Serbia’s retail – primed for take off

Serbia’s retail segment is enjoying a robust growth in the number of permitted buildings due to the permit reform introduced in 2015. With the first phase of the reform having commenced in 2015, and the second phase having been set out in 2016, the application procedure for permits has been made fully electronic in order to have full transparency. Consequently, not only did Serbia gain a better position in The World Bank’s 2016 Doing Business list, but is now seeing a new investment cycle of the construction of high-volume international-type shopping malls. The start of such several big-league projects should sustain this growth cycle and give a boost to construction volumes in the years to come.

Written by Dejan Krajinović, Beobuild Core D.O.O, EECFA Serbia

Delta Planet, Ada Mall (top row), IPM center, BIG Fashion (middle row), BW Gallery (bottom) – Source:

In an effort to improve investment climate, permit procedures in Serbia were marked as a one of the main regulatory obstacles to development, with a long line of inefficient procedures and corrupt instances suffocating the economy. Before the reform was introduced, in some cases, it took almost a year to acquire a building permit, even if all legal conditions were met. During 2015, the government presented a multi-phase reform, which would include a total overhaul of the procedures, resulting in far cheaper and much faster permit procedures. Its implementation started in late 2015 and so far, it has been a resounding success, with building permit applications now being processed in just a few days. Furthermore, the second phase of the reform implementation started in January 2016, with building permit applications now a fully electronic system in Serbia. With electronic and centralized applications, the reform aims to lower the number of instances and the possibility of corruption and hush money in the process. This significant regulatory reform helped Serbia swiftly boost its ranks in the World Bank’s ‘Doing Business’ list, and from 91st in 2015 it reached 47th position in 2016, making it one of the most improving economies of the world in 2016.

With some anticipation of investors, new permit procedures resulted in a strong spike of permit numbers across the board. Practically all construction segments have seen their share of growth, but with almost two years into implementation of the new permit laws, some construction sectors are leading the way. It seems that the retail segment forwards as main beneficiary in building construction, with a very potent investment cycle carrying almost 1 million permitted square meters in just over two years. Coming from a very low post-crisis level, this several-fold increase of permitted retail buildings created a real sector’s boom. The reasons behind such a strong reaction of investors lay in a very opportunistic market, open for development of big city malls and retail parks. It is worth mentioning that this construction sector had the longest list of pipeline projects even before the permit reforms, but it was very much stalled by the economic downturn in 2008/2009 as well as by liquidity problems that followed.

What makes this new investment cycle this strong is the construction of large international-type shopping centers aiming to compete with already existing high-street retail. The older network of shopping centers built in the 80’s and early 90’s was managed as a cooperative, where shop owners were the owners of the shopping center itself. This ownership model collapsed during the sanctions in the 90’s, and together with old-style department stores made obsolete by the evolved concept of Western malls. This left Belgrade the largest untapped market in this part of Europe, with the smallest ratio of modern retail GLA per capita, compared with its regional peers (see picture below). It is expected for this ongoing investment cycle to significantly increase retail stock. The offensive for market positioning is now well underway and the number of new projects is growing fast.

Source: CBRE Group

Investments are rising in all retail environments, with the number of regional retail parks and neighborhood centers under construction. Also, two important European players have entered the market recently, including Swedish ‘IKEA’ and German discounter ‘Lidl’. The former opened its first large retail center in Belgrade in 2017, holding 40.000m2 and it’s already in process of finding land for its next investment. At the same time, ‘Lidl’ is making a grand entry to the market with 20 regional stores in preparation simultaneously. Austrian ‘Immofinanz’ is also active in the segment of retail parks, building six centers in six different cities, with three already opened and three planned to enter construction in 2017/2018.

The start of several big shopping mall projects will sustain this growth cycle and further increase construction volumes in the coming years. The most prominent projects would include exclusive Belgrade Waterfront Gallery, an impressive center with 300.000m2 (GBA) of space, which entered realization in 2017, followed by Ada Mall with 90.000m2 (GBA) that also entered construction in 2017. In Novi Sad the construction of Promenada Spens shopping mall also started with 150.000m2 of GBA space. In 2018, investors plan to start the construction of two more shopping centers in Belgrade, including IPM shopping center in Belgrade covering 130.000m2 of GBA and West65 retail center on almost 21.000m2 of gross space. Among already announced projects, we should also mention ones still in the pipeline, like Delta Planet shopping center in Belgrade with 172.000m2 (GBA) and BIG Fashion Vidikovac with 120.000m2 (GBA).

All this makes really positive outlook for the sector’s performance in the coming period, but also a strong boost for the entire non-residential segment. With recovery in earnings and employment, investors are very optimistic and forward-looking, while on the other hand, the market is still far from saturated with modern retail facilities. Retail investors are just making up for the time lost, so there is still enough space in the market before we can call this a bubble.

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