Life in the provinces

The company recently purchased a 3.5 ha plot close to the Vaňkovka shopping centre in Brno's Vlnena district for the development of an 85,000 sqm business park. Construction work is also continuing on its CTOffice project in the same city, where the building in phase two will bring the total available office area up to 18,600 sqm. Meanwhile in Ostrava, work on the second stage the IQ Ostrava office project is to begin, after the successful leasing and completion of phase one to IT services company Tieto (app. 22.500 sqm). Set up in 1998, originally CTP was an industrial developer before moving into office development. To date it has developed 23 CTPark logistics and production centres across the Czech Republic, with a total area of 1.9 mln sqm. Using this platform CTP embarked upon its first major office project in Brno, the Spielberk Office Centre, which offers 90,000 sqm of class 'A' offices and mixed-use space. In summer 2012 the company completed phase one of its first major office project in Ostrava, IQ Ostrava, offering a total of 22,500 sqm of space.

Scrapping it out

As Paul Deverell, the business director of CTP, explains, the company's move into regional office projects was influenced by the intense competition on the Prague office market at the time, as well as by spotting early on the great potential of other cities: "We basically began as an out-of-Prague industrial developer, but about eight years ago we became active on the Brno office market. There was a big scrap going on between developers in Prague, as many were afraid to go outside the capital. When we looked around at the potential of other cities, those with major universities and well developed infrastructure, we had a feeling that firms would be setting up outsourcing, back-office and R&D centres there; and as Prague became pricier, we also felt that developers would start looking at such secondary locations so we needed to be in early," he says. The quality and availability of the labour force were also a key factor for CTP. "There are good brains in Brno and Ostrava. One of our first major tenants in Brno was Lufthansa. Their call centre, located at our Spielberk Office Centre, is regularly increasing in size, while anti-virus and internet security company AVG leased 9,000 sqm in 2011. Prague is still more expensive labour-wise and these days there is plenty of experience and skills to be found in other cities," says Mr Deverell. According to CTP's business director, if you operate in such cities you have to create a niche, take the plunge and be the first on the scene: "People ten years ago probably thought we were a bit unhinged. But everyone was fighting over the capital city and we decided to circumvent that. So, being confident in the market, we put up an office building more or less on spec in Brno." But the office sector is quite a different animal than the industrial. As Mr Deverell points out, unlike tenants of the latter office tenants generally want to see the building before they sign a lease and may also not fit the size requirements a developer is looking for in order to kick-start a new build based on a pre-lease. This requires a greater emphasis on speculative development. Despite banks' current wariness of anything speculative, finance seems not to have been a major issue for CTP: "We work with nine different banks, with a diversified structure on a deal-by-deal basis," says Paul Deverell. "We've built up a critical mass with total revenue up at EUR 112 mln in 2012, around a 10 pct increase on the previous year. We've managed to build up a track record, and a diverse group of around 380 tenants. At IQ Ostrava the Tieto lease also helped to find a good financing deal. We put our hands deeper in our own pockets for the recently completed Tower B at Spielberk in Brno, since banks require more equity for spec projects. We now have several strong tenants there, so it has paid off very well." Having confidently led the way in the Brno and Ostrava office markets, is CTP now looking at the potential of other secondary cities in the Czech Republic? This, according to Paul Deverell, would very much depend on a number of crucial factors: "There are cities where we wouldn't develop, since there needs to be a population of a certain size and a university as well as good infrastructure. In terms of research and development activities, Ostrava and especially Brno are becoming more well-known," explains Mr Deverell.

The 'Google feel'

And hat of the future prospects for these markets themselves? "I don't think these markets will grow as much as they did in 2004-2007, but there is still a nice trickle of tenants coming in. Brno has developed a kind of 'Google feel' due to major tech companies opening offices there, such as AVG, SAP and Logica. But it is not only the IT sector - there is a mixed bag of tenants in Brno. As well as customer call centres and financial centres, there are laboratories and space for companies that develop products. This is where Brno is onto a winner. The skills and language levels in the city are very high. Infosys, an outsourcing company based in India, set up a major operation in Brno several years ago - and this really shows the city's potential," says Paul Deverell.