Overseas property

Excellent prospects for Prague real estate in 2016

Experts think 2016 could be the start of a "golden era" for Czech property

If the Senate of the Czech Republic approves the bill submitted by the country's Ministry of Finance, buyers will soon be paying the real estate purchase tax that was previously shouldered by sellers. But this is not a bad thing. According to local real estate experts, this could activate the country’s already growing market. Last year, buyers and investors injected €2.7 billion into the property market, 43% of which went into commercial property as reported by Tranio’s local partner, Getberg. In 2016, some markets will benefit more than others, especially residential, office space, retail and industrial premises.

New property sales on the rise

In 2015, demand was consistently high for Czech residential property thanks to the positive macroeconomic situation and all-time low interest rates on mortgages.

According to Getberg, Tranio’s partner in the Czech Republic, last year over 7,000 new homes were sold (18% more than in 2014), the most popular of which were flats and detached houses.

Buyers are heading out to the suburbs as parking dwindles in the centre

Low budget flats (under €1,200/sq m) have almost completely disappeared from the existing property market. This is, in large part, due to foreign investors who bought a significant number of such flats during the 2008–2009 crisis years. Today, the average price for a flat in Prague is about €2,000 per sq m, which is 3.5% higher than in 2015. In fact, the average price for listed apartments rose by 7% compared to 2014. One-bedroom flats actually made up about 40% of the total sales in 2015.

Best places to buy in Prague

The most attractive residential districts are Prague 5 (Městská čast Praha 5), Prague 9 (Městská čast Praha 9) and Prague 10 (Městská čast Praha 10).

This upward trend is expected to consolidate itself and bring new growth to prime property, particularly apartments, for which demand now exceeds supply. Analysts have recently concluded that prices for prime property will continue to grow consistently up to 2018 and eventually exceed the current levels by 12–15%.

Small flats in the centre of Prague within walking distance of the main streets and big shopping centres maintain their popularity with medium budget buyers, a reality that is not lost on developers. 6,700 new flats are due to be commissioned in Prague this year, which constitutes a 34% rise on 2015 (5,000 units). In the words of Blanka Vačkova, Head of Research at JLL in Prague, it is the highest figure since 2009.

The popularity of residential property in and near Prague’s city centre is gradually declining mainly because of population density and trouble finding parking. On the other hand, there are more buyers looking at homes in the suburbs. On top of that, there are practically no new properties available in the Old Town (Staré Město).

Office property sets a new records

Last year, leasing activity in the Czech office segment set a new record. During the last three months of 2015, the gross take up surpassed 160,000 sq m, an unprecedented figure for the Czech capital's market. Gross annual take-up of leased premises reached 448,000 sq m, which is also the highest figure in the history of the country's economy. The expansion of the representative offices, Raiffeisen and Oracle in particular, played a key role in that.

Vacancy rates are still declining as Prague’s popularity grows. Every quarter recorded a decline in available office space during 2015, running at 14.6% by the end of the year. According to Ondrej Vlk, Head of Research at Colliers International Czech Republic, if take-up dynamics continue at the same rate as last year, the vacancy rate might fall to less than 12%.

Prime property is particularly in demand when it comes to office space

Prague's transformation into one of Europe’s main business capitals has increased demand for prime office property lettings: 90% of leases in this segment involved Class A property in 2015. The current monthly rental rate ranges from €18.50 to €19.50 per sq m for prime property in the capital. Higher demand for office leases and the lowest rate of completions in this segment since 1993 should keep these rates stable throughout the year. However, up to 53% of office property is more than 10 years old, creating a new market for property to refurbish and rejuvenate.

Lease rates rise on retail property in good locations

The retail property segment contributed significantly to the Czech real estate market in 2015. According to Richard Curran, Managing Director at CBRE, two major retail transactions made up a substantial amount of commercial property investments last year, including the sale of Prague’s Palladium shopping centre to a German group. It is also for this reason that the segment recorded annual investments 2.6 times higher than in 2014. There are no major transactions in sight so far this year but retail property is expected to contribute significantly to total commercial property investment volumes that could reach €2 billion in 2016.

Demand for high street retail and shop units is strongest in central areas and big shopping malls. Lease rates in the capital (€115/sq m per month) and elsewhere are growing, even though regional retail rates are lower (€65/sq m per month).

Industrial property in Greater Prague dominates national market

Activity on the industrial segment was dominated by warehouses in the Greater Prague area where gross take-up levels made up 48.4% of the national volume. In 2015, this area had the biggest share of the national warehouse property stock (40%), recorded the highest level of completions and, with due consideration to these factors, the highest vacancy rates in 2015 according to Colliers.

It’s important to mention that vacancy levels plunged by 5.1% between Q3 and Q4 2015, marking a 5-year low for the segment, which in turn, heralds positive prospects for Greater Prague and its new stock of warehouses. Gross lease rates in Prague (based on a five-year lease term) range from €3.70–3.90/sq m per month.

Sergey Akinfiev, Tranio

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