Interview that appeared in Finance on 21. December 2015

Jacqueline Stuart is director of Slovenia Invest, the only commercial real estate Agent in Slovenia. Beside regular real estate services, in last year they manage to sell a portfolio of 4 hotels in Portorož to Croatian investor with a value in excess of 24 million euros. In 2014 they increased the number of signed rental contracts concluded and they expect to see further growth in 2015. Retail is not so promising, as interviewee doesn’t see much room for growth as best locations are already taken. In the meantime industrial sector has a lot of potential, especially in a field of logistics, but most available land plots are too small for international players.

What makes you remember 2014?

Things began to change completely.

How?

In the field of commercial real estate we more than doubled rental contracts concluded. We manage to close 51 deals this year and only 26 last year. We expect to close another deal before the year ends and few more will be finished at the beginning of next year. Besides that, we are still facing decrease of rents.

What is large deal?

Larger deal is rental contract with premises above 400 square meters. Average size this year is around 200 square meters. For example last year companies were mostly in a search for offices from 50 to 100 square meters. Of course there is still demand for smaller units for self-employed and micro companies. Those are looking for transitional offices.

What is the reason for increase of revenue this year?

Demand for office space has intensified this year. The majority of enquiries are from Slovenian companies, comparing with last year, there were fewer foreign companies looking for space.

What do you expect next year?

Next year there will be more such transactions, so we also hired a new employee to negotiate the lease of business premises.

Is the retail market also improving?

Absolutely not. In the case of transactions with retail units I do not see such potential for growth as the business premises. There are several reasons. We are renting a few smaller retail units in the center in key locations, while largest retailers have their own real estate departments, which is logical. We don’t expect growth here, because of lack of quality vacant space and no bigger relocations in prospective future.

Is Čopova street in Ljubljana most expensive location and most interesting in Slovenia?

Absolutely, on Čopova achieved rent could reach 100€/sqm. I can’t give precise numbers because we do not have data, but I can give you this estimation based on unofficial information. In other locations in the center rents can’t reach Čopova, the closest location is Mestni trg.

So there is demand for premium locations?

Of course, we could easily fill such places, as several foreign companies wants to open locals or retail units, but unfortunately everything is occupied. This year we already have had three visits of international brands that are interested in entering Slovenian market. The problem is the size. Foreign companies are looking for units larger than a hundred square meters, but the surface in these buildings have a maximum size of 50 square meters. Two adjacent ground floor rooms that only suit their needs together would be very difficult to find.

What services do you provide in the industrial market?

In this field there are also a lot of changes. Currently we are representing two foreign companies, while a year ago we have had only few informal contacts and nothing concrete. For the first client we are looking for a building land for the other one we are preparing a feasibility study. Besides these two projects we manage to rent several warehouse units, which frankly are not considered large deals.

Does this business include rentals and purchases of already built halls or purchase of land?

One of our clients is looking for a site where they will develop their own facility. Other one is already operating in Slovenia but due to restrictions is not able to expand at their current location and now is in a search of new location.

Which are the most attractive locations?

Everybody is looking for two locations – Ljubljana or its surroundings and Koper.

Those two locations are suitable mostly for logistic development.

One of our clients is intending to build large logistics center. Slovenia has a good location and in Ljubljana two important corridors are intersecting. Fifth corridor connects east and West Europe, 10th connects North and South. But it is difficult to find land big enough.

Beside motorway several business zones have arisen.

That is true, but those are for small businesses. Currently we are looking for 250,000 and 85,000 square meters large plots but we struggle to find them. Problem is in sufficient size of land.

Slovenia is a small country.

Municipalities are too small and that is the reason why they are not capable to develop locations suitable for larger projects. One of the examples of good practice is the Komenda Business Zone. They developed the land to provide services infrastructure and building tax, both included in the price. There is lack of projects like Komenda.

Does the bad bank have any suitable locations for your clients?

Yes of course, we are aware of their assets and they might have something interesting.

For the needs of bad bank you valuated some of Slovene real estates which were later transferred to the bad bank …

Cushman & Wakefield did all the valuations we assist them in certain proceedings.

Anyway. Are you in a position to share the information about the difference between old and new valuations, through which loans are secured?

I can’t share this information, as I said, other company provided the valuations and they didn’t share the final results with us. Independently we concluded another portfolio valuation project for an Austrian bank operating in Slovenia. In this case the real estates were over valued by 80% on average.

Were those assets over valuated as a result of low market activity and price reductions?

No. The valuations were wrong from the beginning of those projects.

You also manage to sell hotels in Portorož. Can you please shortly explain all procedures?

First steep was the valuation. For the hotels the method is completely different comparing to evaluating other real estates. The goal is to estimate the potential of the hotel. After that we carried out marketing campaign. We advertised in Economist, Slovene newspapers, mass mailing, telemarketing and mailers sent by post. Response was really good, 74 companies enquired, and we signed 55 non-disclosure agreements. After that we appeal for non-binding offers and received 24 offers from 15 potential buyers. We invited only those investors, which offer acceptable financing, and companies we would assume they are capable of closing the deal. We gave a 5-week deadline for finishing final offers. Those were the bases for final negotiations. We received 8 binding offers from 5 different investors. After following negotiations all 4 hotels were sold to a Croatian investor.

Were you surprised that the buyer came from Croatia?

No it was not a surprise. There is not a lot of interest in Slovenia amongst foreign institutional hotel investors. Hotels could be a target of large Slovene hotel chains but the problem is that owners are not financially strong enough to carry out necessary investments. We wanted to sell the whole portfolio otherwise we could sell separate hotels to those chains.

But you said the response was huge and that enquiries came from all over the globe.

That’s true. There were no typical hotel investors amongst them. Also a few foreign individuals and Slovenes living abroad enquired.

Also in Slovenia hotels are owned by investment funds, but currently they are not in good financial condition. Hotels are in the best condition.

I wouldn’t say hotels are in bad condition. Most of them are well located and have huge potential, but their owners are in a bad financial state due to other investments that are not related to hotels. Hotels represent only part of their portfolio.

Is it possible more such investments will occur in the future?

It is hard to make any conclusions. It is possible all hotels will be sold or none.