Boston, MA -- (SBWIRE) -- 10/01/2013 -- On July 1 2013, Croatia became the EU's 28th member state. Not only will this have a positive impact upon stability in the region, ascension to the EU is also set to unlock billions of euros for investment in better connecting the bloc's newest member to the single market. Deputy Prime Minister Vesna Pusic has stated that Croatia will be the recipient of EUR10bn (US$13bn) up to 2020 to be spent on infrastructure and construction projects. In turn, this should start to re-invigorate the static real estate and construction pipeline that Croatia - as a reflection of the wider Central and Eastern Europe (CEE) as a region - has seen over recent years, although this process will be slow.

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In spite of this relative optimism, 2013 in the CEE region is set to face many of the same external problems seen in 2012: Chinese growth bottoming out, geo-political risk, and the euro debt and slow eurozone economies.

The property market is inevitably being affected; last year saw stagnant or falling rents in all cities, while yields fell across the board. Rents were also under pressure from a strong supply pipeline. Retail was a bright spot, with rents increasing in all cities, boosted by strong tourist arrivals and consumer confidence picking up slightly as the country emerged from recession.

The Croatia real estate report examines the commercial office, retail, industrial and construction sectors and considers the impact of a dour outlook for the economy. With a focus on the three principal cities of Split, Zagreb and Zadar, the report covers the rental market's performance in terms of both rates and yields and supply and demand activity.

Key Points:

- The outlook for the Croatian infrastructure sector remains grim in the face of slackened economic growth, both domestically and regionally. Although the government's pledge to inject EUR13bn into the country's infrastructure sector and Croatia's accession to the EU is clear cause for optimism, BMI leans on the cautious side.
- We estimate that Croatia's construction sector saw a 0.4% y-o-y contraction in real terms in 2012 - its fourth consecutive year of decline - as businesses remain cautious about making new investments and the government postpones existing projects. While Croatia's July 1 accession to the EU should have a positive impact on stability in the region, a lack of progress in making further reforms will limit the potential benefits of accession in 2013 and 2014. We believe the impact of EU membership will be insufficient to overcome the poor quality of political processes and ongoing corruption in the country, ensuring that Croatia's investment climate remains weak over the next few quarters.

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