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Recent Developments in the Real Estate Market in the Czech Republic

Recent Developments in the Real Estate Market in the Czech Republic Recent Developments in the Real Estate Market in the Czech Republic

Similar to most countries in the CEE region, the Czech market is in a growing phase. After the economic downturn during 2009-2011 and slow growth in the embarrassing years of 2012 and 2013, we witnessed a change to a positive, optimistic mood in 2014 and 2015, which has led into an almost frantic buying mode in 2016.

The result of this is a hike in sale prices, on the one hand, which results in lower investment yields, on the other. Here is a brief overview of developments in the particular market segments:

Industrial

This sector is the clear winner of the recent growth. The market consolidated in recent years, with only a limited number of highly professional developers competing among themselves. So called “land banks” – i.e., plots of lands secured on a future purchase agreement basis – are almost exhausted. Some regions, such as West Bohemia, close to the highway from Pilsen to Germany, however, are over-crowded and suffer from a chronic shortage of qualified employees, who must then be brought in at higher costs from more distant places.

Hence, both developers and clients are actively looking for new alternatives in other regions of the Czech Republic. The preparation of suitable land plots seems to be rather slow, however, and not able to satisfy the still-growing demand. That certainly means that the industrial market is overheated.

Some big names have entered the Czech market in recent years, such as Amazon in Prague; however, other big projects were killed off by inflexible political representation.

Retail

Although the market seems to be almost saturated, there are still some new shopping centers under construction, with others being enlarged. There is a difference between a good and successful center and the apparently growing number of average, unfriendly, and half-empty centers with a high frequency of tenant changes. Also, the public has become more sophisticated, demanding better quality (not only in goods for sale, but also in related services), more comfortable parking, longer opening hours, easy traffic accessibility, and so on.

We see the future of the retail segment as involving more green buildings and an implementation of new trends, such as retail academies instructing shop assistants how best to approach their customers and provide them with the sense that they are welcome and important.

Residential

Although Prague has around 2500 new unsold flats, there is a large number of new residential projects, either under construction or in the pipeline very close to being put on the market. Whereas in the past the majority of the residential developers concentrated on the average size, medium quality, with price being the only decisive element for the buyer, nowadays we are often surprised by the number of high-end projects offering above average or even luxury apartments with an accent on prime location, usually with outstanding views and exacting construction standards. The normal segment is well covered; however, the gap between new development at the low and high end of the price scale will continue to grow.

Also, low interest rates on mortgages is making bank financing more easily available and accessible. As a result, families are moving to bigger, better apartments or family houses and many people buy homes or flats as investment property or on a speculative basis.

Church Restitution

Finally, after waiting more than 20 years, the Czech Parliament adopted the Church Restitution Law, eliminating the blockading of Church plots, hence enabling further development all over the Czech Republic. The majority of assets have already been transferred to the particular Churches, but a significant number of disputes involving Church plots remain pending with various courts.

Hotels

The Czech Republic – and especially Prague – is a prime tourist destination in CEE for many reasons, including the fantastic and well-preserved historic Prague city center, the best beer in the world, a variety of cultural events, and a central location in the heart of Europe (a geographical gravity center is located in the country). All of that contributes to the fact that the number of visitors grows year after year, which naturally increases the occupancy rate of Czech hotels.

Hence, after a few years of relatively low turnover in the number of hotel acquisitions, we are positively surprised by the many hotel sale transactions we are seeing, confirming the trust and confidence of investors in the future of the Czech Republic as a popular tourist destination.

Offices

The growing amount of available office space puts tenants in a strong position when entering new leases or renewing leases. Rent-free periods of six to nine months have become a standard as well as substantial fit-out contributions by the landlord for the benefit of the tenant.

Chinese Investment

At the end of March, 2016, the Chinese president visited Prague, and contracts for mutual cooperation and development in real estate were signed, promising Chinese investments of several billion USD into the Czech economy.

So we will see what the future will bring us.

By Jiri Barta, Partner, bpv Braun Partners

This Article was originally published in Issue 3.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Last modified onWednesday, 22 June 2016 14:26
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