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On May 15 2009, the foundation stone for a major new Ljubljana building was laid. The plans - to build a 20-floor high office building which would be Slovenia's highest - would always have been ambitious. But they seemed even more so given that at the time building work started on Crystal Palace (Kristalna Palača), the world's real estate market was in a devastating slump.
Last month, the owners of the building held its official opening party. The news was good: 65 percent of the offices were occupied when Crystal Palace opened its doors. That didn't tell the full story, though. According to the chief financial officer of building owners BTC, the company had gone out and found each and every tenant. Not one had approached BTC.

Changing times

It's a story which sums up the commercial real estate market in late 2011. Just like those selling and renting domestic property, those who deal in commercial real estate have had to confront nervous tenants. Those like BTC who have been willing to grapple with that situation have succeeded. But those who haven't have been left unsatisfied.
"Last month we had a landlord refuse an offer of EUR 15 per square metre in a poor building in the city centre," says Jacqueline Stuart, director of Slovenia Invest, the country's only commercial property advisors. "It's frustrating because we know we will have to go through several months of this before the landlord appreciates that you can't fight the market. It is what it is."

Low rents, new clients

And what it is at the moment is a market which bears little relation to that of just a few years ago. In late August, Stuart was approached by a company looking to renegotiate their office lease. It was signed three years ago at EUR 18.2 per square metre. Today the same space would go for just EUR 12 per square metre. Another of Stuart's clients, a rapidly expanding aviation company, recently moved to a larger office space in a brand new building. Yet thanks to the charged market, there will be no increase in the amount the firm pays in rent.
Those two clients could be regarded as traditional occupiers of commercial property space. But according to Stuart, another change in the market has been the dramatic increase in enquiries from doctors, dentists, fitness companies, complementary therapists and the like. She says her firm recently signed a lease with a pilates studio for a B Class office building in the suburbs. Such deals are now far from unusual.

Buy?!

What is unusual, however, is an enquiry Stuart received in late August. "We heard from someone who wanted to buy offices," she remarks with an air of disbelief. "That was the first such enquiry in nine months. Companies are increasingly realising that money tied up in office space can be better utilised to develop their businesses. Nearly all office transactions now are rentals." Also surprising was an enquiry from a bank looking for 4,000 square metres of office space. This is huge by Ljubljana standards: the average office space in the city is just 250 square metres.
For some, adapting to the unique characteristics of the Slovenian market is another challenge. Stuart relates the story of a recent visit from partners at the Budapest office of Cushman & Wakefield, the renowned commercial real estate brokers and consultants. The team were viewing an out of town development which the owner wants to sell and had valued at a six percent yield based on similar transactions in Vienna. Institutional investors in Slovenia, however, would expect 10 percent since the market is viewed as highly illiquid.

Room for improvement

In this and other respects, Slovenia still lags behind when it comes to commercial real estate. At Cushman & Wakefield's London headquarters, situated in an AAA location in the heart of London, senior executives hot desk. This means they occupy very little space. Stuart says that in Slovenia, on the other hand, workers have an average of 12m2 each. She argues this is an area with the potential for real improvement and cost savings.
In other respects, though, Stuart is just fine with the market as it is. "Towards the end of September, I added up all the enquiries we had received since the end of the holidays on 31 August. We'd had 44. This is the kind of market we like," she smiles.