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03/2013
Commercial real estate in Czech Republic – Scarce supply of core property still dominates development
Real
esta
te
Country Facts
2 I Real Estate Country Facts 03/2013
Real Estate Country Facts
Imprint: Publisher and media owner: UniCredit Bank Austria AG http://www.bankaustria.atEditor: Bank Austria Real Estate Consulting & Investment, Karla Schestauber, Tel. +43 (0)50505-54784Layout: www.horvath.co.at
Dated: 22. February 2013
A joint publication of Bank Austria Real Estate, Immobilien Rating GmbH (IRG) and UniCredit Political Studies.
Legal notice – please read this important information: This publication is neither a marketing communication nor a financial analysis. It contains information on general economic data and real estate market data and related assessments of real estate market developments. Despite careful research and the use of reliable sources, we cannot assume any responsibility for the completeness, correctness, up-to-dateness and accuracy of information contained in this publication.
The publication has not been prepared in compliance with the legal provisions governing the independence of financial analyses, and it is not subject to the ban on trading subsequent to the distribu-tion of financial analyses.
This information should not be interpreted as a recommendation to buy or sell financial instruments, or as a solicitation of an offer to buy or sell financial instruments. This publication serves informa-tion purposes only and does not replace specific advice taking into account the investor’s individual personal circumstances (e.g. risk tolerance, knowledge and experience, investment objectives and financial circumstances).
Past performance is not a guide to future performance. Please note that the value of an investment and the return on it may rise and fall, and that every investment involves a degree of risk.
The information in this publication contains assessments of short-term market developments. We have obtained value data and other information from sources which we deem reliable. Our informa-tion and assessments may change without notice.
Disclosure pursuant to Section 25 of the Austrian Media Act:Supervisory Board: Dr. Erich Hampel, Chairman of the Supervisory Board; Dr. Paolo Fiorentino, Deputy Chairman of the Supervisory Board; Members of the Supervisory Board: Alfredo Meocci, Dr. Alessandro Decio, MBA, MSc, Dipl. Ing. Jean Pierre Mustier, Dr. Roberto Nicastro, Dr. Vittorio Ogliengo, Franz Rauch, Karl Samstag, Dr. Wolfgang Sprißler, Dr. Ernst Theimer. Delegated by the Employees’ Council: Wolfgang Heinzl, Chairman of the Employees’ Council, Mag. Adolf Lehner, First Deputy Chairman of the Employees’ Council; Emmerich Perl, Second Deputy Chairman of the Employees’ Council; Dr. Barbara Wiedernig, Third Deputy Chairwoman of the Employees’ Council; Members of the Employees’ Council: Josef Reichl, Robert Traunwieser.
Management Board: Willibald Cernko, Chairman, Chief Executive Officer (CEO); Gianni Franco Papa, Deputy Chairman (CEE Banking); Members of the Management Board: Dr. Jürgen Kullnigg (CRO Risk Management), Francesco Giordano, MSc (CFO Finance), Mag. Helmut Bernkopf (Family & SME Banking), Mag. Dieter Hengl (Corporate & Investment Banking), Mag. Doris Tomanek (Human Resources Austria & CEE), Robert Zadrazil (Private Banking).
Objective of the medium: Information of the customer
Interests held in the media owner pursuant to Section 25 of the Austrian Media Act: UniCredit S.p.A. holds 99.996% of the shares in the media owner (information on the shareholder structure of UniCredit S.p.A. is available at https://www.unicre-ditgroup.eu/en/governance/shareholder-structure.html).
„Betriebsratsfonds des Betriebsrats der Angestellten der UniCredit Bank Austria AG, Region Wien“ (the Employees’ Council Fund of the Employees’ Council of employees of UniCredit Bank Austria AG in the Vienna area) and „Privat-stiftung zur Verwaltung von Anteilsrechten“ (a private foun-dation under Austrian law; founder: Anteilsverwaltung-Zen-tralsparkasse; beneficiary: WWTF – Wiener Wissenschafts-, Forschungs- und Technologiefonds) have a combined interest of 0.004% in the media owner.
Real Estate Country Facts 03/2013 I 3
The past few months have seen progress in easing the problems experienced in the euro area. Sentiment in financial markets and in the business sector has improved and this should have a positive effect on the real economy in the com-ing months. While political risks should not be overlooked and setbacks may occur time and again, we think that the economy in the euro area will gradually
recover as the current year progresses. This means that the Czech economy is also enjoying a brighter outlook as over 80% of the country’s exports go to the European Union. Real estate business in Europe picked up in the final months of 2012. According to CBRE, the transaction volume in Europe’s com-mercial property market rose to EUR 41.5 billion in the fourth quarter of 2012, a level which was 48% higher than in the third quarter of 2012 and up by 16% on the fourth quarter of 2011. Demand still focused on core assets, however, also with a preference for liquid markets such as Germany, which are seen as safe. The transaction volume in Central and Eastern Europe continued to concentrate on Poland and Russia, while smaller core markets experienced a scar-city of supply. In 2012, investment in commercial property in the Czech Republic fell sharply, by 71%, to EUR 609 million compared
with the previous year. While demand for core property remained significant, supply was scarce.
Developments in 2013 will largely depend on how fast real estate investors’ risk appetite will grow and whether such an increase will be sustainable. We expect property markets in CEE to become more attractive again, and that demand for core real estate as well as value-added properties in attractive locations which offer signifi-cantly higher returns, is going to rise accordingly.
Real estate investors and developers are still relatively risk-averse. Also a number of banks are acting with restraint when it comes to granting new real estate loans in CEE countries. They all run the risk of missing major anticyclical opportunities. We as UniCredit Bank Austria are prepared to provide financing. In 2012, we recorded new business totalling about EUR 1.5 billion. Our strategy for 2013 aims at maintaining or raising this level. UniCredit’s extensive CEE network enables us to use our expertise in Austria and also draw on the local know-how of UniCredit Bank Czech Republic, thus providing our clients with wide-ranging support.
Yours sincerely,
Karla Schestauber
Risk appetite – the key word for future developments in real estate markets
4 I Real Estate Country Facts 03/2013
Real Estate Country Facts
The Czech economy ranked among the most developed countries entering the EU in 2004. Its GDP per capita amounted to EUR 14,880 in 2011, which in PPS represented 80% of the EU average. This put the country even ahead of some Western European economies of the old EU block (Portugal, Greece). The country’s convergence process gained momentum after the EU accession in May 2004. The simplification of good shipments let to an increase in trade with the EU. The proportion of exports to the block on total exported volume rose to above 80% where it has held up to date. Germany has remained by far the largest destination for Czech exporters, with its share staying above 30% on the overall exports.
In just four years to 2007, the export-to-GDP ratio jumped by 17 p.p. to 68% (80% in 2012), underscoring the country’s status of one of the most open economies. This goes hand in hand with another country’s feature: concentration of industry. The share of industry in total value added at around 30% is one of the highest in the EU.
The 2008 – 2009 crisis highlighted the vulnerability of the export-oriented Czech economy to external shocks. The robust real GDP growth of 6.6% on average in 2005 – 2007 was followed by a slowdown to 2.9% in 2008 and a contraction of 4.4% in 2009. Although the impacts of the global crisis were noticeable in the local economy, little harm was felt in the domestic financial sector. It was a combination of a number of positive characteristics, unique on a worldwide scale, what made Czech banks highly resistant: excess of liquidity, high assets quality, strong capital base, low
share of FX loans, focus on traditional banking activities etc. This all contributed to the fact that the local banking sector did not require any capital injection from the government and was able to stick to solid profitability rates. Following a period of moderate recovery in 2010 – 11, the recession got back to the economy in 2012. Both components of domestic demand – consumption and gross capital – pulled GDP down, while net exports made the only positive contri-bution to growth, albeit with slowing dynamic. In 2013, the country should move towards a gradual recovery in economic activity, sup-ported by improving external demand and an upturn in the inven-tory cycle. Private consumption, however, is set to remain low.
A low inflationary environment is typical for the economy, with the Czech National Bank’s (CNB’s) inflation target (currently at 2%) rarely being overshot in the country’s history. The principal reason for the elevated inflation since late 2011 has been the VAT rate hikes along with regulatory price adjustments in the housing segment, i.e. factors little relevant from the monetary policy viewpoint. We expect these effects to continue keeping the CPI growth above the CNB’s target in 2013 as well, although inflation should be roughly 1 p.p. lower on average than in 2012.
After a two-year pause, the CNB restored the easing of monetary policy by cutting interest rates in mid-2012. Last November, the key two-week repo rate was cut to a technical zero of 0.05%, yet the central bankers have signaled the need to loose monetary conditions further. Weakening the CZK through market interventions has been repeatedly mentioned to be the best solution. Up to now, it seems
Macroeconomic data and forecasts2010 2011 2012e 2013f 2014f
Nominal GDP (EUR bn) 150.1 156.1 153.0 155.2 166.1
Per capita GDP (EUR) 14,274 14,874 14,553 14,742 15,755
Real GDP yoy (%) 2.3 1.9 –1.1 0.4 2.2
Inflation (CPI) yoy, avg (%) 1.5 1.9 3.3 2.3 2.1
Unemployment rate, avg (%) 7.0 6.7 6.8 7.3 7.0
Exchange rate EUR / CZK, avg 25.29 24.59 25.14 25.50 24.90
Current account / GDP (%) –3.9 –2.8 –2.2 –0.5 0.0
FDI / GDP (%), net inflow 2.5 2.0 3.4 2.8 2.8
Budget balance / GDP (%) –4.8 –3.3 –5.0 –3.4 –3.0
Public debt / GDP (%) (ESA 95) 37.8 40.8 45.5 47.5 48.4
Total external debt / GDP (%) 46.5 48.8 50.4 51.9 53.0e … estimate; f … forecast
Sources: Czech National Bank, Czech Statistical Office, Unicredit Research
Czech Republic – healthy fundamentals, weak performance
Real Estate Country Facts 03/2013 I 5
The external stability of the economy has long remained firm, with the current account deficit holding below 4.5% of GDP since 2005. Moreover, the basic balance, which describes to what extent FDI inflow is able to finance the deficit on the current account, has lately shown visible signs of improvement.
that verbal interventions are sufficient to do the job. Given the benign inflation and economic outlook for 2013, the switch to a tightening bias is highly unlikely before 2014.
After years of solid gains, CZK has practically not been appreciating against EUR since 2008 and the CNB’s foreign exchange policy should not allow CZK to enter the firming path this year.
Contribution to real GDP growth
–8
–6
–4
–2
0
2
4
6
3Q123Q10 3Q111Q10 1Q11 1Q123Q091Q09
Source: Czech Statistical Office, Unicredit Research
GDP gross capital consumptionnet exports
%-points
EUR/CZK exchange rate
22
26
27
28
29
30
25
24
23
Jan. 1
3Jan
. 07
July 0
8Apr. 0
9Jan
. 10
Oct. 10
Oct. 07
July 1
1Apr. 1
2
Source: Czech National Bank, Unicredit Research
Basic balance (CZKbn)
20052006
20072008
20092010
20112012e
2013e0
50
250
300
200
150
100
–2
0
2
4
6
8
10
Basic balance (% GDP) – RSNet FDI inflowCurrent account deficit
Source: Czech National Bank, Unicredit Research
CPI (yoy %)
–1
0
1
2
3
4
Nov. 14
Jan. 0
9
Nov. 09
Sep. 1
0Jul
y 11
May 12
Mar. 13
Jan. 1
4
CNB CPI target
CPI
Source: Czech Statistical Office, Unicredit Research
6 I Real Estate Country Facts 03/2013
Real Estate Country Facts
Short supply of core property slows investment activity
Investors still concentrating on core assetsCommercial real estate investors were still looking primarily for core property in 2012 (very good location, prime tenants with long term rental agreements). Against the background of short supply, the investment volume in the Czech Republic last year dropped to 609 million euros according to CBRE data, 71% below the 2011 level. However, the fact must not be overlooked that 2011 was an exceptionally good year in which a whole series of very large trans-actions were concluded.
Not only did the number of deals drop in 2012, the transaction vol-ume also declined to an average of 30 million euros. Around half of all transactions were concluded by Czech investors, while investors from Germany, the USA, Austria, Greece and the United Kingdom were also active. Offices dominated with a proportion of around 60% of the total volume, followed by retail and industrial real estate. Prime yields at the end of 2012 were largely unchanged at 6.5% for offices, 6.25% for retail and 8% for industrial properties.
Tenants are increasingly looking for modern spaces with low operating costs. The expected economic recovery is likely to be reflected in increased new rental agreements from 2014 the latest, so we see good chances for developers and investors. In light of the short supply of core real estate, value-added investments (good location, but with need for renovation) offer especially attractive chances.
Investment volume in the whole CEE area declined by a good 30% last year, the Czech Republic’s proportion of this dropped significantly to 0.5% from 1.8% in 2011. A gradual recovery of risk appetite should however, improve the position of the Czech market again.
Czech Republic real estatemarket regarded as transparentThe Czech Republic is classified as a transparent real estate market by Jones Lang LaSalle. In the Transparency Index for 2012, the Czech Republic ranked 24th, just behind Austria in 22nd place, making it the second-highest ranking CEE country. Similar to Poland, the Czech Republic scores especially well in the depth of market data. The IPD (Investment Property Database) has also been presenting
Czech Republic - Investment Volume in Commercial Real Estate (in EUR m)
0
500
1,000
1,500
2,000
2,500
3,000
Source: CBRE
20122006 20102005 200920082007 201120042003
Market share in 2012
CEE
Austria
Germany
Italy
Czech Republic
Rest Europe
Source: CBRE
Office prime yields 4th quarter 2012City In % Change from high in bp
Vienna 5.00 –75
Warsaw 6.25 –50
Prague 6.50 –50
Bratislava 7.25 –25
Budapest 7.50 –50
Bucharest 8.25 –125
Moscow 8.50 –350
Kiev 13.00 –200Source: CBRE
Real Estate Country Facts 03/2013 I 7
rate risk should not be completely neglected, especially since the CNB has stated that a weaker koruna would be desirable.
Czech Republic real estate market in the more distant futureMany CEE countries (including SEE and CIS) are classified as developing countries. Pramerica takes the approach that the potential of these countries should not be measured in terms of population and GDP growth, but rather by the size and output of the “consumer class”. The consumer class is the segment of the population that has suf-ficient income and production power to use real estate of institutional quality, such as shopping centres, offices, modern apartments and hotels. Even though the Czech Republic already enjoys a high level of development and the population as a whole is considered as being the consumer class, high productivity growth will allow a relatively substantial increase in per capita GDP, which will boost the demand for commercial real estate in the long term.
an annual performance indicator for the Czech Republic since 2010, increasing transparency.
The low country risk also speaks for the Czech Republic. The CDS Spread development, which indicates a country’s probability of default, classifies the country’s default risk as being only marginally higher than that of Austria, while Poland’s risk, for example, is somewhat higher.
The Czech Republic remains outside the euro and is planning on retaining the koruna (CZK) for the foreseeable future. This gives somewhat greater flexibility in its monetary policy. The koruna has remained relatively stable against the euro in recent years, fluctuating in a corridor between 24 and 26 CZK/EUR. However, a certain exchange
5-year CDS spreads (in bp)
0
100
150
200
250
300
350
400
450
50
PolandAustriaCzech Rep.
01.1
0.08
01.1
2.08
01.0
2.09
01.0
4.09
01.0
6.09
01.0
8.09
01.1
0.09
01.1
2.09
01.0
2.10
01.0
4.10
01.0
6.10
01.0
8.10
01.1
0.10
01.1
2.10
01.0
2.11
01.0
4.11
01.0
6.11
01.0
8.11
01.1
0.11
01.1
2.11
01.0
2.12
01.0
4.12
01.0
6.12
01.0
8.12
01.1
0.12
01.1
2.12
01.0
2.13
Source: DataStream
EUR/CZK
20
28
30
32
34
40
26
24
22
36
38
Source: DataStream04
.01.
99
04.0
1.00
04.0
1.01
04.0
1.02
04.0
1.03
04.0
1.04
04.0
1.05
04.0
1.06
04.0
1.07
04.0
1.08
04.0
1.09
04.0
1.10
04.0
1.11
04.0
1.12
04.0
1.13
JLL Transparency Index 2012 EuropaTranspareny level Rang Market
2 UK4 Netherlands
High 7 France8 Finland9 Sweden
10 Switzerland12 Germany14 Denmark15 Ireland16 Spain17 Belgium
Transparent 18 Norway19 Poland20 Italy22 Austria24 Czech Republic26 Hungary28 Portugal
Source: Jones Lang LaSalle
GDP per capita of “Consumer Class” in USD 2012 2022
Russia 25,276 37,403
Turkey 21,412 35,347
Slovakia 18,130 34,270
Czech Republic 18,770 34,080
Hungary 15,630 26,960
Poland 16,207 26,430
Romania 15,082 24,353
Ukraine 11,829 22,283
Bulgarien 18,446 21,816Source: Pramerica
8 I Real Estate Country Facts 03/2013
Real Estate Country Facts
Czech office market – demand expected to increase in 2014 at the latest
Supply of office space has slowed significantlyPrague, the capital city, is by far the most important office market in the Czech Republic. The volume of office space has nearly tripled from 2000 to 2009 as many speculative office buildings which were started before the financial and economic crisis were still delivered to the market. The situation only calmed significantly in 2010. 2011 and 2012 saw about 100,000 m2 of new space come onto the market, far less than before the crisis.
Besides new buildings, renovated older buildings are becoming ever more important as tenants demand modern spaces with lower operating costs.
Some 80% of all office space is located in the nine office hubs, with the largest volume of office space in Pankrac-Budejovicka (inner city), followed by the central district and some way behind in Karlin. Much smaller hubs are Butovice-Stodulky, Holesovice, Chodov-Opatov, Smichov-Andel, Dejvice-Evropska and Vysocany-Prosek-Letnany.
This year, supply of new office space in Prague is again expected to be in the order of 100,000 m2, some 50,000 m2 of which will be delivered by the Florentinum development in the central district.
In Brno the Titanium development (phase 1) is also worthy of mention-ing with 20,000 m2 as well as Nová Karolina Park with 25,000 m2.
Office space scheduled for completion in 2013 or later (selection)Office project Total usable
area (m2)Year of delivery
Status City
Florentinum 49,000 2013 under construction
Prague
Nová Karolina Park 25,000 2013 under construction
Ostrava
Titanium (1. Phase) 20,000 2013 under construction
Brno
Libeň Dock 01 9,000 2013 under construction
Prague
AZ Tower 9,000 2013 under construction
Brno
Na příkopě 14 7,000 2013 under construction
Prague
BB Centrum/Gebäude G 5,500 2013 under construction
Prague
River Gardens II 23,000 2014 under construction
Prague
Jindřišská 16 6,000 2014 under construction
Prague
Jungmannova 15 7,000 2014 under construction
Prague
Source: IRG
Office market development in Prague 2000–2013(f)
20002001
20022003
20042005
20062007
20082009
20102011
2012
2013(f)0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Source: IRG, CBRE
Mill
ions
of m
2
Office stock in 1,000 m2
0
100
200
300
400
500
600
Vysocan
y-Pros
ek-Let
nany
Dejvice
-Evrop
ska
Smich
ov-Ande
l
Chodov-
Opatov
Holesov
ice
Butovic
e-Stod
ulky
Karlin
Zentru
m
Pankra
c-
Budejo
vicka
Source: CBRE
Real Estate Country Facts 03/2013 I 9
Despite the recession in the Czech economy, the relatively low development of new office space led to stabilization of the vacancy rate at 11.5% last year. Compared to other European cities, Prague is thus in the middle of the pack, on a similar level to Moscow or Brussels.
Prime rents in the central district have stabilised somewhat after the decline in 2009. In 2012 they were running around 20 EUR/m2/month. Rents in Karlin, Pankrac and Smichov are lower, between 15 and 18 EUR/m2/month.
Compared to other CEE cities, Prague is in second place behind Bratislava when it comes to existing office space per inhabitant, with 2.33. However, it is expected to be overtaken by Warsaw in the near future. Compared to western capital cities, the rising per-capita GDP is providing scope for new space in the medium to long term.
In 2012, total leasing activity reached approximately 250,000 m2, whereby new leases were around 150,000 m2 , below the long-term annual average of around 180,000 m2.
We expect moderately positive economic growth of the Czech economy in 2013. This will already help lease performance this year. From 2014 onwards, the demand for office space should continue to rise still further.
Office space per inhabitant in 2012, in m2Geneva 20.34
Copenhagen 20.02
Frankfurt 16.95
Zurich 15.76
Munich 15.16
Milan 8.93
Paris 7.61
Hamburg 7.42
Vienna 6.09
Bratislava 3.56
Prague 2.33
Warsaw 2.16
Budapest 1.82
Sofia 1.18
Tallinn 1.18
Bucharest 1.10
Moscow 1.04
Zagreb 0.81
Riga 0.80
Vilnius 0.71
Kiev 0.50
Belgrade 0.31
Istanbul 0.22Source: IRG
Vacancy rates in Europe, 2012
Dublin
Budap
est Kiev
Buchare
st
Madrid
Amsterda
mLis
bon
Moscow
Prague
Brussel
s
Stockh
olm
Istan
bul
Copen
hagen
Londo
nBerl
inRom
e
Warsaw Oslo
Vienna
Paris
0
5
10
15
20
25
Source: IRG
Vaca
ncy
rate
s in
%
Prime office rents Prague 2007–2012 (eop)
10
15
20
25
2007 2008 2009 2010 2011 2012
Source: IRG
EUR/m2/month
Take-up in Prague
0
50,000
300,000
100,000
150,000
200,000
250,000
2005 2006 2007 2008 2009 2010 2011 2012
Source: BulwienGesa
in m2
10 I Real Estate Country Facts 03/2013
Real Estate Country Facts
New rentals exceed production of new spaceThe logistics market was hit especially hard by the world wide crisis after Lehman as the speed of reaction in this sector is particularly high. A construction stop in logistics properties, which are often built in phases/modules, is much easier than with a large office building or shopping centres, where such decisions have substan-tially wider implications. For this reason, relatively little space has come onto the market in recent years, with new rentals exceeding new supply since 2010. This has caused the vacancy rate to drop from a high of 18% in the crisis to its current rate of just under 7% on a national average.
At the end of 2012, there were a good 4 million m2 of industrial stock in the Czech Republic. Some 200,000 m2 were completed last year, with pre-leases exceeding 40%. Build-to-suit space is becoming increasingly more important.
Demand for logistics space is driven largely by the automotive component supply industry, making regional logistics hubs more important. Attainable rents outside the metropolitan area of Prague fluctuated 2012 in a corridor of 3.50 – 4.50 EUR/m2/month.
Fewer vacancies in the metropolitan area of PragueSome 40% of industrial stock is located in the metropolitan area of Prague, whereby almost 60,000 m2 were added last year. New rentals in 2012 were far higher at almost 190,000 m2. Accordingly, the vacancy rate continued its downward trend. However, there were tangible differences within the metropolitan area of Prague. In Prague North/North-East and Prague South/South-East, the vacancy rate was far lower than it was in the western districts, with a
vacancy rate of around 13%. More than 40,000 m2 are currently under construction. Finding tenants for this new space is not expected to be a problem. The situation is far more challenging for older spaces which no longer meet modern standards.
Stable rentsPrime rents have stabilised at just under 4 EUR/m2/month in the metropolitan area of Prague in recent years.
Prime yields around 8%Prime yields, which reached 9% during the crisis, have gradually dropped and are currently about 8%.
Prime rents logistics Prague, 2007–2012
0
2
8
1
7
6
5
4
3
2007 2008 2009 2010 2011 2012
Source: IRG
EUR/m2/month
Vacancy rate logistics Prague, 2007–2012
0
10
15
20
5
2007 2008 2009 2010 2011 2012
Source: IRG
in %
Czech industrial market
0
100
700
800
200
300
400
500
600
2006 2007 2008 2009 2010 2011 2012
Source: CBRE
in m2
New supplyTake-up
Czech industrial market – a relative success story
Real Estate Country Facts 03/2013 I 11
Consumers remain cautiousWeak private consumer spending is having a negative effect on the Czech retail sector. According to our forecast, consumer spending will remain an impediment to growth again this year. A revival is only expected in 2014. Large volume of existing retail spaceThe Czech Republic is a saturated retail market with a quite high volume of existing space. Despite this, new space is still coming to the market, even though growth has slowed significantly. Measured in terms off the absolute amount of stock available, the Czech retail sector is concentrated heavily in Prague with around 900,000 m2 of shopping centre space. However, there is a different picture if the number of inhabitants is also taken into account. While Prague boasts around 700 m2 per 1000 inhabitants, Liberec has almost double the relative space with around 1400 m2. Mladá Boleslav also boasts a similar concentration. This disproportionate increase in space in smaller towns and cities has already led to tough cut-throat competition, a process which has not yet been concluded.
Some smaller cities are highly dependent on certain industries. International economic upturns and downturns have therefore a profound effect on the local labor market and can heighten the regional predatory competition in the retail sector.
Purchasing power still below the EU averagePurchasing power in the Czech Republic remains below the EU average, with consumers in Prague being able to afford around a quarter more than the national average. In the medium to long term, the process of convergence in the Czech economy will continue and the retail sector will benefit from increasing purchasing power.
Prague has a high density of retail space compared to other capital citiesCompared to other European capitals, Prague has a relatively high density of overall retail space with almost 800 m2 per 1000 inhabitants. That means the Czech capital has more space than, for example, Vienna or Munich, where the inhabitants enjoy substantially more purchasing power.
Slower expansion of space
SC space in Czech cities 2012
Prag Brno
Ostrava Plze
ňLib
erec
Olomou
c
České B
udějovic
e
SC sp
ace
in m
²
SC sp
ace
per 1
,000
inh.
0
200,000
400,000
600,000
800,000
1,000,000
0
250
500
750
1,000
1,250
1,500
SC space per 1,000 inh.SC space in m²
Source: IRG, BulwienGesa
Puchasing power in EUR/capita, 2012
0
1,000
6,000
7,000
8,000
9,000
10,000
5,000
4,000
3,000
2,000
České B
udějovic
e
Olomou
c
Libere
cPlze
ňBrno
Ostrava
Prague
Czech re
public
Source: MB Research
Purc
hasin
g po
wer
in E
UR/c
apita
EU 27-average: 15.594 EUR/capita
Retail space in m2, 2012 per 1000 inhabitantsBratislava 1,095Warsaw 863Prague 788Frankfurt/Main 740Zagreb 736Budapest 695Vienna 614Munich 464Bucharest 440Moscow 374Sofia 269Source: IRG, CBRE, BulwienGesa
Czech retail sector suffering from weak consumer spending
12 I Real Estate Country Facts 03/2013
Real Estate Country Facts
Despite the high degree of market saturation, new space is still coming onto the market, although this growth has slowed significantly. In Prague, the second expansion of the Cerny Most Shopping & Leisure Centers alone represents an increase of almost 40,000 m2 this year.
CBRE estimates the volume of older shopping center space – meaning space that came onto the market before 2002 – at almost one million m2. That means there is potential for renovations, while new developments will only come to the market selectively.
Rents relatively stableDepending on the location, performance and size of the shops, rents in the shopping centers in Prague are in a range of eight and 80 EUR/m2/month. Top shopping streets in Prague, which are increasingly attracting international luxury brands, demand 140 to 180 EUR/m2/month. Rent in the smaller cities is significantly lower.
As a rule, tenants still enjoy a good negotiating position for securing special concessions such as the acceptance of relocation costs, reduction or suspension of revenue-based rent, reduced service costs, etc. Landlords prefer to make these concessions before they accept a reduction in net rent.
Czech Republic still interesting for international retailersDespite weak domestic demand, below-EU-average purchasing power and high market saturation, the Czech Republic remains interesting for international retailers pursuing a medium- to long-term strategy. According to CBRE, Hervis, Intersport, Deichmann, Takko Fashion and several others have extension plans. However, there are also negative examples, like Giga Sport and Flugger which have abandoned the Czech market.
26
24
23
9
6
4
3
1
34
33
32
29
27
21
20
19
17
16
15
14
13
8
22
28
10
2
3130
25
Created on: 2/2013Sources: IRG, ESRI,BulwienGesa, RegioPlan, developers' figures
Shopping CentresPrague
LEGEND
Shopping Centre
GLA in m²
> 50,000 m²
20,001 – 50,000 m²
< 20,000 m²
State of SC
±0 2,5 51,25Kilometer
1 OC Letňany2 Nový Smíchov3 Centrum Chodov4 Metropole Zlicín5 Avion Shopping Park6 Europark Štěrboholy7 Galerie Harfa Shopping Center8 Rustonka (former Pražské strojírny)9 Arkády Pankrác10 Centrum Černý Most11 Centrum Černý Most (2nd extension)12 Palladium13 Galerie Butovice14 Nákupní centrum Eden15 OC Park Hostivař16 OC Šestka17 Nákupní centrum Stodůlky 18 Palác Flóra19 DBK Obchodní centrum20 Kotva Department Stores21 Novodvorská Plaza22 Shopping Center Lužiny 23 Palác Stromovka24 Centrum Krakov25 Bílá Labuť - Na Pořící26 Copa Centrum Národní27 Černá růže28 Na příkopĕ 14 (Highstreet)29 Galerie Fénix30 My Národní31 Millenium Plaza32 Shopping point Řepy33 Passage Myslbek34 OC Spektrum35 Palác Koruna36 Zlatý Anděl37 Slovanský Dům38 Diamant (Highstreet)39 Palác Metro
Existing SC
SC under construction
Planned SC
Prague
11
28
2639
37
31
2520
12
38
30
2735
36
393735
38
1218
7
5
Shopping centres Prague
26
24
23
9
7
6
54
3
1
34
33
32
29
27
21
20
19
18
17
16
15
14
13
8
22
28
10
2
3130
25
Created on: 2/2013Source: IRG, ESRIBulwienGesa, RegioPlan, developers' figures
Shopping Centres Prague
LEGEND
Shopping Centre
GLA in m²
> 50,000 m²
20,001 – 50,000 m²
< 20,000 m²
state of SC
0 2,5 51,25Kilometer
1 OC Letňany2 Nový Smíchov3 Centrum Chodov4 Metropole Zlicín5 Avion Shopping Park6 Europark Štěrboholy7 Galerie Harfa Shopping Center8 Rustonka (former Pražské strojírny)9 Arkády Pankrác10 Centrum Černý Most11 Centrum Černý Most (2nd extension)12 Palladium13 Galerie Butovice14 Nákupní centrum Eden15 OC Park Hostivař16 OC Šestka17 Nákupní centrum Stodůlky 18 Palác Flóra19 DBK Obchodní centrum20 Kotva Department Stores21 Novodvorská Plaza22 Shopping Center Lužiny 23 Palác Stromovka24 Centrum Krakov25 Bílá Labuť - Na Pořící26 Copa Centrum Národní27 Černá růže28 Na příkopĕ 14 (Highstreet)29 Galerie Fénix30 My Národní31 Millenium Plaza32 Shopping point Řepy33 Passage Myslbek34 OC Spektrum35 Palác Koruna36 Zlatý Anděl37 Slovanský Dům38 Diamant (Highstreet)39 Palác Metro
Existing SC
SC Under Construction
Planned SC
Prague
11
28
2639
37
31
2520
12
38
30
2735
36
393735
38
12
26
24
23
9
7
6
54
3
1
34
33
32
29
27
21
20
19
18
17
16
15
14
13
8
22
28
10
2
3130
25
Created on: 2/2013Source: IRG, ESRIBulwienGesa, RegioPlan, developers' figures
Shopping Centres Prague
LEGEND
Shopping Centre
GLA in m²
> 50,000 m²
20,001 – 50,000 m²
< 20,000 m²
state of SC
0 2,5 51,25Kilometer
1 OC Letňany2 Nový Smíchov3 Centrum Chodov4 Metropole Zlicín5 Avion Shopping Park6 Europark Štěrboholy7 Galerie Harfa Shopping Center8 Rustonka (former Pražské strojírny)9 Arkády Pankrác10 Centrum Černý Most11 Centrum Černý Most (2nd extension)12 Palladium13 Galerie Butovice14 Nákupní centrum Eden15 OC Park Hostivař16 OC Šestka17 Nákupní centrum Stodůlky 18 Palác Flóra19 DBK Obchodní centrum20 Kotva Department Stores21 Novodvorská Plaza22 Shopping Center Lužiny 23 Palác Stromovka24 Centrum Krakov25 Bílá Labuť - Na Pořící26 Copa Centrum Národní27 Černá růže28 Na příkopĕ 14 (Highstreet)29 Galerie Fénix30 My Národní31 Millenium Plaza32 Shopping point Řepy33 Passage Myslbek34 OC Spektrum35 Palác Koruna36 Zlatý Anděl37 Slovanský Dům38 Diamant (Highstreet)39 Palác Metro
Existing SC
SC Under Construction
Planned SC
Prague
11
28
2639
37
31
2520
12
38
30
2735
36
393735
38
12
26
24
23
9
7
6
54
3
1
34
33
32
29
27
21
20
19
18
17
16
15
14
13
8
22
28
10
2
3130
25
Created on: 2/2013Source: IRG, ESRIBulwienGesa, RegioPlan, developers' figures
Shopping Centres Prague
LEGEND
Shopping Centre
GLA in m²
> 50,000 m²
20,001 – 50,000 m²
< 20,000 m²
state of SC
0 2,5 51,25Kilometer
1 OC Letňany2 Nový Smíchov3 Centrum Chodov4 Metropole Zlicín5 Avion Shopping Park6 Europark Štěrboholy7 Galerie Harfa Shopping Center8 Rustonka (former Pražské strojírny)9 Arkády Pankrác10 Centrum Černý Most11 Centrum Černý Most (2nd extension)12 Palladium13 Galerie Butovice14 Nákupní centrum Eden15 OC Park Hostivař16 OC Šestka17 Nákupní centrum Stodůlky 18 Palác Flóra19 DBK Obchodní centrum20 Kotva Department Stores21 Novodvorská Plaza22 Shopping Center Lužiny 23 Palác Stromovka24 Centrum Krakov25 Bílá Labuť - Na Pořící26 Copa Centrum Národní27 Černá růže28 Na příkopĕ 14 (Highstreet)29 Galerie Fénix30 My Národní31 Millenium Plaza32 Shopping point Řepy33 Passage Myslbek34 OC Spektrum35 Palác Koruna36 Zlatý Anděl37 Slovanský Dům38 Diamant (Highstreet)39 Palác Metro
Existing SC
SC Under Construction
Planned SC
Prague
11
28
2639
37
31
2520
12
38
30
2735
36
393735
38
12
26
24
23
9
7
6
54
3
1
34
33
32
29
27
21
20
19
18
17
16
15
14
13
8
22
28
10
2
3130
25
Created on: 2/2013Source: IRG, ESRIBulwienGesa, RegioPlan, developers' figures
Shopping Centres Prague
LEGEND
Shopping Centre
GLA in m²
> 50,000 m²
20,001 – 50,000 m²
< 20,000 m²
state of SC
0 2,5 51,25Kilometer
1 OC Letňany2 Nový Smíchov3 Centrum Chodov4 Metropole Zlicín5 Avion Shopping Park6 Europark Štěrboholy7 Galerie Harfa Shopping Center8 Rustonka (former Pražské strojírny)9 Arkády Pankrác10 Centrum Černý Most11 Centrum Černý Most (2nd extension)12 Palladium13 Galerie Butovice14 Nákupní centrum Eden15 OC Park Hostivař16 OC Šestka17 Nákupní centrum Stodůlky 18 Palác Flóra19 DBK Obchodní centrum20 Kotva Department Stores21 Novodvorská Plaza22 Shopping Center Lužiny 23 Palác Stromovka24 Centrum Krakov25 Bílá Labuť - Na Pořící26 Copa Centrum Národní27 Černá růže28 Na příkopĕ 14 (Highstreet)29 Galerie Fénix30 My Národní31 Millenium Plaza32 Shopping point Řepy33 Passage Myslbek34 OC Spektrum35 Palác Koruna36 Zlatý Anděl37 Slovanský Dům38 Diamant (Highstreet)39 Palác Metro
Existing SC
SC Under Construction
Planned SC
Prague
11
28
2639
37
31
2520
12
38
30
2735
36
393735
38
12
Created on: 2/2013, Source: IRG, ESRI BulwienGesa, RegioPlan, developers‘ figures
Selected retail developments in Prague at planning stage/under constructionShopping centre Gross lettable
area m (Planned)opening, status
Cerný Most Shopping & Leisure Center (2nd extension)
~ 39,800 2013, under construction
Centrum Krakov ~ 14,000 2013, under constructionNa příkopĕ 14/ Highstreet
~ 10,600 2013, under construction
Kaufhaus Diamant/ Highstreet
~ 6,000 2013, under construction
Copa Centrum Národní ~ 12,000 2014, under constructionPalác Stromovka ~ 15,000 2014/15,
under constructionSource: IRG, BulwienGesa, RegioPlan, Operator information
Real Estate Country Facts 03/2013 I 13
Bank Austria
Real EstateAnton Höller Tel: + 43 (0)50505-55980 anton.hoeller@unicreditgroup.at
Günter Hofbauer Tel: + 43 (0)50505-57488 guenter.hofbauer@unicreditgroup.at
Real Estate CEELukasz Motyl Tel: + 43 (0)50505-55142 lukasz.motyl@unicreditgroup.at
UniCredit Bank Czech Republic
Real EstateTomas ProchazkaTel: + 42 (0)95596-1306 tomas.prochazka2@unicreditgroup.cz
Bank Austria
Real Estate ResearchKarla SchestauberTel: + 43 (0)50505-54784karla.schestauber@unicreditgroup.at
UniCredit Bank Czech Republic
Economic ResearchPatrik.Rozumbersky Tel: + 42 (0)95596-0718patrik.rozumbersky@unicreditgroup.cz
ValuationDavid Dusek Tel: + 42 (0)95596-1953 david.dusek@unicreditgroup.cz
Contacts:
Research and Valuation:
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