Is Commercial Property in the Czech Republic Still Attractive?

It’s no secret, the commercial property market in Prague has been highly popular with a broad range of international investors and yields and returns have been extremely attractive in recent years.  The strategic importance of the city together with its impressive transport links and relatively affordable space that was once in abundance have led to Prague leading the commercial property market sector in the Czech Republic.

Turnover in the commercial real estate investment market in the Czech Republic grew by almost 50% last year but markets such as the Ukraine, Bulgaria and Romania are so hot on the Czech Republic’s heels and Prague’s commercial market is becoming oversaturated that the question has to be asked - ‘is commercial property in the Czech Republic still attractive?’ and opinion is apparently divided…

On the one hand you have property development companies still fighting with each other for viable land in and around Prague to get in on what they feel is still a highly lucrative market.  Just this week another major development was announced with over seventy million euros being ploughed into the construction of a new logistics park to the northwest of the city.

The new development is taking the city limits out even further and really speculating on future road and rail developments…which is risky to say the very least!  For a start the developers Skanska Property are relying on infrastructure coming to them and making their property desirable, and secondly they are looking at a really long term approach to reaching profitability as construction permits are still pending, as is the R6 expressway on the proposed entrance to which their new logistics park is to be built - and the rail links they want are not due to come until 2015.

This level of speculative behaviour would be acceptable in a market where long term success is all but guaranteed, but at the moment yields are falling in the Czech Republic and Prague has most certainly been hardest hit. 

The nation is now on a par with the likes of Austria and Spain in terms of the yields property investors are getting from their commercial property in Czech Republic - and those who are honest with themselves admit that there is still room for further yield compression which naturally reduces the attraction of the property market.

But going against this negative trend is strong opinion – the local director of Knight Frank’s offices in the Czech Republic honestly believes that strong investor commitment and commercial interest in the entire nation will continue unabated and that instead of Prague’s commercial market becoming unattractive through over saturation, other areas of the country will develop as commercial hubs thus spreading interest from its concentration in Prague to encompass Brno, South Moravia, Plzeň, West Bohemia, Ostrava and North Moravia for example.

In conclusion, it’s certainly the case that there is a strong requirement for commercial space in the Czech Republic because it is a key logistics and distribution centre for much of Europe…but whether the commercial property market will continue to be such a popular investment choice remains to be seen.

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