Conquering the land of Alexander

The Republic of Macedonia is one of the few countries in the region yet to catch the attention of investors. Are we about to see the transformation of the country’s real estate sector following the pattern of some of its larger neighbours?

Nathan North

What’s in a name? Well, quite a lot, if you asked the inhabitants of what we officially have to refer to as the Former Yugoslav Republic of Macedonia. Although the country appears to have all the elements in place to repeat the successes of similar post-communist states, there remains one serious stumbling block – the issue surrounding its name. For its citizens, it is crucial to their national identity that their country is called Macedonia; but to the neighbouring Greeks, this would represent a potential threat to the status of their own region bearing the same name. A quarrel about nomenclature might seem baffling and petty to an outsider, but the passions aroused are deep-felt. For investors and developers the main problem is that the dispute threatens to derail the country’s accession to the EU, since Greece has the power to veto this. Although the Republic as an EU candidate state is so far making good progress with its preparations for joining (in terms of reforming its legal system and other EU requirements), it is impossible at the moment to predict when or if the country will be able to join the European club.

Geographically challenged

Macedonia still has many factors in its favour, however. One is the comparative stability of its currency, the denar (MKD) – the result of strenuous efforts by the national bank. Another big plus for potential investors is that Macedonia has a highly educated and skilled workforce, which is especially true of those in their 30s and 40s who benefited from the education system under the old régime. The annual growth in GDP is currently a healthy 5 pct; however, the country has one of the lowest GDP per capita (PPP) of the former Yugoslavia, of around USD 9,150. And unemployment is alarmingly high – hovering around the 35 pct mark, although this is likely to conceal a great deal of hidden employment on the grey market. Another downside – and perhaps explaining why there has been so little foreign investment in the country to date – is Macedonia’s sheer size (or lack of it), with a population of as little as 2.1 mln living in an area of 25,700 sq km.

But the country remains under-developed, harbouring a clear and substantial demand for modern real estate projects. The capital Skopje, with a population of around 650,000, is the dominant market in the country and the location for the major developments that have taken place or are currently underway. Following a similar pattern to the rest of the region, retail is the sector which has the most potential. According to Colliers International Serbia and local real estate agency New Way, which have just completed research into the Macedonian retail market, Skopje has a total of 65,045 sqm of gross leasable retail space located in malls in the centre of the city. The largest of these is the oldest – Gradski Trgovski Centar. Originally built in the 1970s, the 45,000 sqm shopping centre contains a total of 600 stores. The next biggest centre was developed by Migros (part of Koc Holding) of Turkey – the 9,145 sqm Ramstor Mall, a EUR 20 mln investment on Mito Hadzivasilev boulevard (68 stores); while another foreign developer to get in on the act is Coin of Italy, with its 5,300 sqm City Gallery in the city square (33 units). More modern retail is provided by local developer Lumiks’ Nexus arcade (1,800 sqm), as well as 3,800 sqm in Austrian developer Soravia’s mixed-use Soravia Center Skopje. On its way in the centre of town is a EUR 45 mln mall from UK developer Equest Properties, expected to be completed sometime in 2011, as well as a 40,000 sqm (gross built-up area) mall from Greek developer Veropulos – a EUR 40 mln investment which should open late this year or early 2010. According to Colliers International Serbia and New Way, average monthly rents in city centre malls such as Soravia, Ramstore and Gradski Trgovski Centar are in the region of EUR 30-55 per sqm – EUR 90-110 per sqm for prime retail, but going down to EUR 10-30 for the cheaper space. In the high streets prime rents can vary between EUR 40 and EUR 85.

In the outskirts there are three centres, all of which are more than 10 years old: Biser (7,500 sqm), Beverley Hills (7,300 sqm) and Bunjakovec (5,000 sqm). Also in the suburbs, there is a larger mall in the pipeline: Era City from Slovenian developer Era Group, which is to have a gross built-up area of 85,000 sqm. Another project that has yet to start is a 44,800 sqm centre in the Karpos district from US investor Merrill Lynch, which is expected to be completed in 2012.

Lack of space, high rents

As for the office sector, according to real estate consultancy Altitlan – which last year opened its Skopje office – last autumn there was 157,000 sqm of class ‘A’ and ‘B’ space in the capital – 59 pct of which was to be found in the CBD. Around another 30,000 was due to have been added since then, in projects such as Soravia Center (5,000 sqm) and the NLB/Tutunska Banka building from Slovenian developer NLB. Era Group currently has the construction of its Era Business Center underway in the ‘urban zone’ surrounding the CBD, which will add another 7,200 sqm upon its planned opening in Q2 2010. The urban zone accounts for around 38 pct of the total stock. The supply of available modern office space in Skopje remains low, and as a consequence rents are high. In the CBD, according to Altitlan’s data, the