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BMI View: An overwhelming vote of no confidence in the Croatian Prime Minister, Tihomir Oreskovic, has
sent ripples through the Croatian parliament - delaying much-needed structural reforms and affecting
investor sentiment. Additionally, continued growth in public debt, high levels of unemployment and
headwinds from the volatile EU market post-Brexit will add further strain to the economy. We therefore
anticipate low levels of demand to continue across the commercial real estate sector, as investors remain
vigilant to the economic situation - which we believe will see rentals stagnate or see marginal declines.
Structural problems are plaguing the Croatian economy, alongside fiscal vulnerabilities such as growing
public debt and rising interest payments that look to impede the Balkan nation's economic recovery. As a
result, foreign direct investment flows are down significantly from levels seen prior to the financial crisis in
2008, slow corporate sector restructuring is further dragging on private sector growth, and high
unemployment, coupled with inactivity, is seeing poverty rise across the state - subsequently dwindling
consumer demand and restricting greater growth in spending that is needed to boost economic growth.
Owing to internal issues and external headwinds, the Croatian economy is considered less appealing than its
regional peers in the Central and Eastern European region - which has seen investors look to these nations
in order to mitigate the risk posed by investing in Croatian assets. This has effectively shackled the
commercial real estate market; with already established and domestic companies undergoing the majority of
activity. As a result, industry players predict that rentals for all three sub-sectors we cover in our forecast
will be subject to stagnation, and in some cases marginal decreases in rates.