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Czech Republic turn sights on office supply

2 MIN READApril 09, 2019

GRI Club CEE met in Prague on 4 April 2019 to consider the unique characteristics of Prague’s real estate market, particularly in relation to rival CEE destination, Warsaw. Prague certainly wins when it comes to hospitality, but the discussion also focused on the future supply and nature of office space in the Czech Republic.

Mark Robinson, CEE Research Specialist at Colliers, set the scene with a quick comparison between Prague and Warsaw. He demonstrated that while Warsaw may be more focused on business, with a greater stock of office space, Prague has far higher numbers of tourists and students, so hospitality is more important. There was also a presentation from Tomáš Kadeřábek, executive managing director of the Czech Republic’s Association of Developers, who provided an overview of the current planning and project permitting regime - where ‘getting a permit is a celebration in its own right’ - together with an argument for simplifying and recodifying it. Examples of planning and permitting regimes from other CEE countries were considered, including Vienna.

Czech stability
The consensus amongst participants was that markets are at the top of the cycle right now - one participant said that they would rather be a seller than a buyer. It was pointed out, however, that despite the threat of a recession having been around for a very long time, there was still no sign of one.

The stability and evenness of the Czech Republic’s real estate market was preferred to the more volatile nature of Poland’s markets. In fact, it was observed that Warsaw may be in for another big fall in the next 12 to 18 months, mainly as a result of Asian investment coming into the office sector but without a proper understanding of the market or pricing. 

It was observed that there are more than four times the number of office buildings for sale in Warsaw than in Prague, where deals are done more quickly and the market is more stable. The participants, who included leading providers of traditional and flexible office space, devoted much of the discussion to offices. Demand/supply dynamics were considered; various points included that there is a need for rent increases, that there has been a rise in the IT-related client base, and that quality is often overlooked by developers. It was observed that space dates quickly, and that developers need to understand that buildings must remain attractive and in good shape five years after opening. 

Outside of Prague, there was firm agreement that Brno - home of the Czech Grand Prix circuit - is the next best place for offices, given its geographical position and its cohesion as a city. By comparison, Ostrava, once the preferred destination for investors outside of Prague, has fallen from favour.

Flexible offices untested
The flexible office trend was reviewed, including the fact that the percentage of total office stock given over to serviced/flexible offices in CEE is far lower compared to cities like London. 

However, growth in serviced/flexible offices is expected across the CEE region, with Warsaw leading the way. Still, there was an air of caution amongst participants: flexible offices are not yet cycle-tested, and furthermore, big blue chip companies are not expected to become clients, because of their reluctance to be in the same building as their competitors. 

Stay disciplined
The advice coming out of the meeting was that investors must be disciplined, especially when buying. Looking into the future, one of the best things about the Czech Republic was considered to be consumer spending growth and the fact that it has one of the highest rates of GDP per capita in Europe.  

Real estate markets across the CEE region will be discussed in more detail at CEE GRI 2019 on 14-15 May in Warsaw.
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