Europe's Floridization

The Adriatic republic of Croatia doesn't have a particularly pleasant history. Its declaration of independence from Yugoslavia was followed by a four-year war with Serbia, conducted mainly in the neighboring state of Bosnia-Herzegovina. A large chunk of its population still views General Mirko Norak as a war hero, despite the fact that he was convicted of war crimes and is now serving a 12-year sentence for the 1991 massacre of dozens of Serbian civilians. The war was followed by government attacks on civil and political rights. And this is not ancient history: all these things took place within the last fifteen years.

So you could be forgiven for thinking that Croatia might have been neglected by Europe's international real estate industry. Yet 2005 saw two UK firms step up to the plate to develop property in the country. Last spring Accolade Property Limited, the firm founded in 2003 by former Goldman Sachs banker Jonathan Campbell, launched the €5 million Croatian Residential Growth Fund to invest in a country where he says “residential demand is growing much faster than in most parts of Europe.” Then, last summer, the commercial infrastructure developer First Croatia Properties announced that it had €200 million earmarked for investment in the country. Croatian real estate, it seems, is big business.

The reasons for this are to be found in Dalmatia, the country's long thin coastal region. In recent years, as the political situation in the country has stabilized and it edges closer to European norms, the market for holidays to Croatia has expanded massively. Last year, the Croatian National Tourist Board announced that 180,000 British tourists visited the country in 2004 and predicted that this figure would grow by 10 percent in 2005. The growing tourism industry has fed a property boom as developers stepped in to create resorts, infrastructure and facilities; prices have tripled in just three years.

This story has recently taken on a new dimension that will be familiar to anyone who has ever visited the southeastern tip of the United States. Florida is well known today as a popular destination for older people looking to spend their retirement in a warm climate. In 2003, when 17 percent of the state's population was aged 65 or over, Florida was already home to a higher percentage of retired people than any other state in the US. What's more, this trend is likely to intensify as the baby boomer generation hit their golden years: by 2030, the US Census Bureau predicts that one in every four Florida residents will be aged 65 or over.

The desire for a place in a sun is shared by anyone who has ever spent January looking out of a London office window onto wet and windswept streets. But despite the growth of the Mediterranean tourist industry over the last twenty-five years, Golden Girls-style southerly migration has been slow to catch on in Europe. Despite the differences in culture a traveler may find when he crosses the Mason-Dixon line, a New Englander in Miami is still in his own country. A Swede in Portugal, in contrast, has to contend with a foreign government and an unfamiliar language.

There are reasons to think this is changing, however. The EU has funded infrastructure development in southern Europe, while streamlined customs procedures, the launch of the Euro and the rise of budget airlines such as RyanAir have all made European travel cheaper and easier. Trips that felt like expensive journeys into the unknown as recently as the 1970s are the stuff of a last minute weekend away in 2006.

“The second homes business has experienced enormous growth over the last five or six years,” Jordi Robinat, the chairman of Spanish real estate developer MedGroup, said in a recent interview. “Many Europeans are likely to have a vacation home that becomes a retirement home.” The group, which is owned largely by US financier George Soros, is currently working on 11 luxury residential developments and 15 hotel complexes situated along Spain's Mediterranean coast.

More opportunistic investors may prefer to look further east to the emerging markets where land is cheaper and economic growth stronger. In addition to Croatia, Turkey has a fast developing tourism sector, while the Black Sea Coast of Bulgaria is also expected to see significant growth over the next few years. As property in Spain and Portugal becomes more expensive and more people look to buy second or retirement homes near to sun, sea and sand there should be significant opportunities for a canny real estate investor—after all, Europe has its baby boomers, too.