Research

Prague Office market report • H1 2008 Contents Prague map

2-3

Market summary

4

Market data

5

Executive summary •

The Prague office market saw very strong leasing activity in the first half of 2008, with take-up of almost 135,000 sq m, nearly double the total recorded in the same period of 2007. The majority of activity continues to centre on the Prague 4 and Prague 5 districts.

•

The Prague market is developing rapidly, with 115,000 sq m of new office space delivered in the first half of the year. With a large amount of space in the pipeline for H2 2008 across Prague, an all-time high level of new supply is likely to be recorded this year.

•

Prime office rents in the city centre have increased to €260 per sq m per annum. With limited space available in the CBD, continued rental growth can be expected over the rest of the year.

•

In common with the rest of Europe, there has been a significant slowing of investment activity in the Prague market. Though there is little transactional evidence, prime yields appear to have softened by around 25 basis points in the first six months of the year to stand at 5.75%.

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Prague office market report • H1 2008

Knight Frank

Prague region Central M Krizíkova

M Malostranská Námestí Republiky

Prague 1 M Staromestská

M

º Mustek M

Národní M trída M Muzeum

M

M Karlovo námestí Andel

M Florenc

M Hlavní Nádraží Jirího z Podebrad M

M I.P. Pavlova

M

Námestí Míru Prague 7

Ruzyne International Airport

Prague 2

Pragu 8

Prague 6 Prague 1

Prague

New supply is limited due to the historic nature of the city centre and demand is strong, especially from smaller occupiers including consultancy firms and smaller

Prague 2

professional organisations. Due to the constricted supply and continued demand, this area commands the highest rents in Prague, which have increased to €260 per sq m per annum.

Prague 5

Prague 4

Prague 13

Prague West (Prague 5) Radlická

M Prague 12

Jinonice M Nové Butovice M

^

M Zlicín M Stodulky

M

Hurka

M

Prague 13

Prague 5

Luka

M Lužiny

Stretching westward from Anděl, principally within the Prague 5 district, new office developments have attracted a diverse group of occupiers, including IT&T, pharmaceutical and financial companies. Recent deals include the lease of 24,000 sq m by Siemens in Stodůlky, which represents the largest letting of office space in Prague West. During the first half of 2008 the most significant new completion was phase 5 of Avenir Business Park which is now fully let. The second half of the year will see the completion of the first phase of Quinlan Private Golub Explora scheme, the 18,447 sq m Jupiter building. The delivery of a number of sizeable developments has restricted rental growth and prime rents within this area currently stand at €168 per sq m per annum.

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3

Prague office market report • H1 2008

Knight Frank

Prague North (Prague 7 & Prague 8)

Prague 8 Nádrazí M Holesovice

Prague 7

Palmovka

M

Vltavská

M M Invalidovna

M

M Krizíkova

Prague 9

Development began in northern Prague in the late 1990s in the

e

Karlín area of Prague 8. The most recent development in Karlín

Prague 14

is Corso II A which will be delivered to the market in Q3 2008.

e3

There has been increased development activity across the Vltava River in Prague 7, including schemes such as the Classic 7 Business Park, situated in Holešovice, which includes 42,500 sq m of office space. Other schemes under construction to the

Prague 10

north of Karlín include the Futurama Business Park at Invalidovna Prague 15

Metro station, including 41,300 sq m of class A office space. Prime rents in Prague North are €174 per sq m per annum.

Prague South (Prague 4) ^

Prague 11

M Vysehrad

M Pražského povstání M Pankrác

5 E6

Prague 4

M Budejovická

M Kacerov

E50 M Roztyly

E50 Chodov M

The most substantial development of new office stock since the mid 1990s has been in Prague 4, to the south of the city centre. There have been record levels of new supply recently, making Prague 4 the most significant decentralised office location within the city. 2008 sees the completion of a number of major schemes including ECM’s 40,000 sq m City Tower and Hochtief’s 36,550 sq m Kavčí Hory. The area is a location of choice for many large foreign tenants, including banking and finance occupiers. Skanska, one of the world’s leading construction groups, will also move their headquarters to this area. Prime rents in Prague 4 currently stand at €190 per sq m per annum.

Knight Frank

Prague office market report • H1 2008

4

Prague offices “Though large volumes of new office space continue to be added to the Prague market, the strength of demand has ensured that the vacancy rate remains relatively low.”

The Prague office market continues to develop rapidly, with the total leasable stock in the city reaching 2.3 million sq m at the end of the second quarter of 2008, of which 70% is new-build and 30% is refurbished. The total new supply expected to be delivered in 2008 is estimated at 287,526 sq m. Office take-up in the first half of 2008 was approximately 133,485 sq m, with the largest volumes of take-up recorded in Prague 4 with 41,973 sq m, and Prague 5 with 38,636 sq m. The overall vacancy rate throughout the Prague market at the end of Q2 2008 was approximately 5.6%, a slight decrease from 5.9% in Q1 2008. During the second half of the year, the vacancy rate is expected to rise moderately due the high amount of new office space coming on stream. As the market in Prague is still relatively small, the vacancy rate tends to fluctuate from quarter to quarter as a result of new office projects being completed. During H1 2008, prime office rents increased to €20-21.50 per sq m per month in central locations, while prime rents in the inner city submarkets outside the CBD achieved €15-17 per sq m per month.

Key leasing transactions H1 2008

“With limited space available in the city centre, the Prague 4 and Prague 5 submarkets continue to take the largest shares of office take-up.”

Scheme

Tenant

Location

Quarter

Západní Město

Siemens

Size (sq m) 24,000

Prague 5

Q2

City Tower

Raiffeisen Bank

17,500

Prague 4

Q1

Kavčí Hory Office Park

Wüstenrot

5,000

Prague 4

Q1

River Garden

FCC Vinci

5,000

Prague 8

Q1

Classic 7

NetCentrum

3,630

Prague 7

Q1

City Tower

ECM

3,000

Prague 4

Q2

Oasis Florenc

J&T

2,637

Prague 8

Q2

Servodata Building

Abloy/FAB

1,974

Prague 10

Q1

Palladium

Nörr Stiefenhofer Lutz

1,820

Prague 1

Q2

Palladium

Wood & Co

1,725

Prague 1

Q1

Arbes

Arbes Technologies

1,650

Prague 5

Q2

Palladium

Cameron McKenna

1,627

Prague 1

Q2

The Park Building 10

Honeywell Aero

1,600

Prague 4

Q1

Gemini - A

Newton Media

1,569

Prague 4

Q2

Source: Knight Frank

Investment market Following several years of rising investment volumes in the Prague market, there was a clear slowing of

“Office investment yields have been softening, though there remains demand for prime product.”

activity in the first half of 2008, as the effects of tightening credit market conditions and global economic uncertainty have been felt. Prime office yields have come under upward pressure, moving out to around 5.75% by the middle of the year. There remains demand for prime office product, particularly from German institutional investors looking for secure long-term cash flows. We are also aware of a number of Pan-European private equity-backed investors looking for opportunistic investments, although their focus tends to be on development led schemes. Fund managers have become increasingly selective in choosing their investment targets and there is currently little interest in secondary assets. The gap between yields on prime and secondary properties has been widening.

Key investment transactions H1 2008 Scheme

Purchaser

Vendor

Anděl Park

SEB Asset Management

Immoeast

Praha City Centre

Generali

Hannover Leasing

Philips Building

Heitman

Invesco

6,000

Source: Knight Frank

Size (sq m)

Location

Price

23,000

Prague 5

€71.5 m

18,500

Prague 1

n/a

Prague 5

€13.8 m

Prague office market report • H1 2008

5

Figure 1

Figure 2

Market balance

Completions 20

0.20

15

0.15

Take-up

Kavčí Hory, Prague 4

2007

Source: Knight Frank

Vacancy rate

H1 2008

2005

0.00

2006

0

2003

0.05

2004

5

2001

2007

H1 2008

2006

2005

2004

2003

2002

2001

0.0

2000

0.1

0.10

2002

10

2000

0.2

Vacancy rate (%)

Take-up (million sq m)

0.3

million sq m

Knight Frank

Source: Knight Frank

Figure 3

Figure 4

Total stock

Prime rents 300

2.5

€ per sq m per annum

million sq m

2.0

1.5

1.0

250

200

H1 2008

H1 2007

End 2007

H1 2006

End 2006

H1 2005

End 2005

End 2004

H1 2004

H1 2003

150 End 2003

2005 2006 2007 H1 2008

2003

2004

0.0

1997 1998 1999 2000 2001 2002

0.5

Source: Knight Frank Source: Knight Frank

Figure 5

Prime yields

Prague data Czech Republic

10

10,240,000

population Prague population

%

8

6

Prague unemployment rate

2.0%

Czech unemployment rate

5.0%

Prague GDP growth

5.1%

Czech GDP growth

4.8%

Czech inflation (June 2008)

6.7%

Budějovická, Prague 4 2000 2001 2002 2003 2004 2005 2006 2007 H1 2008

1997 1998 1999

Source: Knight Frank/Experian

4

Source: Knight Frank

1,180,000

Research

London Chris Bell Managing Director Europe +44 (0) 20 7629 8171 [email protected] Joe Simpson Partner, International Research +44 (0) 20 7629 8171 [email protected] Matthew Colbourne Research Analyst +44 (0) 20 7629 8171 [email protected] Prague Zdenka Klapalova Director +420 22 421 77 62 [email protected] Premysl Chaloupka Director +420 22 421 77 62 [email protected] Christopher Sheils Head of Investments +420 22 421 77 62 [email protected]

Knight Frank Commercial Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. Knight Frank Research Reports are also available at www.knightfrank.com

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© Knight Frank LLP 2008 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank LLP for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

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