Bank Austria Real Estate Country Facts:
Improvement on the Czech commercial real estate market in sight?

  • Bank Austria sees anti-cyclical investment opportunities in the Czech Republic and CEE
  • Investor risk appetite will be decisive – investors in the Czech Republic still concentrating on core properties
  • Czech Republic offers low country risk and transparent real estate market
  • Gradual recovery of the Czech economy starting in 2013 – office space demand expected to grow
  • New rentals outpacing construction of new space in the logistics segment
  • Czech Republic appealing for international retailers

According to Reinhard Madlencnik, the head of Real Estate at Bank Austria, "Real estate investors and developers are running the risk of missing important anti-cyclical opportunities. At Bank Austria, we are ready to continue offering financing." Bank Austria's real estate segment generated around EUR 1.5 billion in new business in 2012. The goal for 2013 is to maintain this volume, if not improve it. According to Madlencnik, "UniCredit's outstanding CEE network enables us to apply our expertise in Austria and also use the local know-how of UniCredit Bank Czech Republic to provide our customers with comprehensive service."

Limited supply of core properties still dominating development
Commercial real estate investors continued to focus on core properties, in other words assets at very good locations with highly-rated tenants and long-term rental contracts, in 2012. Such properties were in short supply.
Investments in commercial real state slid to EUR 609 million in 2012, a decrease of 71 per cent in annual comparison – though 2011 was an exceptionally good year. The expected recovery of the economy and improvement in international conditions should boost risk appetite. "With the increase in risk appetite, value-added investments – investments in properties at attractive locations that are in need of renovation – in particular will provide attractive opportunities," Karla Schestauber, real estate analyst at Bank Austria, said optimistically.

Low country risk and a transparent real estate market
Jones Lang LaSalle rates the Czech Republic as a transparent real estate market. The Czech Republic is ranked number 24, closely behind Austria at 22, in the 2012 Transparency Index, making it the second best country in CEE. Also low country risk makes the Czech Republic attractive. The development of CDS spreads shows that the country’s default risk is considered to be only marginally higher than that of Austria.

Czech office market – demand expected to begin rising by 2014 at the latest
The capital city of Prague is the most important office market in the Czech Republic. The creation of office space has slowed considerably since 2009.
New space of around 100,000 square metres is expected to come onto the market in Prague in 2013, 50,000 square metres of this in the Florentinum in the city centre alone. Because of the relatively low volume of new space, the vacancy rate stabilised at around 11.5 per cent last year despite the recession in the Czech economy. This puts Prague in the middle of the pack in European comparison, together with cities like Moscow and Brussels. "We expect the Czech economy to start growing moderately again in 2013. This will also lead to a slight increase in rental volumes," Schestauber predicted. Madlencnik stressed, "High-quality space can now be built at a relatively low cost in most CEE countries. We will offer developers seizing this opportunity good financing terms."

New rentals outpacing construction of new space in the logistics segment
The Czech Republic had a solid 4 million square metres of logistics space at the end of 2012. Roughly 200,000 square metres of this space came onto the market last year at a pre-rental rate of 40 per cent. Build-to-suit space is becoming more and more important. Around 40 per cent of the logistics space is in the greater Prague area, and close to 60,000 square metres of new space came onto the market last year. New rentals in 2012 surpassed this significantly and reached nearly 190,000 square metres, which continued to drive the vacancy rate down. Over 40,000 square metres are currently under construction, and developers should have little trouble finding tenants for this new space, either. According to Madlencnik, "The situation is difficult for old space that does not meet current standards. Such space will disappear from the market over the medium to long term." Prime rents in the greater Prague area stablised at just under 4 EUR/square metre/month in recent years.

Czech Republic appealing for international retailers
The Czech Republic is a saturated retail market with a very high level of existing space. New space is being added to the market despite this, though the growth rate has slowed considerably. Nearly 40,000 square metres will come onto the market in Prague alone this year through the second expansion of the Cerny Most Shopping & Leisure Centre. CB Richard Ellis (CBRE) estimates that there is close to 1 million square metres of old shopping space, in other words space that came onto the market before 2002, in the country. This means there is substantial potential for renovation. Despite weak domestic demand, below-average purchasing power in EU comparison and high market saturation, the Czech Republic is attractive for international chain operators that are pursuing medium- to long-term strategies. Here as well, Madlencnik is confident that, "Good concepts in good locations will succeed."

Enquiries: Bank Austria Press Office Austria
Martin Kammerer, tel. +43 (0) 50505 - 52803
E-mail: martin.kammerer@unicreditgroup.at