The Southeast European real estate market is dynamic and evolving, and is swiftly adapting to emerging trends, including a notable shift in interest to logistics from office spaces, according to speakers at a regional real estate conference in North Macedonia’s capital Skopje on May 10.

The conference brought together more than 30 speakers from the country and the region for discussions and knowledge sharing on various aspects of the real estate industry. Skopje-based Fortonmka, as an exclusive affiliate partner of global real estate services firm Cushman & Wakefield in North Macedonia, co-hosted the event.

Sergey Koynov from Bulgaria, a managing partner at property management company Intelliway Services, discussed moving trends in the sector. “First there was a shopping centre wave, then an office wave, followed by big, small hotels, and now it is very modern to invest in logistics and renewables,” Koynov told a panel discussion.

Koynov cited the CEO of global investment management company Blackstone as saying that while in 2007 60% of its portfolio was in offices, that has now been reduced to just 2%. Meanwhile, the company's logistic portfolio ballooned from zero to 40%.

“The market is changing, evolving and we need to be smart and very quick in deciding what to do next,” Koynov said.

How COVID-19 hit the office market

The participants agreed that working from home and a hybrid model of working, a trend brought about by the COVID-19 pandemic, has significantly transformed trends in the office market.

“The office segment experienced significant development over the past 15 years, but the definition and way of working in the segment has changed with the COVID-19 pandemic, which has affected the whole world and prompted a reassessment of working strategies,” Fortonmka CEO Katarina Nikolov said.

Mia Zecevic, an owner and CEO of Serbian real estate, asset and property managers Novaston, acknowledged that the situation today is strongly affected by the pandemic and the war in Ukraine with lot of fluctuations and a need to adapt.

Zecevic cited the case of Novaston’s major client, France-based energy management and automation company Schneider Electric, which started operations in Serbia three years ago with 20,000 GLA (gross leasing area), only to see big reductions as a result of the pandemic.

Looking down the road, Zecevic said the time may come when most office workers will go back to physical offices, particularly in sectors that rely heavily on human connections and where the presence of managers is essential. In IT and certain service sectors that don't rely so much on direct interaction, however, a hybrid working model may persist as a viable option, she added.

“I think that the entire outcome and resolution of this situation will become evident within the next two years. At that point, we will know whether a significant amount of available square metres will be successfully occupied,” Zecevic said.

According to Zecevic, the market dynamics, whether in Serbia or elsewhere in the region, are heavily influenced by blue-chip tenants.

In North Macedonia, Fortonmka's Nikolov said, supply and demand are running neck and neck. A good take-up in the country is 20,000 sqm, which is in line with supply, she said.

The size of the market matters, she added, saying, “If one company in Belgrade requests 5,000 sqm, here in Skopje the interest is for 700 sqm.”

However, there are always exceptions, software and technology service company Endava for one.

“In the case of Endava, this is a very successful story and we did not see downscaling. On the contrary, it is one of the largest occupiers of business space in Skopje, with outstanding interiors and one of the most remarkable projects of last year,” she said.

According to Ilija Gospodinov, president of the management board of the Skopje-based IT Chamber of Commerce, MASIT, the issue is not availability of space and demand, but about the future of work and how companies can stay successful and sustainable in the long term under completely different ways of engaging with their employees.

“My first notion is that any company, whatever industry it comes from, and any company that wants longevity, builds its activities on values and culture,” he stated.

However, he added that establishing and maintaining values can be particularly challenging when operating under a work-from-home or hybrid model.

Gospodinov said the IT sector in North Macedonia has effectively navigated the challenging period of COVID-19 and the subsequent difficulties the technology sector faced by successfully implementing alternative work models.

Moving from 'hybrid' to 'blended'

While players in the sector demonstrated the ability to adapt to a hybrid work environment, Gospodinov said they recognised the need to move forward. A hybrid system is an artificial mixture, he said, and the challenge is how to find a way from 'hybrid' to 'blended'.

“The way we engage with our employees must become a 'blended' way, where working from home, working from the office or from wherever is comfortable, should be made one organic system,” Gospodinov said.

According to him, the challenge companies face is to reach a point in the next few years where they can confidently say that their current approach is working exceptionally well for them.

Emphasising the need for change, he said “there were two points that we missed when we worked from home two-three years ago. We missed community and engagement.”

He added that it is imperative for companies to prioritise aligning what they provide with the needs of their employees, as they are the most valuable assets.

Class A office space in North Macedonia

Despite the changing trends, according to Fortonmka's data, the demand for Class A office space in North Macedonia is expected to stay strong following the historically low vacancy rates and the total take-up in Class A. The vacancy rate rose only slightly in 2022 by 3% year on year. Average prime rent was €13.5 per sqm and average transaction size was 450 sqm.

Projects in the pipeline for the first half of 2023 include 6,733 sqm of new office space expected to be delivered by Cevahir Business Center in Skopje, and another 3,100 sqm in the city centre to be delivered by Skopje Business Center. In the second half of 2023, 3,600 sqm will be delivered by La Piz Business Center and 3,600 sqm by 3 Corner BC in the inner city.

Hospitality and ESG in Albania

Stela Dhami, managing partner of Colliers International in Tirana, said the company has a strong presence in the Albanian hospitality sector, which is strongly promoted by the government and offers good incentives for investments.

Dhami acknowledged the impressive efforts of local investors in Albania, but expressed the necessity for more foreign investors particularly in the hospitality sector.

Other sectors have experienced tremendous growth in foreign investment. Now, “We want to see more investment in the hotel industry from foreign investors,” she said.

“For sure, the fusion of local and international is happening in Albania and is going very well because local investors contribute their valuable local expertise, while foreign investors bring in their international experience,” she said.

She underlined that environmental, social, and governance (ESG) considerations in the real estate sector are also a very important topic in Albania.

ESG standards was the topic of one of the six panel discussions at the conference, along with the latest trends in the office and residential markets, investment opportunities, financing strategies, and others.

Colliers along with German investors are working to develop the first business park in Albania, she said, calling it an important new project in the country.