1.0% 3.6% 15.9% Inflation March 2017 y-o-y. Retail Sales,

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1 City Report Q1 2017

2 1.0% 3.6% 15.9% GDP Growth Q Inflation March 2017 y-o-y Unemployment rate 2016, Belgrade % 0.9% Salary March 2017, Belgrade Retail Sales, March 2017 y-o-y, Serbia Industrial production, March 2017 y-o-y, Serbia Economy According to Oxford Economics, the strong 2016 export and investment upturn puts the economy on track for 3% growth in period from 2018 to 2020, as capital inflows finance the external deficit, and IMF and EU support allows expansionary budgets. Short term recovery still relies on export revival, which remains vulnerable to possible EU and Russian growth setbacks in Although risks are balanced, there could be delays to the recovery in growth if still high unemployment, slow growth in real incomes and difficult public sector reforms drain the government s popularity. Despite this caution, growth is forecast to climb slightly to about 3% a year in , with the sustained recovery driven by firm political direction, external support and conditions, EU accession prospects and sustained trade recovery. April s presidential vote strengthens the ruling party, whose focus on reform to meet EU accession criteria will boost domestic investment and maintain the regional lead in FDI. The country remains well placed to accelerate its progress towards EU accession while retaining trade and investment links with Russia, other Balkan states and China. Medium term growth will be supported by steady progress towards EU membership, and precautionary IMF standby funding that insulates the deficits against FDI downturn.

3 Prime Yields 8.00% 8.5% 10.00% Shopping Centre Office Industrial The investment potential has improved significantly over the previous 12 months, which has been reflected through various investors seeking for opportunities throughout the country. One of the major driver has been relatively unexplored market, positive economic movements as well as favourable business environment. However, due to undersupplied real estate markets, the number of transactions has been limited compared to other more developed markets. The previous year was notable for sale of one of the prime shopping centres in the country, namely Delta City. The overall transaction included sale of Delta City in Podgorica, Montenegro as well. From the beginning of the year 2017, investors remained focused on retail segment. The recently completed Big Fashion shopping centre, initially developed by Plaza Centres was acquired by Israeli company Big CEE. The overall price will be determined after 12 months operating. Notable Recent Investment Transactions Sector Property Market Est. Price ( million) Seller Buyer Retail Big Fashion Belgrade - Plaza Centres BIG CEE Hyprop Investments / Retail Delta City Belgrade Delta Real Estate. Homestead Group Holdings

4 Office stock in Belgrade 800, , , , , , , , Q Class A Stock Class B Stock Source: JLL, 2017 Recent completions Belgrade office market continued to grow in the first quarter of the year, with one new project delivered, Property Submarket Size (sq m) GTC Fortyone phase 3 New Belgrade 10,000 Navigator Business centre New Belgrade 14,600 Green Square Vračar 2,700 namely GTC Fortyone phase 3. This is the final stage of the project, which spreads over 10,000 sq m, while the overall complex now has 27,000 sq m. The construction activity remains high, and we expect to see more Class A office projects in the upcoming months. Market activity was driven by net take up, underpinned by relocations and expansion of existing contracts. The most active sectors were IT, followed by consumer goods and professional services.

5 Vacancy rate based on office building class 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Q Q Q Q Q Q Q Q Q Total vacancy rate A Class vacancy rate B Class vacancy rate Source: JLL, 2017 Future office projects Prime rental levels ( /sq m/month) Property Status Size (sq m) Sirius Offices 1st phase Napred blok 21 Under construction Under construction 14,500 13, Atrijum 63 Under construction 5,000 Deneza Under construction 2,700 Usce Tower 2 Planned 22,000 Green Heart Planned 46,000

6 Prime shopping centre stock in Belgrade 180, , , , ,000 80,000 60,000 40,000 20, H Source: JLL, 2017 Prime Shopping centre density in Belgrade 97 sq m Per 1,000 inhabitants Following the increasing construction activity during the previous 12 months, Belgrade retail market has witnessed increase of modern retail stock. In the beginning of the second quarter of 2017, new shopping centre was opened, namely Big Fashion, totalling over 32,300 sq m GLA. There are several shopping centres under construction in the capital, scheduled for completion in the upcoming three years. The development of retail parks has continued throughout the country The construction of the first Ikea store is progressing and the company has announced the construction of retail park at the same location

7 Future retail schemes in Belgrade Property Format Size (sq m) Completion year Rajićeva Shopping centre 15, Ada Mall Shopping centre 34, Big Fashion Vidikovac Shopping centre 70, BW Galerija Shopping centre 93, Ikea Big Box 34, Capitol Park Rakovica Retail park 21, Demand Rental levels ( /sq m/month) Opening of new shopping centre brought new brands to the market Present retailers continued market expansion Costa Coffee closed its operations Market entrants Property City Brand Big Fashion Belgrade Reserved, Tezenis, Funky Buddha Fashion Park Outlet Indjija Facis Shopping centres High street Zira Belgrade Mana

8 Recent completions Property Type Location Size (sq m) Phoenix Distribution centre Simanovci 7,000 Hutchinson Light industrial Ruma - Knott Autoflex Light industrial Becej 9,500 Univerexport Distribution centre Novi Sad 30,000 Industrial stock 528, ,000 Since the beginning of the year, market activity relied on the construction of owner occupied schemes majorly in the secondary cities. Phoenix group opened new logistic centre in Simanovci, spread over 7,000 sq m Univerexport completed new distribution centre in Novi Sad, spread over 30,000 sq m The future period will rely on construction of light industrial and distribution warehouse facilities within various cities Belgrade (sq m) Greater Belgrade (sq m)

9 Future industrial projects Project Type Location Size (sq m) Lidl Distribution centre / Administrative buildings Nova Pazova 78,500 Eyemaxx phase 2 Distribution centre Stara Pazova 30,000 Industrial Park Belgrade 3 Distribution centre Simanovci 7,200 From the beginning of the year, the market activity was largely driven by manufacturing and distribution companies in Greater Belgrade area and Vojvodina province. The further expansion of logistic as well as retail sectors will be major market drivers over the mid-term, underpinning the development of speculative schemes. Prime rents ( /sq m/month) Q Industrial production index 104% 103% 102% 101% 100% 99% 98% % 96% Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Source: Statistical Office of the Republic of Serbia

10 Contacts Jana Golubović Senior Research Analyst - SEE jana.golubovic@eu.jll.com Andrew Peirson Managing Director - SEE andrew.peirson@eu.jll.com 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.