Realty Czech

Fortune smiles on the Czechs. Their economy is growing fast, their capital city is one of Europe’s finest, their beer is delicious and they have some very attractive real estate projects

Warsaw will never be as popular as Prague. The Czech capital ranks 6th on the list of cities most visited by tourists in Europe, thanks to its historic buildings, low prices and unique atmosphere, while the government’s target is to have it ranked third only to London and Paris.

The huge income from tourism is accompanied by a fast developing economy, falling unemployment and a huge wave of direct foreign investment, while the local property market is also booming.

Lucky seven?

The Prague tourist trail begins with the sights of the Old Town, whereas investors prefer to start with the newer districts. The Prague 4 and Prague 5 districts are of particular interest to office and retail developers. Companies developing warehouse and logistics complexes are keeping their eyes open for sites on the city’s outskirts, especially along the major transport routes running westwards (towards Kladno, Karlove Vary and Plzeń), to the north (to Teplice), the north-east (to Liberec and Hradec Králove) and the south-east (to Brno).

The Orco Property Group now has the opportunity to create a new business and shopping centre in such a location. This developer has become the owner of a 27-ha plot in the seventh district of Holešovice near the Vltava river, following a transaction with the Czech railway company. According to information published in the ‘European Real Estate, Yearbook 2007’, a EUR 700 mln project is to be developed there, including office and shopping buildings and also an Olympic village, forming part of the country’s bid to host the 2016 Olympic Games.

The Classic 7 business park is under development in the same district by the Nofim investor, a joint venture established by AFI Europe (a daughter-company of Africa Israel Investment) and the Illuminus Group. The investment got off the ground in November 2006 when work started on the reconstruction and restoration of two industrial buildings from 1910. When this stage is completed around Q1 of 2008, office space totalling 16,000 sqm will be available for lease. The second stage will involve the construction of two modern office buildings measuring 26,500 sqm. Work is to start in Q4 of 2007 and will be finished by July 2008.

Prague 4 leads the field

The first office buildings are only just appearing in Holešovice, but in Prague 4 (Pankrác) a real boom exists for such properties. Of the 18 projects to come or coming on to the market this and next year in the Czech capital, 9 are situated in Precinct Four and total 140,000 sqm. The largest is the 43,000 sqm Kavči Hory Office Park from Hochtief Project Development, which contains more than 36,600 sqm of office space. Upon completion of this project, the developer will hand over the keys to Europolis, the Austrian investor, who purchased the property before construction began.

Another interesting project is the Gemini Immorent complex from Austrian group Erste Bank. Construction of Gemini got started in June 2006, and the plan is for modern office buildings to replace an old, defunct bus terminal. The developer claims the group of two buildings, each of which is to have an 8-storey tower, will contain 33,400 sqm of office space and 2,700 sqm of retail space.

Brno is the second most important commercial real estate market in the Czech Republic. According to Colliers, 150,000 sqm modern office space was constructed in the city in 2006, with a further 100,000 to be delivered this and next year. The Colliers report highlights several office complexes: Platinium (7,300 sqm), Lidicka Centre (2,000 sqm) and Brno Business Park (40,000 sqm) and the Spielberk Office Centre (80,000 sqm).

Outlying regions become fashionable

The last of those mentioned projects comprises 5 so-called villas, 4 connected “IQ” buildings to be used as call centres, research and development centres or as company regional offices, as well as two towers: hotel and office. The construction of the complex is to be concluded early next year – at least so says the developer CTP Invest. Other attractive Czech markets can be found in Ostrava, Plzeń, České Budĕjovice and Liberec, where new office space is steadily increasing. The number of shopping centres in these towns is also growing rapidly. ‘Colliers Real Estate Review 2007’ mentions Liberec, where there is currently only one large shopping centre (Nisa Centre), but which is becoming the focus of interest for many developers and investors. An estimate claims the city will be able to boast the largest shopping space per capita index throughout the Czech Republic once all the planned projects come on line.

ING Real Estate Development is extending its Nisa Centre in Liberec by 20,000 sqm – the existing 30,000 sqm building was built in 1999.

The earnings of the inhabitants of this city are also catching the eyes of Multi Development and Plaza Centers. The first of these developers, in partnership with Tesco, is developing the multi-functional Forum Liberec project, which will comprise 10,000 sqm of retail space, 4,500 sqm of offices and 1,500 sqm of apartments. The project’s first stage should be finished in the autumn of 2008, with the second stage to be ready in the spring of 2010. Another project is Liberec Plaza to be developed by Plaza Centres in the city centre and opened in late 2008. According to the developer, this will have around 19,500 sqm of leasable space.

Karolina is great

Forum Liberec pales almost into insignificance when compared with Multi Development’s Karolina complex coming to Ostrava. The Dutch developer came out on top in a tender for the site of a defunct coking coal plant of more than 30-ha in the city centre. The project includes the construction of buildings measuring 215,000 sqm in total and will take until 2016. Part of the complex is to be a shopping and recreation centre totalling 50,000 sqm, with the remainder being offices and housing. Multi Development estimates the cost of the Karolina project to be around 400 mln EUR, although the regeneration and development of the post-industrial land is expected to be the largest undertaking of its kind in the Czech Republic.

The European Property Development company owned by the European Property Group (principal shareholders –the European Bank of Reconstruction and Development and Immofinanz of Austria) is nearing the completion of a no less ambitious venture: the development of the Palladium shopping and office complex in the very heart of Prague’s city centre. This project involves the adaptation of old military barrack buildings still used by the Czech military until very recently.

Construction work began in May 2005, the complex to be opened this autumn. The Palladium will have a total area of 115,000 sqm, including 19,500 sqm of offices, around 39,000 sqm of shopping space and a 900-vehicle car park.

Investors place their bets on the Czech Republic

The impressive growth of the country’s economy and the activity on the real estate market (new projects, tenancy contracts) are reflected in happenings on the investment market. Investors have been snapping up properties at return rates substantially less than 6 pct for the best buildings in Prague, with purchasers also expressing readiness to sign more complex forward-funding transactions. The view of most specialists is that this trend will also continue this year.

Magda Konstantynowicz