Planning the Apartment Mix: Balancing Market Demand & Urban Planning

Today, the greatest demand on the real estate market is for smaller apartments, particularly among buyers. Despite this, new projects sometimes offer no apartments below 50 square metres. The reason lies not only in the developer’s calculations but, above all, in the urban planning conditions, the characteristics of the plot, and how carefully each project’s structure has been planned.

Location Dictates Structure

Given the greater supply of projects on the market, what is becoming increasingly important is recognising the needs and the potential of a given micro-location and, accordingly, defining the most appropriate mix of apartment structures — apartments that, both in size and in interior layout, are what the buyer at the target location expects. Every location has its own specific features, making the planning phase the most important part of a project.

Today, depending on the category, residential projects that, in terms of quality, belong to the mid and strong-mid market segment offer all apartment structures, with smaller apartments of up to 50 sq m generally accounting for around 50% of the total number of units. The remainder consists of apartments of larger sizes and structures. In the case of projects in the wider city zone, the share of smaller apartments can be even higher.

In luxury projects, at unique locations, the offer mainly consists of apartments with larger structures. This group of buyers does not view real estate solely as a place to live, but as a long-term investment, so three-, four- and five-room apartments are more sought after. Instead of maximising the number of apartments per building, the emphasis is placed on quality and privacy, so a single floor holds a smaller number of larger residential units.

Official data indicate that the floor area of newly built apartments has been rising over the years, but it still varies significantly from one municipality to another. Ten years ago, the average size of a newly built apartment in Belgrade was 61 sq m; today it is around 80 sq m, but in Palilula, Zvezdara and Zemun it is 62-63 square metres, while in municipalities such as Savski venac it is over 100 sq m.

As is the case with supply, demand in Belgrade is also quite segmented by location. In locations near the Novi Beograd business district and in the centre of Belgrade, there is greater demand for smaller and medium-sized apartments. Buyers most often look for one-room, one-and-a-half-room and two-room apartments of between 35 and 55 square metres, which offer the best balance of price and functionality. On the other hand, family apartments — three- and four-room units — are sought after in well-connected locations with developed infrastructure that offer numerous amenities for families, such as proximity to schools, kindergartens and public transport, which contribute to a better quality of life.

Urban Planning Conditions and Parking as a Constraint

In planning and design, the basic precondition is the urban planning parameters, and in line with these, as well as with the location, developers decide on the mix of apartment structures. A limiting factor is often the size and shape of the plot and the availability of parking spaces — more precisely, the number of parking spaces that must be provided at a given location, bearing in mind the obligation to provide a minimum of 1.1 parking spaces per apartment, while in the municipalities of Stari grad and Vračar that standard is higher, at 1.3 spaces per apartment.

The developer’s profit is certainly one of the important considerations, but although the price per square metre of smaller apartments is higher, that cannot be the reason developers opt to build them — rather, the decisive factors are the urban planning conditions, the ability to meet the parking space requirements, and the location itself. The developers aim to achieve, through optimal planning, design and sale of the property on the market, a satisfactory return on invested capital at an acceptable level of risk.

The profitability of a residential project is influenced by a large number of factors, the most significant of which are the price of land, the costs of infrastructure works and development contributions, the costs of design, construction and financing, and the market price of apartments at the specific location. The economic success of a project depends on the developer’s ability to align all the factors — urban planning conditions, location, structure, construction costs and market needs. For that reason, in some locations building only small apartments would not necessarily bring the developer a higher return.

Who Buys Small Apartments?

The structure of demand itself varies depending on the quality of the project and the micro-location. According to our research, in mid-quality projects with lower prices, around 85% of buyers purchase for their own needs, in order to live in the apartment, while the remainder buy for letting. The situation is similar with apartments in the most luxurious projects, since the investment often cannot be recovered through rent, and buyers in such projects purchase an apartment to live in or for their children to live in, while a smaller number of apartments are let. The highest share of buyers purchasing for investment purposes is found in upper-mid quality projects, which are currently the most numerous, especially in the central municipalities of Belgrade — there, 35-40% of buyers purchase apartments to let.

In line with market trends, most developers plan the most appropriate mix of units in order to respond to the location and to a broader target group, so in locations that are attractive to investment buyers they may plan a larger number of small apartments.

We all remember that in Serbia several generations lived under the same roof. According to official statistics, each inhabitant of Serbia has on average around 23 square metres of living space available. The general recommendation for preserving mental health is that the minimum living area should be 25 square metres per person, while in the larger cities of Western Europe residents have 30 to 35 sq m of living space.

Over the past few years, this trend has been changing in Serbia as well, and there is a growing need among young people to move out and own their own property, which in turn increases the demand for smaller apartments. Besides young couples, smaller apartments are popular among business professionals buying their first property, buyers from other parts of the country purchasing property for children coming to study, buyers from the diaspora, as well as investment buyers who purchase apartments in order to let them. This is also influenced by the level of the sale price, that is, the total amount that has to be paid for the apartment.

Market Transformation and Outlook Ahead

Over the past decade, the apartment market has undergone a complete transformation, driven by new supply but also by the arrival of foreign investors. New trends have been introduced through the concept of planned residential complexes, which, alongside high standards of quality in construction and finishing works and a high level of equipment, offer buyers a variety of apartment structures and additional lifestyle amenities. Further market development is expected to continue in this direction.

According to Census 2022 data, around 10% of people in Serbia live in rented accommodation. Unlike our market, at the European level the ratio of people living in their own home compared with those living in rented accommodation is 70:30% in favour of ownership, while in developed countries such as Germany, Austria and Switzerland that figure is even above 50% in favour of renting.

Investing in real estate remains the safest, most tangible and most profitable form of investment on our market. The very intensity of demand and the number of residential projects under construction, and therefore also on sale, speaks to the confidence in the stability and lucrativeness of the Serbian real estate market — on the part of both domestic and international investors, as well as buyers from our market and from the diaspora. For that reason, no stagnation is expected when it comes to investment in the construction of residential projects.

In developed European countries, the residential real estate market likewise represents one of the most stable forms of capital investment. In addition, investment is not limited to residential real estate alone, but covers a broad spectrum of investment opportunities such as investing in commercial real estate, as well as in various financial instruments — shares in large companies, investment funds and government bonds — which differ in their level of risk, expected return and liquidity. Investors most often seek to diversify their portfolio in order to reduce risk and secure stable returns over the longer term.