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CUSHMAN & WAKEFIELD 2012/2013

czech republic

Global Cities Retail guide

czech republic Overview

The Czech Republic is one of the smaller central European countries with a population of just over 10 million. The country has attracted considerable foreign investment.

Tourism is booming and the Czech retail scene has been transformed over the last few decades. The Czech Republic is a stable market within the CEE (Central and Eastern Europe) region and is growing again. It is the most urbanized country in Central Europe, though Prague, the capital, is the only city with more than one million inhabitants. Brno, in the south of the country, is the second largest city in terms of population, and the next major retail centre after Prague. Both cities attract international retailers.

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czech republic Economic Overview

economic summary

economic breakdown

ECONOMIC INDICATORS*

2009

2010

2011

2012F

2013F

Population

10.5 million ( 2010)

GDP growth

-4.5

2.6

1.6

0.1

1.9

GDP

US$ 216.4 billion (2011)

Consumer spending

-0.3

0.5

-0.4

-0.6

1.1

Public sector balance

-3.73% of GDP (2011)

Manufacturing production

-13.6

10.3

6.9

1.3

4.7

Parliament

Civic Democratic Party and TOP 09 coalition

Investment

-11.4

0.0

-0.8

-0.6

1.9

Head of State

Mr. Václav Klaus

Unemployment rate (%)

8.1

9.0

8.5

8.6

8.4

Prime Minister

Mr. Petr Nečas

Inflation

1.0

1.5

1.9

3.2

1.9

Election date

KORUNA/€ (average)

26.45

25.29

24.59

25.85

26.65

October 2012 (Senate) February 2013 (Presidential) May/June 2014 (Chamber of Deputies)

KORUNA/US$ (average)

19.06

19.10

17.70

20.13

20.47

Interest rates 3-month (%)

2.2

1.3

1.2

1.2

1.2

Interest rates 10-year (%)

4.7

3.7

3.5

3.4

3.6

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast Source: Oxford Economics Ltd. and Consensus Economics Inc

retail sales growth: % change on previous year 2009

2010

2011

2012F

2013F

Retail Volume

-1.48%

-1.09%

0.34%

-1.15%

2.11%

Retail Value

-5.40%

-0.42%

2.59%

1.93%

4.35% CUSHMAN & WAKEFIELD

Global Cities Retail guide

czech republic Largest cities largest cities (2012) CITY

POPULATION

Prague

1,250,000

Brno

370,000

Ostrava

300,000

Plzen

170,000

Liberec

100,000

Olomouc

100,000

Usti nad Labem

100,000

Ceske Budejovice

100,000

Photo / Flickr user Dave_B_ CUSHMAN & WAKEFIELD

Global Cities Retail guide

czech republic Retail Scene MAJOR DOMESTIC FOOD RETAILERS Coop

MAJOR INTERNATIONAL FOOD RETAILERS Norma, Tesco, Ahold, Billa, Interspar

MAJOR DOMESTIC NON-FOOD RETAILERS ALPINE PRO, HANNAH / ROCKPOINT, Levne Knihy, pompo, hm studio, Bata

INTERNATIONAL RETAILERS IN CZECH REPUBLIC (A SELECTION) M&S, H&M, Zara (and other Inditex brands), C&A, Peek&Cloppenburg, Van Graaf, Foot Locker

FOOD & BEVERAGE OPERATORS Costa Coffee, Starbucks, McDonalds, Burger King, KFC, Paul Bakery, Brioche Doree

TYPICAL HOURS MONDAY-FRIDAY

SATURDAY

SUNDAY

08.00-18.00 but can vary between 08.0010.00 and 17.00-20.00 (21.00 in some shopping centres); 07.00-21.00 some supermarkets.

09.00-20.00 Some high street retailers may close at lunchtime

09.00-20.00 Independent retailers closed. Some hypermarkets open 24/7 policies.

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Global Cities Retail guide

czech republic Retail Scene The liberalisation and development of the Czech Republic has made it an attractive destination for a number of major European retailers across many sectors and in all types of formats. Interest remains strong but space limited on its high streets. Prague is the only city with extensive high street shopping, while elsewhere in the country it is more limited. Many household names in European retail have representation on the high streets.

Data as of April 2012

Shopping centres have developed strongly since their introduction in 1997 and have been developed across the Czech Republic to now total some 92 shopping centres. As at July 2012 there is now a shopping centre stock of some 2.1million sq.m, equating to some 200.6sq.m/’000 population compared to the EU average of 250.1sq.m/’000 population. The aftermath of the financial crisis translated into a record low supply of new shopping centre space, but the supply of modern retail space is expected to be boosted by a number of extensions currently in the pipeline and due to open in the second half of 2012 and 2013. Some of the key openings during this period will include extensions to Globus Mall in Ostrava and CMM in Prague, as well as the new schemes Breda & Weinstein Opava and Galerie Moritz, which are due to open in 2012. The last couple of years were also marked by increasing development of retail parks. The trend towards retail warehouse development which started with the construction of hypermarkets and seemed to have matured with the introduction of retail parks has been newly revived by a new wave of big box development. Operators are increasingly aiming at budget oriented consumers in such sectors as sports (Decathlon) or furniture and household equipment (Lutz). With the exception of the extension of Fashion Arena in Prague, the factory outlet segment has seen no major change over the course of the last couple of years. The tenant mix of the two schemes currently in operation (Freeport Hatě and Fashion Arena) is predominantly mass market focused, with a few select premium brands. Despite two outlet centres being frozen (Galleria Moda, Exit 66), TK Development has presented new plans for a 23,000 sq.m outlet in the eastern part of the country (Designer Outlet Village Moravia). Internet based sales have continued to grow but account for a relatively low proportion of total retail sales. Web-based retailers are increasingly expanding into bricks and mortar units, while traditional shops are adapting their operations in order to accommodate online sales and ensure similarity in prices in the two business models. UK grocery company Tesco launched an online grocery shopping service for customers in Prague, the first in its sizeable Central European retail business. The latest trend in online retail in the Czech Republic is the fast growth of the coupon system, which has gained particular popularity in the restaurant and the service industry.

new entrants to the market Inglot

Parfois

Armani Jeans

Desigual

Aldo shoes

Tiffany&Co.

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czech republic Key Features of Lease Structure KEY FEATURES OF LEASE STRUCTURE Lease Terms

Typical lease terms for are generally five or ten years, often with options to extend. Rents are denominated in EUR or CZK, and payable in CZK. Rents are expressed on a per sq.m basis. Conditions to terminate are negotiable but must be clearly stated in the lease – otherwise there are limited reasons permitted by law for the landlord to break. While break clauses do exist, they are almost exclusively conditioned by penalty. Under previous regulations, tenants had the right to terminate their lease if the building changed ownership. This right has now been removed, hence boosting the security of income offered by real estate. These amendments are intended to apply retrospectively but are as yet little tested in court. Restrictive user clauses are not usually included in a lease but where added they are enforceable.

Rental Payment

Rents are generally paid monthly (occasionally quarterly). Frequently turnover rents of between 3-10% (depending on use) are employed in new retail developments. Turnover rents are usually subject to a base rent. A security deposit equivalent to three months rent, service charge and VAT applicable on the amount is usually required or the equivalent parent company guarantee. Key money/premiums are allowable but not common place.

Rent Review

Most rents are indexed annually to the relevant inflation index – either the Eurozone or EU 27 HICP for Euro-denominated leases or Czech Statistical Office CPI for CZK leases. Security of tenure is not automatic but may be included in the lease by negotiation. Under old style leases, fixed-term leases were difficult for the landlord to break but these restrictions have been ended by the 2005 lease reform – although the enforceability of this retrospectively is yet to be tested.

Service Charges, Repairs and Insurance

A service charge is usually payable in all building types. The charge normally includes management fees, security, cleaning, internal maintenance of common parts, servicing of elevators, external maintenance, external insurance, water, electricity, heating, air conditioning and snow clearance. It excludes internal maintenance of rented accommodation, internal (equipment) insurance and VAT. By law the service charge can not be included in the rent and must be quoted and paid separately. Landlord responsible for main Structure (may be charged to the tenant through the service charge) and large scale repairs and maintenance. The tenant is responsible for minor outlays and superficial repairs. In a multi-let building, the landlord will provide such services but charge back via the service charge. Lighting, Heating, A/C costs for the common areas are paid in advance. The landlords are responsible for insuring the main structure whilst the tenant pays internal insurance (sometimes also business insurance – in retail)

Property Taxes and other costs

Real Estate Tax is payable by the owner, but the amount payable is very small. Despite this, the cost is often recovered from the tenant in the service charge. 20% VAT payable on rent.

Disposal of a Lease

Sub-leasing is negotiable but is always subject landlord approval. Assignments are not recognised by Czech law and in practice; a written agreement by all parties is required. Early termination is only by break clause. Usually, the tenant is responsible for reinstating the premises subject to normal wear and tear.

Valuation Methods

Zoning methods rarely used. Standards vary, with some landlords using GIF (retail), some BOMA, otherwise it tends to be Gross Internal Area, excluding vertical circulation. Most will include an “add factor” to allow for a proportion of common areas.

Legislation

State law supersedes the lease contract. A western lease contract is generally applicable for the leasing of commercial premises with compliance of certain Czech rules. Rents are regulated by a government decree, although the cities have the right to deregulate in their areas, which they usually do. Section 196 of the Commercial Code 1992 governs commercial property. Leases must be in written form but there is no standard contract. A recognisable western style leases is in place, which includes the salient legal points as dictated by the Czech commercial code but with clauses common to western leases added. The lease document is the only paperwork required, with an appendix as confirmation from the cadastral office that the landlord owns the property or has the right to act as owner, and a statement of company registration. There are usually two original copies of the lease with attached plans. Leases are legally enforceable but not widely tested in the courts. The lease is a contract to use the real estate rather than an ownership right and hence does not need to be registered with the land registry.

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No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2012 Cushman & Wakefield, Inc. All rights reserved. CUSHMAN & WAKEFIELD