Czech property market developed significantly over the last 15 years. Investor’s interest in the Czech market continues. Total investment volumes in 2015 amounted to EUR 2,781 mln, boosted by the sale of Palladium in Prague and the residential portfolio RPG byty mainly situated in the Moravia-Silesia region. These two transactions together achieved EUR 1,250 mln and accounted for almost half of total investment volumes. While 2014 was considered as the year of industrial investment, 2015 is marked as a year of retail investment. Retail assets and mixed-use assets with predominant retail element accounted for 44% of total investment volumes. Activity from locally raised capital continues to gather pace, local investor groups operate with ever increasing sources. Czech capital was the third most prevalent source in 2015, accounting for 21% of volumes, after US and German capital accounting for 32% and 22%, respectively. Prices continue to rise as a consequence of an uninterrupted weight of capital. This is evident in all the sectors with the highest potential for future rebound in the office sector. Prime yields are now approaching pre-crisis levels. Yields for non-prime properties are still significantly discounted which was not the case at the peak of the previous boom, where we saw the gap between prime and non-prime at less than 100 bps. CBRE’s preliminary estimate of investment volumes in commercial real estate for 2016 is cca EUR 2 billion.
Property Turnover by Segment, 2015
Industrial real estate and warehouse market
The Czech Industrial Market is consisted of approximately 5.69 million sq m of modern A-class warehouse space. Almost 90% of total modern warehouse space in the Czech Republic is situated in four major regions – Greater Prague, Plzen, Brno and Ostrava. On the other hand South Bohemia and Zlin region are regions almost without almost any modern warehouse space.
Industrial Market Trend, 2015
Czech industrial market started to develop in 2005. The peak of delivered warehouse space to the market was recorded in 2007. The global economic recovery contributed to record-breaking figures on the Czech industrial market in terms of leasing activity. 2015 total leasing activity (TLA) was the highest ever recorded while 2015 take-up (excl. renegotiations) reached the second highest level ever. Tenant requirements for larger premises are constantly increasing. This is also proved by the number of concluded transactions over 10,000 sq m. There were 25 such transactions in 2015, while in 2007 and 2008 for 18 and 13, respectively. Moreover new completions amounted to 565,700 sq m over the entire year. This is the highest amount since 2008. Vacancy rate decreased to 5.1% to its lowest level since 2006. The trend of rapidly decreasing vacancy rate has been recognized by many developers and stimulated them to start constructing speculatively.
Average headline rents stay at EUR 3.75 – 4.25 sq m/month. Rents are stable in most regions and while banks and investors generally look for longer lease lengths, landlords are under continuing pressure from tenants to provide shorter leases.
|Unite size||Effective Rental level (EUR/ m2/ month)|
|500 – 1,000||4.5 – 6.5|
|1,000 – 5,000||4 – 4.5|
|5,000 – 10,000||3.20 – 3.75|
|more than 10,000||3 – 3.50|
Source: CBRE Research, 2016
Typical lease term on the market is 3-5 years for logistics companies, 5-7 years for production companies and 7-10 years for built-to-suit production and logistics. However, in existing A-class projects might be seen shorter lease terms and in newly constructed halls 7 or 10 years (or even longer) lease term is not an exception. As for early terminations, penalty of notice is determined by a clause in the lease agreement. Usually, a lease is guaranteed by Mother Company or by bank guarantee and in some rare cases by a rental deposit of 3-6 months’ rent. Indexation is according to HICP EU. Typical incentives include 1-6 month rent free depending lease conditions. For internal repairs are responsible tenants, while external, structural and common areas are landlord’s responsibilities. Service charges are paid above the rent on average around EUR 0.550 sq m/month and include building insurance, property taxes, 24h security, Landscaping, Property management, Maintenance of common part of the property (including snow removal), Maintenance and inspections of buildings and equipment. Minimum pre-lease size of 5,000 sq m is required for built-to-suit warehouse..
|Total CZ||Greater Prague||Pan-regional CZ|
|Total stock (m2)||5,692,900||2,264,200||3,428,700|
|Vacant space (m2)||292,200||107,700||184,500|
|Vacancy rate (%)||5.1||4.8||5.4|
|New supply (m2)||565,700||255,100||310,600|
|Take-up (excl. renegotiations) (m2)||875,600||325,600||550,000|
|Total leasing activity (m2)||1,394,300||674,600||719,700|
|Net absorption (m2)||722,500||289,800||432,700|
|Space under construction (m2)||300,400||131,600||168,800|
|Net Effective Rents* (EUR/ m2/ month)||3.20-4.25||3.20-4.00||3.20-4.25|
Source: CBRE Research, Industrial Research Forum, 2016 *Note: 5,000 sq m unit
The office market is concentrated predominantly in Prague, where 3.222 mln sq m of modern office space is currently monitored. Outside of Prague, modern office stock is concentrated mainly in Brno and Ostrava. Brno modern office stock currently totals 482,900 sq m and Ostrava modern office stock comprises 205,400 sq m. In general, the office market in regional cities (with the exception of the cities mentioned above) is driven by demand.
Rent is paid quarterly in advance and indexation is done annually according to HICP EU index. Effective rents are usually reduced due to various incentives typically offered by landlords. Incentives typically include: 1-2 month rent free period per year of lease and fit-out contribution between 150 and 200 EUR per sq m of the net area. In Prague, as well as in regional cities, the typical lease term is 5 years with a break option after 3 years (subject to paying 6-month penalty). Compared to the rest of Europe and mainly Western European countries this is still considered to be a short period time (typical lease term starts at 10 years). As for early terminations, tenants don’t get any option to end their lease term earlier unless they pay the entire remaining amount of rent, plus service charges. The deposit is usually 3-month rent plus service charges plus VAT. Service charges range between 75-125 CZK/sq m/month + VAT covering common area operating costs, maintenance, cleaning & repairs, property tax and building insurance. Tenants pay for individual electricity consumption.
|Prague City Centre||Prague Inner City||Prague Outer City||Brno||Ostrava|
|Total stock (m2)||564,000||1,710,900||947,500||487,600||208,400|
|Vacant space (m2)||86,600||267,600||116,600||66,900||47,200|
|Vacancy rate (%)||15.4||15.6||12.3||13,7||22.7|
|New Supply (m2)||0||136,100||54,500||1,500||7,700|
|Total leasing activity (m2)||52,500||262,100||131,000||57,600||20,900|
|Space under construction (m2)||17,800||98,500||6,500||69,600||0|
|Prime rents (EUR/m2/month)||18.50 – 19.50||15.00 – 16.50||13.00 – 14.50||13.00||11.50|
Source: CBRE Research, Prague research Forum, Regional Research Forum, 2016
A brownfield is an abandoned, neglected or possibly contaminated property, either land plot or building, that cannot be used effectively without undergoing a process of regeneration. Brownfields are sites that remain disused following the discontinuation of industrial, agricultural, residential, military or other activities.
Since 2007, the Research Study for Brownfield Localisation in the Czech Republic has mapped 2,800 brownfields with a total area of more than 14,000 hectares, though this figure is continually being updated. The stated number of brownfields is not final; it is reckoned that there are up to four times more brownfields in the Czech Republic than those mentioned in the research study.
However, in order for it to be possible to offer brownfields to potential investors, it is naturally necessary to first locate such sites. A key element in locating brownfields in the Czech Republic is the extensive Research Study, whose preparation was commenced in close cooperation with the country’s regions in 2005 and ran for more than two years. Progressive mapping, detailed description and subsequent publication of information on the location of brownfields in the National Brownfields Database contribute to increasing awareness of the given issue while strengthening interest in renewal of brownfields and thus to regional development and protection of the environment. The National Brownfields Database is a continually updated listing of sites that are suitable for renewal (regeneration or revitalisation) and subsequent reuse. The records of brownfields throughout the Czech Republic serve primarily for the offer of suitable locations for investors for business and as a foundation for compiling statistics and the related setting of priorities for individual regeneration programmes. This facilitates investors’ orientation in the selection, classification and comparison of sites according to a full range of criteria, as well as selection of properties with the possibility to obtain state aid. Entering of new records into the National Brownfields Database can be done independently by property owners upon establishing an individual user account, or via CzechInvest.
The operator of the National Brownfields Database is CzechInvest. The issue of brownfields is one of the key long-term aspects of the agency’s work. For more information please visit http://brownfieldy.eu/.
|Past usage of site||No. of sites||Percentage (%)||Total area (ha)||Average area of site (ha)|
|Type of ownership||Number of sites||%|
|External connection||Number of sites||%|
|Satisfying access road||1,245||37|
|Existing or possible environmental abuse||924||28|
|Total (incl. renewal)||3,322||N/A|