CZECH REPUBLICRESEARCH & FORECAST REPORTMID-YEAR 2011Accelerating success.
2011 | RESEARCH & FORECAST MID-YEAR REVIEW | CZECH REPUBLICTABLE OF CONTENTS                         Executive Summary    ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | EXECUTIVE SUMMARY                                          E...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | ECONOMIC OVERVIEW KEY ECONOMIC INDICATORS                   ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INVESTMENT MARKET  KEY OFFICE FIGURES                       ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INDUSTRIAL MARKET  KEY INDUSTRIAL FIGURES                   ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INDUSTRIAL MARKET STOCK vs. VACANCY                         ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKET KEY OFFICE FIGURES                            ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKET OFFICE MARKET INDICATORS                      ...
RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKETCOLLIERS RESEARCHColliers Research Services Gro...
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2011 Mid-Year Research Forecast Report - Czech Republic

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2011 Mid-Year Real Esate Market Research & Forecast Report - Czech Republic

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2011 Mid-Year Research Forecast Report - Czech Republic

  1. 1. CZECH REPUBLICRESEARCH & FORECAST REPORTMID-YEAR 2011Accelerating success.
  2. 2. 2011 | RESEARCH & FORECAST MID-YEAR REVIEW | CZECH REPUBLICTABLE OF CONTENTS Executive Summary 3 Economic Overview 4 Investment Overview 5 Industrial Market 6 Office Market 8 Key Metric Definitions 10
  3. 3. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | EXECUTIVE SUMMARY Executive Summary RECENT TRENDS • Economy: The recovery in GDP growth that began last year appears to be continuing into 2011. First quarter growth was reported as 2.8% year on year, exceeding initial estimates. The growth forecasts vary for the year, but should be around 2.3%. • Investment: In H1 2011, the recovery in market activity gathered further momentum with almost €800 million of investment transactions closing by mid year, representing close to a 50% increase on the entire volume of deals closed in 2010. • Industrial: Czech industrial property stock currently stands at 3.8 million m2. Demand levels remain encouraging with 450,000 m2 of industrial space transacted in H1 2011, representing an increase compared to H1 2010. Healthy demand levels and low levels of speculative development has resulted in further falls in vacancy. • Offices: Total office stock in Prague has reached over 2.7 million m2. The only new office development completed in H1 2011 was the Amadeus building (19,600 m2) at the Harfa Office Park in Prague 9. Gross take-up reached ca.173,000 m2 during the first six months of 2011, which is a 78% improvement on the same point last year.MARKET INDICATORS There has been little change in headline rents for Grade A offices. 2010* 2011* MARKET PROGNOSIS GDP GROWTH • Economy: The Czech economy remains heavily dependent upon external factors, and UNEMPLOYMENT the recent growth in Germany has positively influenced the Czech Republic. Persistent uncertainty over how to stem the EU currency bloc’s debt crisis is, however, starting to WAGES affect market confidence across Europe. The success of recent measures agreed by EU members to extend Greek bond repayment dates, selective default of private INFLATION bondholders and enlarging the European Facility Stability Fund, look to have temporarily calmed market nerves. Nevertheless, there remains an air of pessimism INVESTMENT VOLUMES over whether EU members and the ECB can agree on a workable solution. OFFICE RENTS • Investment: Increasing interest from foreign based investors. There are a number of investment transactions expected to close during the second half of 2011 and we INDUSTRIAL RENTS predict total investment volumes for 2011 to reach ca.€1.5 billion, which is almost triple 2010 figures. YIELDS • Industrial: We expect total gross take-up by year end to fall shy of the 1 million m2 recorded in 2010. The reason being that steadily declining vacancy rates coupled with* COMPARED TO THE PREVIOUS YEAR low levels of speculative development is resulting in fewer buildings being immediately available for occupation. • Offices: Around 110,000 m2 of new offices will come to the market by year end and we predict gross take-up for 2011 to exceed 215,000 m2. Office vacancy rates should continue to decline, reaching around 10%. We may also start to see landlords reducing some of the currently available leasing incentives being offered to tenants. 3
  4. 4. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | ECONOMIC OVERVIEW KEY ECONOMIC INDICATORS Economic Overview METRIC SUMMARY GDP 2.8% • The recovery in GDP seen in 2010 appears to be continuing into 2011. First quarter Unemployment 8.2% growth was reported as 2.8% year-on-year, exceeding initial estimates. Growth forecasts vary for the year, mostly around 2% to 2.4%. A broad consensus sits at 2.3% Inflation 1.9% for this year, with slightly stronger growth in 2012. Growth forecasts for 2012 and beyond have been trimmed back in recent months.GDP • Unemployment spiked in January to 9.7%, but since then has steadily decreased, and at the end of May was recorded at 8.2%. This should remain stable for the remainderGDP (bn) GDP Annual Change of this year. Longer term expectations are that the unemployment rate will be reined100.0 8.0 back to a moderate and sustainable rate, probably settling around 7.5% in 2014 and 2015. 80.0 5.0 • Inflation started to edge upwards in 2011. CPI inflation averaged 1.5% for 2010 and 60.0 2.0 through the first months of this year rose incrementally and now stands at 1.9% year on year. Domestic demand appears to be under control and this is primarily being driven by food and fuel prices. Although this may edge upwards in time, it is expected 40.0 -1.0 to remain broadly stable. 20.0 -4.0 • The budget deficit for 2010 was not as deep as initially thought, and figures were revised down from 5.9% to 4.7%. Nevertheless fiscal tightening measures are in place 0.0 -7.0 as a tool to reduce the deficit, and the government is targeting 4.1% for this year, although many analysts believe this target will not be met.Source: Focus Economics PROGNOSISUNEMPLOYMENT • The local economy remains heavily dependent upon external factors, and the recent growth in Germany has positively influenced the Czech Republic. Industrial production21% and exports have continued to grow strongly. Recent forecasts suggest that German18% growth should remain strong through 2011 and beyond, providing a boost to the Czech economy.15%12% • Although the overall picture for the Czech economy is positive, and the encouraging results from 2010 have continued through the first half of this year, risks remain. Whilst9% external factors have been positive for the Czech Republic in recent months, the6% vulnerability to exchange rates remains and domestic demand is still subdued, with3% fiscal tightening likely to keep it restrained in the near future.0% • The spectre of Euro zone debt crisis however looms large over the Czech economy. Worryingly the focus has moved from the smaller economies such as Greece, Portugal and Ireland with contagion spreading to larger economies such as Italy and Spain.Source: Focus Economics • The European Financial Stability Facility (EFSF) in its current form is not capable of handling the bail out of one of the larger European countries and therefore new rescueINFLATION (%) strategies are in serious and urgent need.15.0 • EU leaders recently devised a framework for a European “Marshall’ plan to help the Greek economy to grow and to drastically cut the level of debt held by Greece which at12.0 €340bn is considered unsustainable. Additionally, the EFSF will be expanded to enable pre-emptive action, to recapitalise banks, to extend lines of credit, and to come 9.0 to the aid of countries before they might need to be bailed out. 6.0 • Much of the detail of what has been agreed by the EU members has yet to be thrashed out but the main initiatives entail debt buyback, rollovers, swaps, lower 3.0 borrowing costs and an agreement whereby private bondholders are expected to participate in a voluntary write-down of Greek debt held by them. 0.0 • The upshot of all this means business confidence and economic growth remain fragile. Much will now depend on how markets interpret the steps taken by EU and overall Source: Focus Economics investor sentiment before we can tell if the European debt contagion has been stemmed. 4
  5. 5. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INVESTMENT MARKET KEY OFFICE FIGURES Investment Market METRIC MEASURE SUMMARY Investment Turnover €785 million • Following a period of market uncertainty between 2008 - 2009, investment volumes started to recover in 2010 and this trend continued in H1 2011. Prime Office Yield 6.50% - 6.75% • In H1 2011, the recovery in market activity gathered further momentum with almost Prime Retail Yield 6.50% - 6.75% €800 million of investment transactions closing by mid year, representing almost a 50% increase on the entire volume of deals closed in 2010. Prime Industrial Yield 8.25% - 8.50% • Transaction volumes have been influenced by two large corporate transactions, namely the purchase of Europolis by CA Immo and the purchase of an 80% stake inSource: Colliers International VGP Parks CZ I Portfolio by EPISO – a fund managed by AEW / Tristan Capital Partners. • Following the emergence and dominance of Czech based investors in 2010, international investors once again turned their attention to the Czech market in H1 PRIME YIELDS 2011, with British and Austrian based groups representing 70% of all investment12% deals.10% • The most active domestic investor remained CPI who invested a further €160 million in transactions, focussing on retail assets in regional locations. Their acquisitions 8% included two shopping centres - Olympia Mlada Boleslav and Olympia Teplice which closed at yields of around 7.75%. 6% 4% • The largest transaction was the purchase of an 80% interest in VGP Parks CZ I portfolio by EPISO. The transaction includes VGP’s flagship scheme in Horni 2% Pocernice, Blue & Green Parks in Letnany, and VGP Parks in Turnov and Příšovice. VGP will continue to asset manage the schemes on behalf of the new Joint Venture. 0% • DEGI’s International Fund sold Palac Andel in Prague 5 to Kallisto Neunundvierzigste Vermögensverwaltungs, for a price of €53 million reflecting a yield of approximately 6.25%. Whilst this is clear evidence of current confidence in the Prague office market, we do not believe this to be a true indication of market yields as both vendor and OFFICE RETAIL SC INDUSTRIAL purchaser funds are managed by Aberdeen Asset Management.Source: Colliers International • A better benchmark of prime office yields was IVG’s purchase of Pfizer’s headquarters building in the Anděl district of Prague, transacting at a yield of 6.70%.INVESTMENT VOLUME (€Mln) FORECAST1,500.0 • There remains pent up demand for quality properties as investors continue to focus on the prime sector as uncertainties in the world economy still persist.1,200.0 • The demand from Czech investment groups seen in 2010 will continue, but face increased competition from western European and US based investment groups. 900.0 • We expect further deals to be closed in the second half of the 2011 as owners of institutional grade investment products look to take advantage of the improved 600.0 investment market conditions. • There are a number of investment transactions currently underway that are expected 300.0 to close during the second half of 2011. We estimate total investment volumes for 2011 to reach ca.€1.5 billion, which is almost triple 2010 figures. 0.0 • The second half of the year will see benchmark prime yields continue their downwards trend as investors look to expand their portfolios. Prime yields are therefore expected to harden by a further 0.25% to 6.5%. Source: Colliers International 5
  6. 6. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INDUSTRIAL MARKET KEY INDUSTRIAL FIGURES Industrial Market METRIC MEASURE SUPPLY Total Stock 3,831,100 m2 • The Czech industrial property stock expanded by 69,700 m2 over the course of H1 2011 and currently stands at 3.8 million m2. Take-up 450,000 m2 • Major new completions include Penny Market’s 13,000 m2 warehouse at VGP Park Vacancy 8.9% Nýřany, 12,000 m2 at the Multimodal Logistics Centre in Mošnov developed by HB Reavis and the 11,000 m2 expansion of Lindab’s production facility at Karlovarská €3.90 - 4.40 / m2 / Business Park in Prague developed by Portland Trust. Prime Headline Rent pcm** per calendar month • 42% of the total stock (1,601,500 m2) is located in and around Prague. The secondSource: Colliers International most developed region is Western Bohemia (15% of total stock), followed by Southern Moravia (14% of total stock). • At least 256,000 m2 is currently under construction across the Czech Republic, of CHANGE IN STOCK OVER TIME which 75% of this space is due to be completed by the end of 2011. The largest buildings are being built at CTPark Brno II and at ProLogis Park Jirny.3,900,0003,850,000 • Currently the most active region in terms of new development is Southern Moravia,3,800,000 with a total of 140,000 m2 under construction, all of which is being developed by CTP3,750,000 Invest.3,700,000 • VGP are one of the few developers to commence speculative construction with work3,650,000 on-going at three of their sites, i.e. Tuchoměřice, Hradec Králové and Nýřany. VGP3,600,000 also plan to construct a number of buildings at their site in Horní Počernice at the edge3,550,000 of Prague.3,500,0003,450,000 DEMAND3,400,000 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 • Just over 450,000 m2 of industrial space was transacted in H1 2011, representing a slight increase compared to H1 2010 (412,000 m2). 39% of the total take-up was STOCK NEW SUPPLY generated in Q1 2011 increasing to 61% in Q2 2011. • Net industrial take-up in H1 2011 amounted up to 211,600 m2 (47% of totalSource: Colliers International transactions), representing almost 32% decrease from H1 2010. New demand for modern industrial premises was mainly driven by manufacturers, who accounted for nearly 42%. TAKE-UP vs. VACANCY • 53% of the total H1 2011 take-up resulted from lease contract renewals/renegotiations380,000 20% compared with 25% at the same point last year.342,000 18%304,000 16% • Prague remained the most active region, generating over 58% of total take-up,266,000 14% followed by Southern Moravia (11%), Northern Moravia (9%) and Western Bohemia (9%).228,000 12%190,000 10% • Whereas the largest number of deals closed was for space of less than 10,000 m2,152,000 8% there were 10 transactions greater than 10,000 m2 (totalling 267,000 m2), which114,000 6% represented more than half of gross take up in H1 2011. 76,000 4% • Logistic companies generated almost 54% of the H1 2011 gross take-up with the 38,000 2% remainder split equally by manufacturing/assembly companies and the retail sector. 0 0% Q1 Q2 Q3 Q4 Q1 Q2 • Unlike H1 2010, when almost 48% of the net take-up transacted in Western Bohemia, 2010 2010 2010 2010 2011 2011 demand in H1 2011 was more evenly spread across various regions of the Czech Republic. NET TAKE-UP RENEWALS VACANCY • In terms of the developers’ share of gross take-up in H1 2011, ProLogis were the most active with a 34% market share followed by CTP Invest with 25% and PointPark Source: Colliers International Properties who had 9%. However, with respect to net take-up CTP Invest accounted for the largest portion of m2 leased with a 45% share. 6
  7. 7. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | INDUSTRIAL MARKET STOCK vs. VACANCY Industrial Market4,320,000 20% VACANCY/AVAILABILITY3,600,000 16% • Due to low volumes of speculatively developed space, tenants continue to fill up2,880,000 12% existing buildings and industrial vacancy rates are gradually decreasing across the2,160,000 Czech Republic. 8%1,440,000 4% • Over the past 12 months, the overall vacancy rate has dropped by 7.3% to the current 720,000 level of 9% and this declining trend has been repeated in each of the past 8 quarters. 0 0% Q1 Q2 Q3 Q4 Q1 Q2 • The most significant decline in vacancy occurred in Northern Moravia (down by 29%) 2010 2010 2010 2010 2011 2011 and projects situated along the R10 expressway (down by 21%). On the other hand Central Moravia continues to report the highest vacancy rates, currently 46.8%, due to LEASED STOCK (m2) 66,000 m2 being available at CTPark Hranice. VACANT STOCK (m2) VACANCY (%) • Vacancy in Prague decreased by 4.5% to 9.9% by the end of H1 2011. The greatest volume of vacancy is at ProLogis Park in Úžice, with over 50,000 m2 available forSource: Colliers International lease and together with Business Park Rudná and Airport Logistic Park, are the only projects that can immediately accommodate requirements in excess of 10,000 m2. HEADLINE RENT INDICATIONS RENTSREGION RENT LEVEL • Rent levels have not significantly changed in the last six months. The lowest rents arePRAGUE €3.90-4.40 / m2 / pcm currently in the vicinity of the D8 highway close to Prague, where rents slightly belowPILSEN €3.90-4.20 / m2 / pcm €3.60 / m2 / pcm (per calendar month) are achievable.BRNO €4.30-4.60 / m2 / pcm • Brno remains the most expensive region where developer CTP Invest maintains a tightOSTRAVA €3.60-4.30 / m2 / pcm grip over the local industrial market. Industrial premises in this area are generally renting for €4.35–4.60 / m2 / pcm increasing to €5.40-5.60 / m2 / pcm for smallSource: Colliers International business units of less than 1,000 m2. • Pre-lets and built-to-suit solutions are being quoted at headline rents of €3.90-4.40 / TAKE-UP STRUCTURE m2 / pcm across the Czech Republic (with the exception of Brno). • Developers continue to show some flexibility with most of them still offering various incentives, with rent free periods being the most common. In most cases, such rental concessions result in the net effective rent being 8-12% below the headline rent. 47% 53% PROGNOSIS • Whilst we have experienced a healthy and stable level of demand in H1 2011 we believe total gross take-up by year end will fall shy of the 1 million m2 leased in 2010. The reason being that steadily declining vacancy rates coupled with low levels of NEW DEMAND speculative development is resulting in fewer buildings available for immediate RENEWALS & RENEGOTIATIONS occupation.Source: Colliers International • Only small amounts of speculative industrial space (20-40,000 m2) will be delivered to the market by the end of 2011, mostly in Prague, Eastern Bohemia and Western Bohemia. LARGEST NEW LEASESTENANT PROJECT DEVELOPER m2 • Despite a general fall in vacancy rates we are not expecting to see any major upswing in rental levels for the rest of this year. Furthermore, construction costs have remained CTParkKompan CTP Invest 24,478 flat, which will also help to keep rents in check. Brno II.PST CLC CTPark CTP Invest 16,308 • Developers are unlikely to change their current strategy for the remainder of 2011. The Pohořelice primary focus will be to lease up vacant space and to offer built-to-suit solutions in PointPark PointPark various parts of the country and even at locations outside established industrial parks.PST CLC 13,123 Prague D1 PropertiesPenny VGP Park VGP 13,013 • Although VGP is preparing a new project south of Brno, we do not foresee the marketMarket Nýřany dynamics in Brno changing drastically. We expect the preference of tenants wishing toConfi- Confi- be located close to Černovická terasa industrial zone to continue. Panattoni 11,500dential dentialSource: Colliers International 7
  8. 8. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKET KEY OFFICE FIGURES Prague Office Market METRIC MEASURE SUPPLY Total Stock 2,714,424 m2 • Total office stock in Prague is now slightly above 2.7 milion m2 with Grade A space accounting for 68% and Grade B accounting for 32% of the total stock. Take-up 173,039 m2 • The only new office development completed in H1 2011 was the Amadeus building Vacancy 11.86% (19,600 m2) at Harfa Office Park in Prague 9, developed by the Lighthouse Group. Amadeus was constructed on a speculative basis. Prime Headline Rent €20-21 / m2 / pcm • The only new project to commence construction so far this year was the next phase ofSource: PRF / Colliers International the Classic 7 project (10,445 m2) in Prague 7, which is being speculatively developed by AFI Europe. • Almost 110,000 m2 is scheduled to be completed by the end of 2011, of which 45% has been pre-leased. Examples of new projects in 2011 include Main Point Karlin CHANGE IN STOCK OVER TIME (25,700 m2) and Phase II of Futurama Business Park (16,042 m2) in Prague 8 and2,740,000 Qubix (11,700 m2) in Prague 4.2,720,000 • Currently some 191,000 m2 of office space is under construction with the majority2,700,000 coming on stream in Prague 8 (37%) and Prague 4 (32%).2,680,000 • Around 13,000 m2 of office previously leased by tenants has come back on to the2,660,000 market as sub-lease space. This is largely down to some corporations revising the speed of their companys head count growth.2,640,0002,620,000 DEMAND2,600,0002,580,000 • Gross take-up reached ca.173,000 m2 during the first six months of 2011, which is a Q1 Q2 Q3 Q4 Q1 Q2 78% improvement on H1 2010 and a 47% increase on H2 2010. 2010 2010 2010 2010 2011 2011 • Office take-up in H1 2011 benefited from four large transactions that accounted for TOTAL STOCK (m2) NEW SUPPLY (m2) 37% of demand i.e. UniCredit Bank (26,680 m2) at Filadelfia, Komerční banka (15,236 m2) at City West A2, PriceWaterhouseCoopers (11,294 m2) at City Green Court and the Supreme Audit Office (10,200 m2) lease renewal at Tokovo.Source: PRF / Colliers International • A breakdown of the take-up structure in H1 2011 illustrates that 40% of demand was made up by net office take-up, whilst office relocations accounted for 37% and leaseTAKE-UP BY SUBMARKET & QUARTER renewals 23%.70,000 • Net take-up of offices has continued to improve in line with positive GDP growth and renewed business confidence in the market. Whereas the share of lease60,000 renegotiations (23%) has declined compared to the figures of H1 2010 (47%) and H2 2010 (38%).50,000 • Total take-up in H1 2011 was driven mainly by companies from the Banking /40,000 Insurance / Investment sector (28%) followed by the IT sector (16%) and Professional services (14%).30,000 • Location wise, the Inner City submarket, especially Prague 4 and Prague 5, was again20,000 the most active accounting for 64% of leased m2. Whilst market activity in Prague 2,10,000 Prague 3 and Prague 10 remains subdued. - VACANCY/AVAILABILITY Q1 Q2 Q3 Q4 Q1 Q2 2010 2010 2010 2010 2011 2011 • Office vacancy has been steadily falling over the past four quarters and by end H1 CITY CENTRE INNER CITY OUTER CITY 2011 stood at 11.86% down from almost 14% at the same point last year. Across Prague there is ca. 322,000 m2 of vacant office space (of varying quality) available for Source: PRF / Colliers International lease. 8
  9. 9. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKET OFFICE MARKET INDICATORS Prague Office Market400,000 16.0%350,000 14.0% • The sharpest decrease in vacancy was experienced in Grade A offices, with vacancy300,000 12.0% falling from 14.4% to 11.7% between H2 2010 and H1 2011. Whereas vacancy in Grade B offices for the same period remained largely unaltered and is 12.2%.250,000 10.0%200,000 8.0% • Location wise in the past 6 months, Prague 4 has seen a significant drop in its vacancy150,000 6.0% level (11.9% down to 7.5%), followed by Prague 6 (25% down to 19.7%). Both districts100,000 4.0% have benefited from tenants leasing space at recently completed or vacated buildings 50,000 2.0% (e.g. BB Centrum Filadelfia in P4, Hadovka Office Park and Argo Alpha both in P6). - 0.0% Q1 Q2 Q3 Q4 Q1 Q2 • Vacancy in Prague 9 has climbed to over 31% from 21.5% in the past 12 months. 2010 2010 2010 2010 2011 2011 However, this is down to the delivery of 19,600 m2 of new space at the Amadeus building, which has yet to announce any significant lettings. VACANT SPACE (m2) TAKE-UP (m2) • Vacancy rates in other popular office districts, such as Prague 1 (10%), Prague 5 VACANCY (%) (7.7%) and Prague 8 (15%), were more or less static in H1 2011. GDP (annual variation %) RENTSSource: PRF / Colliers International • Prime headline rents for offices across all Prague sub districts remain unchanged with TAKE-UP STRUCTURE City Centre rents ranging from €20-21 / m2 / pcm. Rents at Inner City locations are at €15-16 / m2 / pcm in Pankrác / Budějovická and €16-17.5 / m2 / pcm around Karlín and Anděl. Rents in the Outer City range from €13-14.5 / m2 / pcm. • In H1 2011 landlords and developers continued to provide incentives to both existing 35% and potential tenants. Effective rents are approximately 10-15% lower than actual 37% headline rents. The level of incentives being offered depends on the size of the space required / rental terms and also whether the building is completed or the developer is seeking a pre-lease. 5% 23% • Headline rents in the Grade B offices are approx. 20-25% lower than in Grade A offices and as of late have been under greater pressure than rents for Grade A space. NEW LEASES PROGNOSIS EXPANSIONS RENEGOTIATIONS • Some 73,000 m2 of office space is scheduled to come through the development pipeline in 2012 e.g. City Green Court (14,394 m2) in Prague 4, City West A2 (15,236 RELOCATIONS WITHIN STOCK m2) in Prague 5 and Rivergardens Office West (16,900 m2) in Prague 8. Around 44% of this new office space has already been pre-leased by tenants.Source: PRF / Colliers International • A further 150,000 m2 of office space is ready for construction provided that a sufficient sized tenant can be secured on a pre-lease as many developers require construction PRAGUE DISTRICT VACANCY finance to start building.800,000 35.0% • Barring another significant economic crisis in the Eurozone (or in other parts of the700,000 30.0% globe), we anticipate gross office take up in 2011 to eclipse the 214,000 m2 figure600,000 recorded in 2010. 25.0%500,000 • Net-take office up will continue to make up the largest portion of total office 20.0%400,000 transactions for the rest of 2011 (which is a positive trend), with lease renewals and 15.0% relocations playing an important yet diminished role.300,000200,000 10.0% • We forecast the average Prague office vacancy level to continue to decline, reaching closer to 10%. Whereas there may be some short-term vacancy fluctuations (as newly100,000 5.0% completed office space comes on line), we expect most of the new office space to - 0.0% eventually be absorbed by tenant demand in the market. • The knock on effect of falling vacancy may lead to landlords withdrawing some of the current rental incentives on offer, which in turn may lead to some upwards pressure on office rental levels in certain parts of the city. TOTAL STOCK (m2) VACANCY (%)Source: PRF / Colliers International 9
  10. 10. RESEARCH & FORECAST REPORT | MID YEAR 2011 | CZECH REPUBLIC | OFFICE MARKETCOLLIERS RESEARCHColliers Research Services Group is recognised as a knowledge leader in the 512 offices incommercial real estate industry, providing clients with valuable market intelligence tosupport business decisions. Colliers research analysts provide multi-level support across 61 countries onall property types, ranging from data collection to comprehensive market analysis. 6 continentsAcross the CEE-SEE-Russia region of EMEA, Colliers researchers regularly collect and United States: 125update data on key real estate metrics, set to consistent definitions. This information is Canada: 38constantly managed using databases, enabling staff to readily produce analysis on key Latin America: 18regional markets including supply, demand, absorption, pricing and transaction data on Asia Pacific: 214capital markets and the office, industrial and retail sector. In most CEE-SEE-Russian EMEA: 117markets, the office definitions used are consistent with those set out by the CEEResearch Forum – an umbrella group, of which Colliers is a founding member -established to ensure consistent research methodologies are used, bringing greater • $1.5 billion in annual revenuetransparency and reliability to the analysis of real estate markets in the region. • 978.6 milion square feet underDefinitions of the key metrics used in our regular reports are highlighted below. management • Over 12,500 professionalsKEY METRIC DEFINITIONS CZECH REPUBLIC:• Average Headline Rent: Average Headline Rent represents the average open-market tier of rent that could be expected for a unit of standard size commensurate with Colliers International s.r.o. demand, based on a blend of Grade A & B space across a range of locations in the Myšák Gallery market at the survey date. Vodičkova 710/31 110 00 Prague 1• Gross Take-up (Total Occupational Market Activity): Comprises the total gross Czech Republic lettable floor space known to have been let or sold during the survey period, categorized as one of the following: Pre-leases, New leases, Expansions, TEL +420 226 537 618 Renewals/Renegotiations and Sub-leases. FAX +420 226 013 579 EMAIL prague.research@colliers.com• Net Take-up: Includes the total lettable floor space known to have been let or sold during the survey period, excluding Renewals/Renegotiations. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort• Prime Headline Capital Value (derived): This is a calculation of market value derived has been made to ensure its accuracy, we cannot from the annual prime headline rent divided by the prime (net initial) yield. guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the• Prime Net Initial Yield: The yield an investor is prepared to pay to buy a Grade A material contained in this report. building, fully-let to high quality tenants at an open market rental value in a prime location. Lease terms should be commensurate with the market. As a calculation Net Initial Yield = first years’ net income/purchase price (prior to deducting fees and taxes)• Prime Headline Rent: Represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand, of the highest quality and specification in the best location in the market at the survey date. This should reflect the level at which relevant transactions are being completed at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions, but the same criteria on building size and specification will apply.• Prime Net Effective Rent: Prime Net Effective Rent is the lowest rent payable, based on a calculation of the Prime Headline Rent, less the monetary equivalent of the highest of either the rent-free period or fit-out contribution available at the time of the survey date.• Space Under Active Construction: Represents the total amount of gross leasable floorspace of properties where construction has commenced on a new development or in existing properties where a major refurbishment/renovation is ongoing at the survey date.• Total Competitive Stock: Includes the gross leasable floorspace in all A and B class buildings.• Vacant Space: The total gross leasable floorspace in existing properties that meet the Competitive Stock definition, which is physically vacant and being actively marketed at the survey date. Space should be available for immediate occupation.www.colliers.com/Markets/Prague
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