Unpredictable consequences may appear if law regulations changes or new taxes are accepted (for example new real estate tax). Real estate value is also important. Ownership of such assets changes every 5 years on average.

In real estates goes max 20%

Commercial real estate is changing rapidly. Ljubljana is not an exception. Pension funds are one of the bodies that are interested in real estate. From Prva Pokojninska družba only sent us a regulations about levels of what share of fund in real estate can be. It is max 20%. Pension funds may only invest into obstacle free properties (no easements, mortgages…). Also those properties must gain yields. Purchase prices must be confirmed by the authorized valuer.

Ljubljana continues to decline

Ljubljana commercial real estate market is stagnant, but rents are down by half in some cases. Supply is increasing, because companies are downsizing or even closing down. So on the other hand demand is decreasing. 2 years ago new office projects were planed. According to Slovenia Invest sources around 3000m2 of new surfaces will hit the market in autumn. New and newer buildings (with appropriate rent levels) might empty older and not so well maintained buildings. Rent levels in modern complexes will continue to decrease while in old buildings levels will drop significantly.