In the real estate and construction markets, the year 2012 was affected by a less than optimistic general economic situation, both in Slovakia and abroad, and was marked by two tragic events. On November 2 a highway bridge in eastern Slovakia collapsed during construction, claiming the lives of four, and on July 1 a five-storey building under construction in Bratislava’s 3nity development collapsed, fortunately without any fatalities.
Both collapses have raised the question of whether the economic crisis and efforts to cut prices for new real estate and highway projects as much as possible has had an impact on the quality of the work. The Váhostav construction firm, which leads the consortium of companies responsible for the construction of the 9-kilometre section of the D1 highway between Jánovce and Jablonové, of which the failed bridge was supposed to form a part, won the tender to construct the bridge with a bid 37 percent lower than the price of the previous public-private partnership project. The consortium won the tender in 2010 with the lowest bid of €60 million without VAT, which was below the expert estimate of the National Highway Company (NDS) of €95 million.
In both cases investigations had not been completed when the Investment Advisory Guide went into print and thus the answer to this question was unknown. Nevertheless, the collapse of the bridge will result in the postponement of highway construction, which had already been slowed by the change in government earlier in 2012. After the accident, the construction of over tens of highway bridges was interrupted so that the projects could be inspected.
SLOVAKIA CONTINUES TO WAIT FOR ITS BACKBONE HIGHWAY
A change at the governmental wheel always results in a slowdown in the realisation of large projects and the construction of highways, especially the planned route connecting Bratislava with Slovakia’s second largest city, Košice, via the D1 highway, is no exception.
Before the collapse of the highway bridge the Transport Ministry estimated that the west and the east of the country would not be connected before 2022.
“The state of preparation and the condition of public finances mean that it may take 10 years longer to build a full-fledged connection up to the Ukrainian border,” Andrej Holák, the state secretary at the Ministry on Transport, Construction and Regional Development, said at a conference Transport and Logistics in central and eastern Europe, held in Bratislava on October 30, as cited by the TASR newswire.
Apart from the main highway connection, which is the D1 highway between Bratislava and Košice, the Transport Ministry also views as a priority the development of the southern route of R2 dual-carriage way from Zvolen to Košice and the northern D3 highway, which should also connect Slovakia with Poland.
The government of Robert Fico, who during his previous term (2006 - 2010) launched three public-private partnership (PPP) projects to build highways, is working on updating the highway construction project adopted by the previous cabinet of Iveta Radičová in July 2011.
“Based on the Work Plan of the Slovak Cabinet for 2012 we should submit the highway plan to the cabinet in December,” Martin Kóňa, spokesperson of the Ministry of Transport told the SITA newswire in mid October, adding that the ministry should submit the plan for inter-departmental review during November at the latest. “There are still a lot of questions, which we are gradually solving.”
The biggest question hovers over the conditions of the construction of the problematic D1 highway section between Turany and Hubová, between the regions of Turiec and Liptov, as negotiations over the highway route between Slovakia and the European Commission (EC) are in progress.
Slovakia and the EC are discussing additional measures to mitigate the impacts of the highway’s construction on this area’s unique ecosystem. These include measures to reduce the deaths of birds and bats, to secure sufficient migration corridors for forest animals and to shield the surrounding wilderness from the noise and light of traffic.
A team of independent experts led by Petr Roth elaborated a report about the measures prepared by the National Highway Company and the Ministry of Transport and Construction, reading that the planned construction of the Turany-Hubová highway, after all the mitigation and additional measures are included in the project, will not have a negative impact on European protected natural areas of the Higher and Lower Fatras, Váh and Šíp, the SITA newswire wrote on November 2.
A public discussion about the report by Czech experts was scheduled for November 19. The plan was to then send the documents to Brussels to apply for approval. Kóňa expected that the final decision from Brussels might arrive by the end of 2012. In the event of a negative verdict by the EC, Slovakia will have to find a new route for the highway.
The Transport Research Institute warned in September that if the EC does not approve the allocation of funds for the construction of the Turany-Hubová highway stretch in accordance with the project of the Transport Ministry and NDS, this will mean a seven-year postponement in putting the highway into operation. Environmental activists object to the project and call for a different routing.
Planning and design of the route of the highway via Kraľovany with the Rojkov and Havran tunnels is complete. In the case of the route through the Korbeľka tunnel, which has received support from environmentalists, the highway would change course and preparations would have to start from scratch.
The cost of construction of the 13 km of highway between Turany and Hubová, including the Rojkov and Havran tunnels, is estimated at €700 million without VAT.
Out of the 512 kilometres of D1 from Bratislava to the Záhor border crossing at the Slovak-Ukrainian border, about 320 kilometres is in operation. Out of the missing 192 kilometres, 46 kilometres are under construction and the remaining 146 kilometres are only in the early stages of preparation, the Hospodárske Noviny daily wrote. The highway between Žilina and Liptovský Mikuláš and Poprad and Prešov has not yet been completed. Construction of the section between Košice and the Ukrainian border has not begun.
THE APPETITE FOR HOUSING HAS CHANGED
The last few years were quite turbulent for the Slovak residential real-estate market. After years of strong economic growth and rising wages, when many residential developments were labelled luxurious either by their outfits or their price tags, the crisis has grounded many Slovaks searching for a new place to live. Residential property prices increased by 155 percent between 2002 and 2008. This period was followed by a steep drop and the market slowed down. As a consequence, developers began to re-draw their previous plans as well as develop new ones for smaller and thus cheaper apartments.
Residential real estate across all of Slovakia averaged at a price of €1,240 per square metre in the third quarter of 2012, a slight drop of 0.6 percent from the third quarter of 2011, according to the National Bank of Slovakia, which monitors residential real estate prices in cooperation with the National Association of Real Estate Offices (NARKS). Experts and market analysts see the current situation on the market as stable.
“We can say that even though demand was high this year compared with previous years, the offers keep exceeding it,” Daniela Danihel Rážová, the director of the Bond Reality real estate agency and the head of Slovakia’s Association of Real Estate Brokers, told The Slovak Spectator. “But currently the market with residential real estate is stable and alive.”
Marek Gábriš, economic analyst with ČSOB bank, labelled the current period as one of consolidation, while residential property prices might increase again.
“There is a portion of apartments on the market which can be sold only with difficulty because of various reasons and will influence average prices for a long period of time,” said Gábriš as cited by the TASR newswire, adding that the number of apartments under construction has remained at a high level for about three years and that the number of apartments whose construction was completed as well as started is decreasing every year. “This might indicate a growth in residential prices in the future.”
According to Rážová, the structure of demand in 2012 did not change compared with the previous year.
“The strongest interest is still in cheaper one, two and three-room apartments and apartments in new developments for reasonable prices,” said Rážová.
Investors have responded to the changed economic situation and there are more projects with small apartments entering the market.
“Gradually new projects are arriving onto the market, which by their parametres come close to the real demand,” said Rážová, adding that of these new projects, prices are lowest for studio and one-room apartments, while another portion are being offered for high, unsellable prices and others are being sold without any difficulty.
The Lexxus real estate agency, when evaluating the situation on the Bratislava residential market during the third quarter of 2012, pointed out that apart from the expected moderate drop in prices on the secondary market there has also been a change in the clients’ behaviour wherein many more people are now considering rentals than previously.
“Enquiries for rentals made up as much as 60 percent of all received enquiries for secondary real estate in our offer over the third quarter,” Michal Zajíček, the analyst of Lexxus wrote in the agency’s press release, adding that apartment rentals are in demand especially in the first three districts of Bratislava. Moreover, while three-room apartments dominated the secondary market during the previous period, demand for two-room apartments currently dominates the secondary market as well as the market for new apartments.
According to Zajíček, the availability and demand on the market of apartments in new projects has finally reached a balance and the offer has gradually decreased to the 2,500 apartments currently available.
“Demand is stable; since the beginning of 2011 it has remained at the level of 500 sold apartments per quarter,” wrote Zajíček, adding that thanks to discounted prices, new apartments which were completed some time ago have also been sold. Also newer post-crisis projects with reasonable prices and designs are reporting successful sales.
The average price of available new apartments continues to decrease. Currently it is at €1,790 per m2 without VAT, according to Lexxus.
“The buyers still regard it as high,” said Zajíček. “They are willing to pay on average €100 less without VAT.”
Rážová warns of developers putting too much focus on only one sector of the market. She believes the current trend, where developers focus more on projects offering small apartments, may result in a situation which might eventually result in a lack of larger apartments.
“Investors should build a balanced range of apartment sizes in order to prevent, after some years, an over-saturation of one-room apartments that would make it difficult for clients to find reasonable four-room apartments,” said Rážová. “The mix and structure of apartments is one of the basic parameters that the investor should ponder carefully even before the beginning of designing the project.”
With regards to the next development Rážová believes that everything will depend on the situation linked with the development of the European single currency and the stability of the European Union.
“Unless some fundamental political or economic change occurs, a stable situation similar to the current one is anticipated,” said Rážová. “If the euro weakens, a certain portion of clients will invest free funds into real estate, which may temporarily increase prices. If banks stop providing mortgages, the demand will decrease significantly and prices will decrease.”
But available statistics provide some positive prospects for development of the residential market: in Slovakia there are only 326 apartments per 1,000 citizens while in Poland it is 348, in Hungary 429 and in Austria 436, Gábriš pointed out.
MORE PLACES TO SHOP
Even though Bratislava is regarded as saturated in terms of retail premises, the ceremonial opening of the new shopping centre in Bratislava, Central, coupled with special discounts to mark the occasion, drew more than 50,000 people on October 18, the centre’s official opening day.
The project of Immocap Group dates back to 2005 and construction was launched in 2009. Central houses 150 shops, restaurants, cafés, a post office and other services on 36,000 square metres over four floors. In addition to the shopping centre itself, the €200 million development will feature offices, a fitness facility and a hotel.
“Bratislava, with its modern retail premises, currently reaches the European average of saturation,” Matúš Furman, consultant of retail team of Cushman & Wakefield, a provider of real estate services in Slovakia, told The Slovak Spectator, adding that there are about 1,120 square metres of shopping area per 1,000 citizens.
However, the total retail area is not the only indicator of saturation. Other factors, which significantly affect the development of the retail market and further growth are, for example, the purchasing power of the population and the volume of available income after costs of living are deducted or the size of the given city.
“Bratislava is saturated and at the moment it needs stabilisation, which has been indicated especially by retailers,” said Furman, adding that they are contemplating any further expansion with caution.
But outside the capital cities like Trnava, Poprad, Prešov and Košice are, in terms of modern retail centres, considered undersized.
“Smaller cities in Slovakia have growth potential in the retail sector, but here we face the problem that most international brands do not plan to enter cities with populations below 50,000 because their expansion policy does not allow them this,” said Furman, adding that in some cases the limit might even be 80,000 citizens. In such cases, however, brands can enter regions via franchising partners.
Cushman & Wakefield estimated that over 54,000 square metres of shopping centres will be built in Slovakia over 2012. When calculated per capita, Slovakia has more shopping centres in terms of square metres than the Czech Republic. While there are almost 210 square metres of shopping centres per capita in Slovakia, in the Czech Republic there are only just over 200 square metres.
The reasons for this are due to differences in the way the retail markets developed in the two countries, Jan Kotrbáček, the head of the retail team at Cushman & Wakefield in the Czech Republic, wrote in the company’s press release on October 16, 2012.
“In the Czech Republic shopping centres as well as shopping parks were already being built in the 1990s. Retail premises are divided here into these two shopping formats. However, in Slovakia mostly shopping centres were built and thus, in relation to the population, they create a denser network.
Shopping parks started to be built in Slovakia only in the period before the crisis.”
František Paračka, the head of the retail team at Cushman & Wakefield in Slovakia, agreed that in Slovakia almost all big towns except Trnava, Poprad, Banská Bystrica and Prešov, are saturated with new shopping premises.
“Compared with the Czech Republic, where developers head first into cities with at least 50,000 citizens and only then focus on smaller cities, the trend in Slovakia is different,” Paračka wrote. “In Slovakia there have been built and continue to be built new shopping centres in smaller cities with only 30,000-40,000 citizens, as for example in Liptovský Mikuláš, Levice, Zvolen, Spišská Nová Ves and so on.”
Paračka added that while some brands view a low population in smaller cities as a barrier, many international brands take into consideration the fact that Slovaks spend more money on fashion than Czechs and thus they may open shops in smaller cities in the end.
According to Cushman & Wakefield, in 2013, new shopping centres will be opened in Levice, Zvolen and Banská Bystrica, with a total space of 37,730 square metres. In Bratislava the opening of Pharos Park is also expected.
Moreover, a fierce fight between two planned outlet centres - which will be located only about 20 kilometres apart - for a position on the market is expected to continue in 2013. While Ipec Group plans to open its D1 Outlet City near Senec in the spring, Realiz plans to open its One Fashion Outlet near Voderady in October 2013. Experts warn that only one outlet centre may win and remain on the market.
Construction of D1 Outlet City started in February 2012. The first phase, with a €13 million price tag, should provide 10,000 square metres of shopping space. When completed it will provide a total shopping area of up to 23,000 m2 and will be part of a regional centre of business, entertainment and housing, called D1 Park.
Realiz launched construction works in the fall of 2012 and plans to invest €30 million into the first phase of the project, providing 15,000 square metres of shopping area. When complete, the three-phase project, with a price tag of €65 million, will offer about 130 shops over 36,500 square metres.
NEW OFFICES ARE ALSO GREEN
The economic situation in Slovakia, affected by what is happening beyond Slovak borders, also impacts the local office space market, which is reporting lower activity and a drop in construction. In spite of this there have been some new and interesting development projects.
In Bratislava five completed office projects will be available for rent in the city’s wider centre by the end of 2012, Oliver Galata, the associated director of the office agency at CBRE real estate service company in Slovakia told The Slovak Spectator. These are Central, Reding Tower 2, Panon Office, Digital Park III and the first officially green office building BBC1 Plus.
BBC1 Plus, developed by CA Immo, was completed in late 2012, costing €30 million. The first tenants began moving in by November while the occupancy rate was about 50 percent at that time. The building comprises 13 storeys with a rentable effective area of some 15,900 square metres. BBC 1 Plus was constructed as a sustainable building, complying with specific ecological targets. CA Immo Group seeks to obtain the LEED Silver (Leadership in Energy and Environmental Design) certification for the project, which has already been pre-certified.
Reding Tower 2 on Račianska Street is a low-energy office project built by Finnish-Slovak developer YIT Reding. One of its aims is to fill the gap in the availability of high-quality office space for small companies. It offers a total of 7,000 square metres for rent, and more than 40 percent of the available space was rented out after the building was completed.
New multifunctional premises were also completed in Košice. On October 18, the Cassovar complex, built on the premises of a former brewery in the city centre, celebrated its ceremonial opening. The €100 million, project developed by the PeeMDe Global company comprises, along with historical structures like a brick smokestack and the Bauernebl House, offices, apartments, shops and relaxation facilities.
Cassovar, which took its name from the beer that was brewed there since the late 19th century, offers 31,500 m2 of administrative premises, most of which have already been leased by the second biggest employer in eastern Slovakia, T-Systems.
The new projects announced for 2013 include Forum BC, that is already almost completely rented out and the reconstruction of a building on Gorkého Street in Bratislava city centre.
In Bratislava, the vacancy rate in buildings of the A+B standards oscillate around 11-12 percent, which translates into 145,000 square metres of free offices. In total there are offices of about 1.5 million square metres in the capital.
“At first sight it may appear that clients have a lot to choose from, but in reality, the options for companies looking for 1,500 square metres or more as a whole are limited,” said Galata.
The average monthly rental of offices in Bratislava was between €8 and €17 per square metre, trendreality.sk website of the Trend economic weekly reported, citing CBRE in early November. CBRE regards the average rent as stable and expects that the increasing vacancy rate will benefit building owners.
With regards to neighbouring markets, Slovakia has become a popular location for shared service centres. Some companies have been closing their centres in western Europe and opening new ones in Slovakia, especially because of the available quality labour force, according to Galata.
“Of course, the real estate sector also depends on the general economic situation,” said Galata. “The market in Warsaw has not been affected, but neighbouring markets, as well as the Slovak one, are characterised by lower activity and a decrease in construction.”
With regards to the end of 2012 and 2013 CBRE expects trends of renegotiations of existing premises and drops in rentals and moving into cheaper localities. It does not expect any speculative construction of office premises.
Other developers have prepared a range of plans: Penta and HB Reavis are to develop areas close to the Mlynské Nivy bus station, while J&T Real Eestate is preparing a project to be built at Lamačská Cesta and TriGranit wants to build near Kuchajda.