The Czech industrial real estate market is growing despite problems in the construction industry and rising inflation. Apart from the expansion of existing operations, new operations are also being built and storage and production areas are being expanded.

The mark of 10 million sq m of premises was exceeded in the first half of 2022 and, according to forecasts, the market will surpass the mark of 11 million sq m by the middle of next year. The projects implemented by the consulting company Colliers also play a significant role in this.

Expansion of production of lift components in Ostrava

The effects of the Covid pandemic, the impact of the war in Ukraine, the growth of inflation and interest rates, or the lack of workers and materials in the construction industry have not yet had any negative impact on the industrial real estate market. On the contrary, the Czech market for modern industrial real estate is growing rapidly. In the first half of 2022, 1.3 million sq m of new premises were under construction, most of which should be completed this year. Thanks to that, the market will exceed 11 million sq m already in the middle of next year. The highest share of new premises fell to the Moravian-Silesian Region, followed, with a small distance, by the Olomouc Region and rounded out by the Central Bohemian Region. However, interesting projects were created across the whole of the Czech Republic.

In Ostrava, for instance, Colliers mediated the relocation and expansion of the production plant of Savera Components. This manufacturer of lift components, which has been operating in the Czech Republic since 2019 and employs approximately 80 employees, currently uses premises with an area of less than 5,000 sq m in the CTPark Ostrava Hrabová area. However, due to the impossibility of expanding their production and storage capacities in this area, they are now moving their production plant to the new CTPark Ostrava Poruba, where they will have a full area of 11,430 sq m at their disposal. These premises will allow the company to build new assembly lines and a paint shop, thus expanding their production capacity.

In 2019, Colliers already assisted this Spanish manufacturer in finding a suitable location for their first Central European production plant, and apart from advising on the selection of the site, they also negotiated the terms of the lease. Ostrava won in the competition of Polish and Slovak alternatives, mainly thanks to the availability of local labour, the long tradition of local metalworking and the availability of quality premises.

The last available unit in Logistika Park Pardubice

Small units are also in high demand. Experts from Colliers helped for instance, Foxconn CZ, with the search and negotiation for the lease of smaller warehouse space and the company occupied the last vacant unit with an area of 518 sq m in the Logistika Park Pardubice complex in Černá za Bory. Foxconn CZ intends to use these premises primarily for storage, sorting and packaging of finished products and for other services. The construction of the modern Logistika Park Pardubice was completed by Demaco in the spring of 2022. The entire complex with a leasable area of over 100,000 sq m owned by Star Capital Finance is now fully occupied.

A new hall for 700 workers near Plzeň

Another interesting project that Colliers mediated is the construction of a new production hall in Nýřany near Plzeň. The new premises with an area of 36,400 sq m will be custom-built for the American company Shape Corporation by the development company Panattoni. Due to the specific requirements of the customer, it is a technically very demanding project, which took both parties more than a year. Shape Corporation plans to move their operation from Borská pole to the new hall and also expects to expand the production of deformation zones. The production is to be commenced in the first half of 2023, where the full operation in Nýřany will include up to 700 employees. The complex is situated in the brownfield area of former black coal mines. The new production hall will meet the strict requirements of the BREEAM ecological certification, which is why the project’s carbon footprint has been accounted for since the beginning of the construction.

Demand for commercial real estate remains

Investors are currently in a rather complicated situation, which results from the relative geographic proximity of the war in Ukraine, its effects on fuel and energy prices, and other disruptions to supply chains. The development of macroeconomic and geopolitical trends is not very positive. However, these are not problems that would exclusively concern the region of Central and Eastern Europe or its individual countries. Investors can still find opportunities that they should consider accordingly there.

We continue to present the activities of the Savills office in Prague. This time, we are introducing the Building & Project Consultancy Department which provides construction consultancy and project management services for investors and occupiers of all sectors of real estate in Central Europe.

The Building & Project Consultancy department of Savills CZ has six members who work under the leadership of Jan Jurčíček, Head of BPC. He answered our questions together with Barbora Jansová, ESG Consultant and Project Manager.

The Savills Building & Project Consultancy department has a relatively wide range of activities. Could you introduce them, please? 

Jurčíček: Our department started building services on transactional technical consulting, that is technical audits aimed at identifying risks arising from real estate’s technical condition during transactions (technical due diligence). We not only examine the current state of the property or prepare a plan for the necessary capital investments in a horizon of for instance 10 years, but we also check the issued permits, proprietary relationships and the state of the technical documentation related to the building. This requires extensive experience with the process, for instance in aspects of cooperation with legal and commercial consultants. Other pillars that we have gradually started to add are project management, project monitoring especially for banking institutions, consulting in the field of sustainability and, of course, specific technical consulting and the preparation of feasibility studies based on the specific needs of our clients, which include investment groups, funds, multinational clients, developers, banking institutions, but also private individuals. The area of sustainability and ESG is a relatively new segment for us. We began to pay more attention to it in 2021, and with the recent arrival of Bára Jansová, this sector becomes even more important for Savills, as we want to expand our portfolio of services with detailed ESG assessments.

What do you consider to be the key activity? Or do all of them have the same importance?

Jurčíček: They all are not of the same importance. For me personally, the closest are the already mentioned technical audits, which I have attended to for over 10 years, and which have, for several years, formed the core of our activities. We are now doing well in diversifying services. Project management is very much on the rise – both in the case of commercial constructions and industrial buildings – and so is project monitoring for our clients. The spectrum of services is now spread out in a healthy way, which allows us to respond better to recent market fluctuations or even those that may emerge with persistent inflation and highly compressed transaction yields.

There are traditional activities, such as project management, but also ‘modern’ activities, including green certification or the more and more frequently mentioned ESG. What does ESG actually entail?

Jurčíček: I would like to say that ESG is not a new term. I see this area as a new approach to the overall evaluation of company processes – and in our segment also to the impact the construction and operation of commercial real estate have in several areas that were previously evaluated separately and without wider context.

Jansová: As Honza mentions above, ESG is basically a new name and concept for already existing initiatives and processes. At Savills, we see this as an opportunity to help our clients evaluate possible ESG risks in time, whether within the framework of individual buildings or the entire portfolio, set long-term ESG strategies, and help with the preparation of comprehensive and transparent reporting due to the growing requirements of ESG legislation and various ESG standards and principles. We believe that responsible investing or consideration of environmental, social and governance or corporate criteria (ESG) brings a long-term competitive position in the market, financial results and a positive social impact. Since we have many years of experience with green certifications and other green services, we are able to provide our clients with comprehensive advice that takes into account not only ESG but also other aspects in the field of sustainability.

Can you describe a specific project or situation?

Jurčíček: One of the main drivers is the financing of commercial projects. Retail investors and banks are increasingly aware and set incentives for financing sustainable projects, and that is why they use ESG metrics that derive from European legislation. A particular example is the situation of not only large players in the real estate market, who aim for preferential financing, and therefore implement green certification processes more often already in the construction process, not only as an evaluation of existing buildings, furthermore, it is an increased emphasis on operational savings forced by rising energy prices and pressure from tenants, who gradually refuse to rent uncertified, uneconomic premises with a high carbon footprint. All of these factors necessitate investment in optimising building envelopes, efficiency of heat and cold source technologies and considering other options such as photovoltaics.

You are active in various segments of property development – from residential to retail, from hotels and offices to industrial and logistics real estate. Which part do you focus on the most and in what respect? 

Jurčíček: You are right, we operate in all sectors, however, our focus is based on the most active sectors in the market, which are still offices and industrial real estate. The industrial real estate sector is, since Covid era, experiencing steeper growth than before and offices still represent a traditional target for our clients’ investments, just like in the neighbouring countries. The retail sector in the Czech Republic is relatively highly consolidated, which limits the demand for consultancy services, but the residential sector, for instance, is increasingly active and we manage to use partnership cooperation with Lexxus there.

Do you have a ‘flagship’ project, that is a project on which you have applied multiple activities?

Jurčíček: The DRN building is an ideal example. Four years ago, I led a technical team in the acquisition of the building. Savills now manages the building, leases it and our team now conducts an overall in-depth technical audit in order to identify warranty defects. DRN building has recently achieved Excellent rating in Asset Performance according to BREEAM In-Use v6 and Savills acted as an Assessor Company on this project supporting the Client in all aspects of the certification process. We also continue further discussions with the client to assess the ESG impacts of the building operation. It is a unique project in the Prague market and the building is also exceptional for the whole Savills team. We are very grateful to our client that he has entrusted us with the overall care of this building and that we can prepare such an extensive and comprehensive package of services for him.

The energy efficiency of buildings will be an increasingly important topic in the future, this being due to the upcoming changes in the European requirements for new buildings.

Smart energy solution can also be a welcomed benefit for the end user of the building, whether it is logistics halls, warehouses, offices, or housing blocks and other residential projects. That is why development companies are increasingly interested in photovoltaics and other energy-efficient solutions.

Modern technologies bring savings

Photovoltaics, in combination with battery storage, represents an ideal solution for residential properties where rooftop installations provide the basis for daytime consumption and battery solutions supplement night-time operation. As for the industrial properties or retail centres, they reduce the overall energy consumption of buildings and improve their economic balance. A solar roof and appropriately solved energy storage will therefore represent lower operating costs in the future and thus increase the attractiveness of the entire building. Recently, this trend has also been significantly supported by rising energy prices.

Raiffeisen – Leasing has been following ESG for a long time, which is why we have, as one of the first financial institutions, already started financing solutions that lead to the reduction of emissions and the transition to renewable sources. We have a lot of experience in financing photovoltaic power plants from 2009–10, and at the turn of 2021/2022, we adjusted the conditions for a new type of financing without a guaranteed electricity purchase price.

Raiffeisen – Leasing offers a solution

Currently, we mainly offer financing for photovoltaic sources, this being from 5 million CZK (about 300 kWp). Along with financing, we offer comprehensive subsidy and technical consulting services. What is currently of particular interest are subsidized titles where the support reaches up to 50% of the purchase price. Our specialized subsidy team can provide all suitable options for subsidy support for each project and facilitate the entire administrative process for clients so that they have as little worries as possible when processing the subsidy application. Thanks to our experience in the construction of photovoltaics, we can also help find the most suitable installation suppliers.

At Raiffeisen – Leasing, we can offer financing for photovoltaics separately or together with the financing of the entire building. In addition to solar power plants, we can also finance other energy-saving solutions, such as coge-
neration units or heat pumps. These alternatives are usually welcomed especially in the case of industrial real estate; for instance, heat pumps are becoming more and more popular among developers of residential buildings. It is obvious that even the approach to development and construction has been changing in the long term, and the issue of energy efficiency will also be an essential part that the end users will look at. Raiffeisen – Leasing is a partner for all companies that provide financing not only for the real estate itself, but also for technological components enabling their economic and ecological operation.

MIROSLAV PATÁK, PROJECT MANAGER

Successful companies are based where their employees like it. Modern offices cannot do without comprehensive civic amenities and a pleasant surrounding environment.

We discussed the situation in the Prague office market, future projects, news and social responsibility with Lenka Preslova, Sales Director at Passerinvest Group, a. s.

What is the current situation in terms of renting your office premises in existing buildings in Brumlovka and Nové Roztyly, Prague?

We see that the interest in office premises continues, and companies are trying to motivate their employees to return to the offices. However, it is clear that the covid period has brought fundamental changes to the way of work and many companies use the combination of physical presence in the office and home office. This also entails a change in the layout of the premises, sometimes even in their size. As the owner of most of the buildings in Brumlovka, we are able to accommodate the tenants as much as possible and find a suitable solution for their current needs, including a possible combination with a flexible solution in our own FLEKSI serviced office concept. Today, we already encounter cases where the client compares the alternatives of standard rent and serviced offices. The fact that we manage to deal with renegotiations of existing contracts successfully and that the tenants are satisfied there only proves that the energy and finances we invest in the continuous development of the area make sense. With regard to our other location in Nové Roztyly, in particular the administrative building Roztyly Plaza, which is currently under construction and will be available in the first quarter of 2024, we managed to secure a pre-lease of almost half of the building, which will be occupied by the successful Czech IT company SCS Software. With the construction of the Roztyly Plaza building, we are starting a development of an entire location in the neighbourhood of the Roztyly underground station, where there will be a new urban district in the territory of a former brownfield and is to combine offices, residences and civic amenities.

What do customers want most? What do they prioritize when making decisions? 

Apart from financial parameters, which are of course still very important for clients, there are other non-financial aspects that also play an increasingly important role. It is primarily about civic amenities within the building and the immediate vicinity, whether in the form of a shop, services, or an opportunity for sports and relaxation. One of the examples are roof terraces on buildings that are used for informal work or relaxation as well as for tenants’ corporate events. Another aspect that is gaining importance is the lessor himself. In the last two years, there has been a greater need for flexibility on the part of the tenants, both in terms of the size of the premises and the duration of the contract. Tenants often look for a partner who will be ready to deal with their requirements flexibly even in times of unexpected changes and meet them, perhaps even beyond the scope of concluded contracts, and assist them in looking for solutions that will help them keep their business as efficient as possible.

You have recently added shared offices to your portfolio of services. How is this project going and what do you currently offer?

We currently have a branch in Budova B building in Brumlovka, Prague 4, which is 100% occupied by Microsoft. This November, we are opening a second branch in the Beta building, and we already have many clients in negotiations and have even signed contracts with some of them. In the second quarter of next year, we will complement this with a third branch in the Philadelphie building. In total, Brumlovka will offer 10,000 sq m of serviced offices. We are convinced that this concept belongs in a complex like Brumlovka. Thanks to that, we can offer more of flexible alternatives in addition to the standard rent or attract new clients, who may eventually become our direct tenants.

What new projects are you planning, what would you personally recommend to a new client?

Next year, we are planning another construction in Brumlovka in Prague 4, specifically the HILA building. It will be unique thanks to the combination of offices, retail and rental housing all in one building. This project is a challenge for us especially from the point of view of future operation – we will manage not only the commercial part, but also the residential part. We believe that it is a project which combines multiple functions that has its future and follows the principles of the so-called city of short-distances. These are especially important from the point of view of long-term sustainability and reducing the traffic load in cities. As for the Nové Roztyly locality, we are planning a construction of the second Sequoia administrative building, which will be unique in its visibility thanks to its location in the neighbourhood of two important Prague traffic arteries – the arterial road and the South Connecting Road. In the meantime, we are also continuing preparations for the residential part of the project, which will offer a total of 600 residential units.

How do you see the frequently discussed topic of ESG in the real estate world? And how does it specifically affect your corporate projects? 

ESG is a topic that resonates increasingly through all disciplines. In the real estate world, they often talk about the environmental component, because the construction of buildings as well as their operation contributes significantly to the volume of emissions produced. However, as a developer and long-term investor of multifunctional premises, we see the equally important role of other parts of the agenda – social area and governance. LEED and/or BREEAM certifications are already the standard in our emerging and upcoming projects, and the entire outdoor area of Brumlovka is currently undergoing an assessment process as part of the Fitwel certification. A sustainable approach to development has been embedded in our company’s DNA for many years, which means that the ESG does not, in many ways, mean a fundamental change to our strategy. However, we perceive the tenants, banks and investors’ current requirements and implement them in our projects. Our main topics in the environmental area are, without a doubt, the reduction of the amount of emissions produced and the maximum efficiency of building operations, careful water and waste management, and the support of biodiversity in the areas where we build our projects. As for the social part of the agenda, we are dedicated to cooperation with local communities and above-standard care for our clients. Last but not least, an ethical approach to business and consideration of the ESG criteria when choosing our suppliers is also important to us.