3.2% 1.2% 12.2% Inflation, December 2017 y-o-y. Retail Sales, November 2017 y-o-y, Croatia

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1 City Report H2 2017

2 3.2% 1.2% 12.2% GDP Growth, Q y-o-y Inflation, December 2017 y-o-y Unemployment rate, December 2017, Croatia % -2.5% Net Salary September 2017, Zagreb Retail Sales, November 2017 y-o-y, Croatia Industrial production, December 2017 y-o-y, Croatia Economy According to Oxford Economics, the Croatian economy grew by 3.2% year-on-year in the third quarter of 2017, driven by consumption. The solid performance reflects another record season for tourism, rising real wages and an improving regional trade. These trends are likely to continue in 2018, and the country is set to grow faster than the EU average in the near term underpinned by the improved absorption of EU funds. Following debt refinancing problems, the biggest company in the region Agrokor, was put under state management in April and its restructuring plan could increase the vulnerability of the banking sector and weaken confidence. However, the tourism season appears to have been stronger than the record 2016 season. Tourist arrivals were up over 12% year-on-year in the period from January to September. Given extensive investment in hotel capacity, services export volumes are forecast to rise 3% in The government has made an important step in the country s euro-entry plan, by setting a target of 2020 to join the exchange rate mechanism, where it will stay for two years to show the required currency stability before formally adopting the euro.

3 Prime Yields 7.25% 8.25% 9.25% Shopping Centre Office Industrial The appeal of the Croatian market was confirmed by numerous transactions throughout The majority of transactions involved retail assets, however a few transactions in both the office and industrial segment were also noted, making Croatia one of the most active markets in the SEE region during the past year. Retail parks and shopping centers were subject to one of the largest expansions on the market by Supernova, which purchased retail centres in Koprivnica, Sisak and Požega - in project stage, as well as Garden Mall, Cvjetni, Branimir and Kaptol Centar shopping centres in Zagreb, making it the leading company in Croatia in terms of retail space. In addition, King Cross shopping centre in Zagreb was purchased by Spar European Shopping Centers. Within the office segment, M7 Real Estate acquired Mani Business Center, spread over 13,900 sq m, located in the Buzin area of Zagreb while the industrial segment was marked by the acquisition of Magma logistics centre in Jastrebarsko. 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 Retail Branimir and Kaptol Centar Zagreb UniCredit Bank Supernova Retail King Cross Zagreb Aberdeen Asset Management Spar European Shopping Centres 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, ,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Stock Supply Office completions in 2017 Increase in construction activity in the first half of 2017 with the delivery of two schemes VMD Property Location Size (sq m) VMD Kuniščak Črnomerec 10,000 Fabrika Trešnjevka 6,500 Kuniščak and Fabrika in Zagreb Slowdown in the second half of the year New projects on the horizon Market activity was driven by relocations and new occupation The most active sectors have been manufacturing, IT, consumer goods and pharmaceuticals

5 Vacancy rate in Zagreb 25% 20% 15% 10% 5% 0% Future office projects Prime rental levels ( /sq m/month) Project Location Description Centar 2000 phase D3 Crystal Tower Euro Daus HOK Matrix Radnička Street Ilica Street Radnička Street Radnička Street Slavonska Street Hotel and Office Residential, Commercial and Hotel Sports, Office, technical facility Office and Hotel Office 14-15

6 Shopping centre evolution in Zagreb (sq m) 450, , , , , , , ,000 50, Shopping centre stock New supply Prime Shopping centre density in Zagreb 500 sq m Per 1,000 inhabitants No new shopping centres delivered in Zagreb throughout 2017 Importanne Galleria in Zagreb reopened as Galleria Business Centre Increased activity noted in secondary cities Marisa shopping centre opened in Trogir Mercator Split reopened as Salona Mall Construction of IKEA s Designer Outlet Croatia in Zagreb in progress Arena Centar in Zagreb announced its expansion The city of Zagreb announced the construction of an open market place Existing supermarket chains continue to expand 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, Supernova Požega 18, Demand Rental levels ( /sq m/month) Existing retailers continue with their expansion plans American fast food chain Subway re-entered the market and opened a restaurant in Zagreb Market entrants in 2017 Location City Brand Arena centar Zagreb Subway Point shopping centre / Supernova Buzin Frankopanska Street Supernova Garden Mall/ Supernova Buzin Zagreb Zagreb Zagreb Pepco Heraldi for Women TEDi Shopping centres High street

8 Industrial stock ( 000 sq m) 1,200 1, Recent completion Scheme Type Size (sq m) Location Heineken Warehouse Warehouse 5,200 Karlovac Low construction activity noted in 2017 Heineken Croatia opened a new warehouse in Karlovac Industrial market growth driven by the growth of the retail industry Lack of speculative projects pushes the construction of industrial schemes intended for owner occupied purposes

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 Jul-17 Oct-17 Future industrial projects Project Type Location Croatian Post Distribution centre/ administrative building Velika Gorica Market activity predominantly driven by the retail, manufacturing and shipping sectors Number of schemes on the market insufficient to meet growing demand Shortage of speculative schemes caused low vacancy levels Industrial production index Prime rents ( /sq m/month) 120% 100% 80% H % 40% 20% 0% 5 Source: Statistical Office of the Republic of Croatia, 2018

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.