CZECH REPUBLIC RESEARCH & FORECAST REPORT Q Accelerating success.

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1 CZECH REPUBLIC RESEARCH & FORECAST REPORT Accelerating success.

2 RESEARCH & FORECAST REPORT CZECH REPUBLIC PRAGUE OFFICE PROPERTY MARKET SUPPLY METRIC KEY OFFICE FIGURES MEASURE Total Stock 2,773,296 m 2 Take-up 49,809 m 2 Vacancy 11.77% Prime Headline Rent 2,800,000 2,750, / m 2 / pcm CHANGE IN STOCK OVER TIME The total office stock in Prague exceeded 2.77 million m 2 in as a result of the completion of six office buildings totaling over 48,000 m 2, of which 84% was preleased/pre-sold. New supply includes Centrum služeb Budějovická (9,600 m 2 ) and Egon Business Centre (2,200 m 2 ) in Prague 4, Main Point Karlin (25,700 m 2 ) in Prague 8, Ehlenův dům (1,000 m 2 ) in Prague 1, Lyra Office Building (6,500 m 2 ) and River Business Centrum (3,200 m 2 ) in Prague 5. No new office building construction started in. DEMAND saw a sharp decrease in overall take-up compared to the previous quarters. Slightly less than 50,000 m 2 has been transacted which represents a 8% y-o-y increase, but a 49% q-o-q decrease. Year to date gross office demand stands at 231,900 m 2. In contrast to the previous quarter, take-up was again driven by lease renegotiations. Although net demand continued to form a significant portion of overall take-up. Prague 4 and Prague 5 were the most active locations benefiting from the largest transactions closed in, which included the lease renegotiation by Accenture of 6,400 m 2 at The Park (Prague 4) and by SAP Business Services of 6,100 m 2 at Avenir Business Park (Prague 5). 2,700,000 2,650,000 2,600,000 Q4 TOTAL STOCK (m2) Q1 Q2 NEW SUPPLY (m2) TAKE-UP STRUCTURE VACANCY/AVAILABILITY The overall vacancy rate fell slightly from 11.86% in Q2 to 11.77% at the end of and represents 326,500 m 2 of vacant office space. The vacancy rate in Grade A space also continued to decline (from 11.7% in Q2 to 11.4% in ), whereas Grade B space actually experienced a slight vacancy increase (from 12.2% in Q2 to 12.7% in ). The highest vacancy rate remained in Prague 9 (30.5%) due to the recent delivery of Amadeus Building in Harfa Office Park which remains 95% vacant and in Prague 7 (23.9%), whilst the vacancy rate in sought after districts such as Prague 4 and Prague 8 continued to decline and reached 7% and 13.8% respectively. The vacancy rate in other popular office districts, e.g. Prague 5 or Prague 1, remained more or less stable. RENTS 11% 47% NEW LEASES EXPANSIONS 33% 9% Prime headline rents for office space across all Prague submarkets remained flat. The rents in the City Centre range from 20-21/ m 2 / pcm, in the Inner City from / m 2 / pcm and in the Outer City from / m 2 / pcm. The effective rents are still approx % lower than the actual headline rents. However, the level of incentives largely depends on the particular district and building and on the lease conditions. PROGNOSIS A further 31,000 m 2 of office space is set to complete by end, of which 18% is currently pre-leased. An additional 112,000 m 2 of space is expected to be delivered to the market in 2012, of which 34% is currently pre-leased. RENEGOTIATIONS RELOCATIONS WITHIN STOCK Thanks to the anticipated large proportion of net office take-up, vacancy is generally expected to decrease further. However, due to the low level of pre-leasing, there may be some short term vacancy growth as future demand will not immediately absorb all the new or vacant space coming on to the market. Headline rents are expected to remain flat for the rest of, however, we may soon start to see a reduction in the amount of rental incentives being offered by landlords as the overall Prague vacancy rate drops. 2

3 RESEARCH & FORECAST REPORT CZECH REPUBLIC INDUSTRIAL PROPERTY MARKET SUPPLY METRIC KEY INDUSTRIAL FIGURES MEASURE Total Stock 3,991,000 m 2 Take-up 180,600 m 2 Vacancy 7.25% Prime Headline Rent , , , ,000 80,000 0 TAKE-UP vs VACANCY Q4 Q1 NET TAKE-UP (M2) Q2 RENEWALS & OTHER ACTIVITY VACANCY (%) TAKE-UP STRUCTURE 15% 12% 9% 6% 3% 0% A total of 95,000 m 2 came on to the Czech industrial real estate market in the course of increasing total modern stock close to 4 million m 2. All of the newly delivered space was pre-let. The completion of the first 3 industrial halls at CTPark Brno II accounted for 90,000 m 2, with the remaining 5,000 m 2 located in Kadaň. 40% of all current stock is located in Prague (i.e million m 2 ). South Moravia is now the second most developed region in the Czech Republic, accounting for some 16.5%, whilst Western Bohemia fell to third place and represents 14.4% of the stock. DEMAND gross take-up reached 180,600 m 2, representing a 42% decrease from Q2 and a decrease of almost 34% compared with. The accumulative year to date gross take-up has now reached 660,700 m 2. As in previous years, Prague accounted for the largest portion of total take-up (31%), followed by Western Bohemia (25%) and thereafter Southern Moravia (20%). Compared to Q2, net take-up weakened in accounting for 96,000 m 2 (i.e. 53% of total gross take-up). 60% of the gross take-up was driven by logistics and 34% by the production / assembly sector. VACANCY/AVAILABILITY Overall vacancy continued to fall during, reflecting the lack of speculative construction. As at the end of September, countrywide vacancy rate stood at 7.25%. The highest industrial vacancy rate was again recorded in Central Moravia (36.6%), followed by the Vysočina region (15.6%), although in both regions vacancy has decreased (from 45.9% and 16.1% respectively) since Q2. Positive absorption in the Prague region has pushed the vacancy rate down to 9.8%. Interestingly the Ústí region, Eastern Bohemia, R10 Expressway corridor and now North Moravia currently represent s markets with virtually no vacancy. RENTS The general trend shows a slight increase in rents for modern industrial premises as supply of new stock enters a phase of lower development volumes. 47% 29% 24% The lowest effective rents are currently achievable in northern part of Prague (close to the D8 Highway), at 2.50/m 2 /pcm for class A warehouse space. On the other hand the most expensive industrial premises in terms of effective rents are found in Brno. Headline rents countrywide range from 3.90 up to 4.50/m 2 /pcm. PROGNOSIS NEW LEASES EXPANSIONS RENEWALS/RENEGOTIATIONS Completion of around another 77,000 m 2 is expected by the end of, including the speculative developments of VGP at Tuchoměřice and Dobřenice. With take-up exceeding new supply, the overall vacancy rate is likely to continue decreasing in Q4. Slight regional increases in vacancy may occur in H as a result of lease expirations. We do not expect the final gross take up figures for to reach the 1,030,000 m 2 leased in. 3

4 QUARTERLY REVIEW CZECH REPUBLIC COLLIERS RESEARCH Colliers Research Services Group is recognised as a knowledge leader in the commercial real estate industry, providing clients with valuable market intelligence to support business decisions. Colliers research analysts provide multi-level support across all property types, ranging from data collection to comprehensive market analysis. Across the CEE-SEE-Russia region of EMEA, Colliers researchers regularly collect and update data on key real estate metrics, set to consistent definitions. This information is constantly managed using databases, enabling staff to readily produce analysis on key regional markets including supply, demand, absorption, pricing and transaction data on capital markets and the office, industrial and retail sector. In most CEE-SEE-Russian markets, the office definitions used are consistent with those set out by the CEE Research Forum an umbrella group, of which Colliers is a founding member - established to ensure consistent research methodologies are used, bringing greater transparency and reliability to the analysis of real estate markets in the region. Definitions of the key metrics used in our regular reports are highlighted below. 512 offices in 61 countries on 6 continents United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117 $1.5 billion in annual revenue milion square feet under management Over 12,500 professionals KEY METRIC DEFINITIONS Gross Take-up (Total Occupational Market Activity): Comprises the total gross 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, Renewals/Renegotiations and Sub-leases. Net Take-up: Includes the total lettable floor space known to have been let or sold during the survey period, excluding Renewals/Renegotiations. 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. 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 demand, based on a blend of Grade A & B space across a range of locations in the market at the survey date. CZECH REPUBLIC: Colliers International s.r.o. Myšák Gallery Vodičkova 710/ Prague 1 Czech Republic TEL FAX prague.research@colliers.com The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 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 floor space 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. 4

5 Accelerating success.