Leaping to the front of the pack

Two recent global real estate reports show that while Prague may not have been among the leading world cities for outside investment in 2011, the Czech Republic has outperformed its Central and East European neighbors in terms of international interest in available properties.

In both the report - "Winning in Growth Cities," which identifies the largest and fastest-growing cities in commercial real estate investment - and the annual "European Cities Monitor" survey, which ranks the best cities in which to do business, Prague has slipped in its rankings in terms of attracting investment, but the Czech Republic beat Poland to the top spot as the leading investment market in Central Europe in 2011.

"The Czech Republic is ranked as the top investment market in Central Europe, outstripping Poland, despite the difference in country size," said James Chapman, head of capital markets for the Prague office of global real estate consultants Cushman & Wakefield. "It will be difficult to maintain this position in 2012, but we expect that Czech activity will again be high, reflecting the international investor appetite focusing on the Czech Republic."

To date in 2011, the Czech Republic has brought in more than 50 billion Kč (2 billion euros) in outside real estate investment and, according to reports from Cushman & Wakefield is anticipated to reach 53 billion Kč by the year's end.

Some of the large investments that have pushed the Czech Republic ahead of its Central and East European neighbors are the two VGP industrial parks projects totaling about 11 billion Kč and the shopping centers Nová Karolina in Ostrava (7.5 billion Kč), Olympia in Brno (6.3 billion Kč) and Palác Flóra in Prague (4.8 billion Kč).

"As the Central European market has evolved over the course of the past five years, the Czech Republic is now considered to be more aligned with Western markets," said Edward Thomas, surveyor in the CEE capital markets group of Cushman & Wakefield. "[It is] considered safer and more mature than the emerging markets of Central and Eastern Europe like Romania, Bulgaria, Serbia and Croatia."

While the Czech Republic as a whole is going into 2012 with a strong position, Prague is losing its grip in Europe with investors In the "European Cities Monitor," Prague fell from 21st to 25th position of top cities to do overall business in, according to more than 500 European companies surveyed in 2010. According to the survey, only 21 businesses are planning expansion into the capital city, compared with 24 last year. Analysts say Prague does not yet offer the kind of tax incentives that typically attract international investors.

"We see the main reason being the low level of incentives provided by the government to newcomers as well as quite high labor costs when compared with other CEE countries," said Radka Nováková, head of the office team at Cushman & Wakefield. "But Prague is still valued for its convenient geographical position, stable political system, educated and performing work force and top quality of office space."

Prague might have made the top 25 cities to do business in, but it did not make it on the top 25 list of cities for global property investment as reflected in the "Winning in Growth Cities" report. The reason for this is not a lack of demand, but more a lack of availability, according to Thomas.

"The overriding factor as to why Prague isn't ranked within the top 25 cities for property investment isn't a result of lack of demand or investors' perspective of the country or city, but more simply the lack of core stock available," he said. "Prague has witnessed just over 1 billion euros in commercial property transactions. To put this in perspective, the total amount transacted would only amount to about 30 percent of the total transacted by the lowest ranked city, San Diego, thus portraying the size of the market."

While the future is uncertain in terms of rankings in next year's reports, the Czech Republic and Prague will still be attractive to investors, especially those already established in the country, Thomas said.

Megan Battista can be reached at
features@praguepost.com