Will the half time whistle blow for Czech’s real estate investment market?

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Savills’ investment team provides consultancy in all areas of the real estate market, whether buying or selling. Experts from Savills are approached by funds and institutions, private investment companies, international and private investors and developers.

Our questions were answered by Fraser Watson, Director – Investment service, Savills Czech and Slovak Republics.

Can you summarise briefly how the real estate investment market performed in 2022?

To borrow a phrase from football commentators – it was a game of two halves! By the end of the first half of the year it was clear that the macro-economic landscape was changing radically and rapidly. With the final figures now in for the year’s transaction volumes standing at EUR 1.7bn (a 1% increase y-o-y), we note that just 27% of deals were concluded in the second half of the year. In a typical year the last quarter is the busiest as parties seek to conclude deals before calendar year end, however, in 2022 Q4 accounted for just 19% of the year’s volume.

What does that mean then for 2023? How will the investment market perform this year?

The over-used phrase of ‘price discovery’ is still very relevant for the Czech market and we see that the gulf in expectations between sellers and buyers still needs to be reduced. It may well play out that 2023 is another ‘year of two halves’, though the reverse of 2022, with muted activity until summer and an uptick in activity during the second half of the year. Despite the lack of current on-going deals, I think we could still reach an annual transaction volume of around EUR 1.5bn, i.e. just over 10% down y-o-y. The bottom line is, there are enough willing buyers out there and, whilst reduced in number comparatively speaking, we see enough deals underway to demonstrate that the market is still moving in at least some degree.

What’s behind this reduced deal flow? Is it attributable to any one factor?

It’s a good question. The short answer has to be ‘no’, there is no one single factor that could be pinpointed as the only reason for the reduced deal flow. A perfect storm of macro-economic events has dovetailed to bring us to where we are now. However, if pushed to give one thing that I think has had the most impact on investment market activity, I would have to say the increased (and volatile) cost of debt. With most investors using leverage to acquire assets, the speed with which borrowing costs have increased has caught the market off-guard. Buyers’ returns expectations are not met due to the increased cost of servicing debt, whilst simultaneously potential sellers are unwilling to accept the reduced price that is needed to generate the required returns for buyers.

What sector do you think is going to be the most transacted in 2023? And what buyer group will be most active?

For at least the last five years domestic investors have been the most prolific buyer group, taking at least 50% market share (by total volume) consistently each year (54% in 2022). In 2023 it is hard to imagine that this changes. The only caveat to that is if redemptions out of the domestic retail funds don’t rise to the point where Czech funds are more on the selling side of transactions than buying. We also expect European buyers to be active, which includes other CEE groups who have shown increasing regional activity over the last couple of years. Regarding the ‘most transacted sector’ in 2023, the safe bet would be offices, which have held that accolade for 5 of the last 10 years (including 2022, with 46% of annual volume share). For various reasons other sectors are unlikely to accumulate enough disposal volume to gain them the title of ‘most transacted’. What could change all of that would be a one-off portfolio disposal of significant volume, and we see that there is potential for that in the industrial sector in which a small number of owners hold a significant amount of assets.

The development of tram lines is experiencing an unprecedented boom

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METROPROJEKT Praha, a. s., has more than fifty years of history and is behind many important road structures, not only in our capital.

The new general manager, Ing. Vladimír Seidl, told us about the nearest goals awaiting Metroprojekt – and it is not just the D underground route in Prague.

 

At the beginning of the year, you replaced Ing. Krása in his post.  What tasks or challenges are ahead of you?  

My goal is for METROPROJEKT to continue to be a top project company, especially in the field of road structures. As for the closest goals, it is certainly the successful completion of the preparation of the group of buildings for the railway connection between Prague and Kladno and Václav Havel Airport. Obtaining zoning decisions and building permits in the inner city of the capital is a very demanding issue and a long process. We fight construction opponents, where they all support a modern rail link between the city centre and the airport, but only if the track does not run past their house or garden. Even excessive caution and sometimes not obeying by administrative deadlines on the part of the concerned organizations and municipal authorities do not accelerate the process. Despite the above-mentioned problems, we have lately managed, in co-operation with the Railway Administration, to start the implementation of our projects in the sections of Kladno – Kladno Ostrovec and Praha Bubny – Praha Výstaviště. As for the others, the Prague Ruzyně – Kladno section is closest to construction. Regarding METROPROJEKT’s internal processes, I would like to complete a comprehensive digitization of document circulation and the introduction of software for managing files, users and processes. My priorities also include further development of 3D design using the BIM method.

One of the main projects in Prague is the construction of the D underground route. Is it going according to plan, or have there been any guiles?

The schedule for the preparation and implementation of the I.D underground route set by the Prague Public Transport Co, Inc., is still being fulfilled. According to them, the Pankrác – Nové Dvory section should be completed and put into operation by 2029. Construction of the initiation section Pankrác – Olbrachtova has been in full swing since last April. A problem may arise if one of the participants appeals to the ÚOHS after the evaluation of offers for the implementation of the second section of Olbrachtova – Nové Dvory, as was the case in the first section. This might delay the opening of the first section significantly. As for the continuation of the project preparation, what I consider the right decision is for the DPP to focus on the continuation of the project preparation from Pankrác to the north towards Míru Square, because the C route will not be relieved until the D and A routes are connected.

How is the modernization of the existing underground stations progressing?

The rate of reconstruction of underground stations has increased in recent years, which pleases me not only as the director of a project company which considers this type of contract as one of the main lines of business, but also as a resident of Prague who regularly uses public transport services in the metropolis. Reconstructions that are currently being renovated include the Jiřího z Poděbrad and the C Florenc stations. This year, we want to complete the tender documentation for the selection of a contractor for the reconstruction of Českomoravská and Flora stations. At the beginning of the year, we also started work on the documentation for the building permit for the reconstruction of the Hradčanská station.

The development of tram lines is a relatively big topic in Prague. What is the topic of discussion is also the return of the tracks to Wenceslas Square, as well as new lines that are to improve transport services in the peripheral parts of Prague… What is the situation like?

The development of tram lines in Prague is experiencing a boom that I do not remember in my almost thirty-year professional career. The outgoing leadership of the capital has set this as one of their priorities, and I believe that the new one will continue the established trend. The implementation of the Holyně – Slivenec construction will begin, alongside the ongoing Modřany – Libuš and Divoká Šárka – Dědinská constructions, in February. Our company is now working on the projects of Libuš – Nové Dvory, Kobylisy – Bohnice tram lines and the new line in Počernická Street. The return of trams to Wenceslas Square is one step closer. It is perhaps the most visible of all our aforementioned projects. But it also of a great operational significance, as it is to create a parallel route to the busiest I.P. Pavlova – Ječná – Karlovo náměstí line. Even a banal collision in this section can nowadays complicate tram traffic in a large part of the city. At the turn of the year, the building permit for the track on Wenceslas Square took effect, and a competition for the selection of a construction contractor is currently underway. There I must point out that we were able to obtain a building permit in record time, also thanks to the generous support of the city management, and I would like to thank all my colleagues who were responsible for this.

So far, we have only focused on Prague. Which of your projects are implemented outside the capital?

The tram line from Osová to the Masaryk University Campus in Brno was put into trial operation last December. It is our largest completed urban transport system project in recent years. The track runs for the most part in a tunnel, and the Zelená brána underground station is part of it. Reconstruction of a historic station building in České Budějovice is underway. METROPROJEKT’s largest ever foreign contract – the third underground route – is being implemented in Sofia. There I can only envy my Bulgarian colleagues the speed of the permitting processes. In 2010, we commenced project work on two new underground routes, the D route in Prague and the third underground route in Sofia. In Sofia, there are already 12 stations out of a total of 18 in operation. The D route in Prague, on the other hand, was only commenced last year.

Your answers show that METROPROJEKT focuses mainly on rail structures. Are you going to focus on other transport construction systems, or possibly other construction industry?  

I was already involved in the expansion of METROPROJEKT’s portfolio in my previous position of a sales director. Every company is able to resist crises better if it has so-called more open scissors and if it is able to assert itself in other areas outside of its core business. One thing is to get a contract in a field that is not traditional for you, and another thing is to handle it successfully with one’s own capacities or with the help of subcontractors. No one wants to associate with you much when trying to break into a new market, because you increase their competition and take away work as a result. The only option is to get recognized experts in the new field. Attracting them to employment is conflicting and almost impossible today, so we took the route of acquiring smaller established companies with which we worked on joint projects in the past. Over the past three years, we have managed to acquire majority shares in PK Ossendorf and AGA – Airport, thus entering the market for designing road, motorway and airport constructions. As for the future, I do not rule out that we will also continue in this way in the segment of designing building constructions.

ČSOB reduces their carbon footprint, thinking about nature and clients

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Companies address environmentally friendly behaviour and sustainability more frequently these days. ČSOB is one of the first banks that took sustainability and environmentally friendly behaviour very seriously and it is part of their strategy.

According to Josef Šedivý, executive director of FAM ČSOB, sustainability is a natural part of the company’s philosophy. This is also proven by the fact that experts rate their Prague headquarters and the new building in Hradec Králové among the hundred most ecological office buildings in Europe; moreover, these buildings have received several different awards – for instance Best of Realty, Green Roof or LEED Platinum certification. Sustainability and support of diversity represent the way in which companies can be beneficial to society and allow future generations to maintain the same standard of living as we know today. Josef Šedivý says: “Our main goal is to create conditions that are in harmony with the environment and sustainability. We want to be a good neighbour for people and nature and to open up more to the public. We behave ecologically not only in our internal operations, but we also support our clients in this: we search for and support long-term sustainable projects and give clients the opportunity to invest in companies that minimize their activities’ negative effects on the environment. We have been helping corporate clients for a long time in their search for business transformation solutions towards sustainability and innovation.”

Prague headquarters belong to the top in sustainability

The rise in energy prices makes companies look for savings. At ČSOB, they are ahead of time – it’s already been three years since they started consuming electricity only from renewable sources, when in 2019 it was only 68%. Therefore, they leave no carbon footprint with the electrical energy consumed in this way now. Daniel Rubricius, Director of FAM Buildings ČSOB, comments: “We are constantly working to reduce the energy consumption of all bank branches and headquarters. Energy consumption also decreases due to our new modern ecological buildings. ČSOB Campus in Radlice, Prague, is one of the most ecological buildings in Europe. It uses geothermal wells both for heating and cooling, and there are more than 300 trees, 3,000 bushes and one hundred climbing plants growing on the roofs, which are watered by a self-irrigation system with rainwater.”

There are also several charging stations for electric cars and electric bikes in the garages. Lukáš Cerman, director of FAM Development ČSOB, adds: “We are aware that the cars we operate contribute significantly to our CO2 footprint. For this reason, we support electromobility. Our company fleet currently includes about 20 electric cars, for which we operate and build charging stations. In general, we reduce the number of vehicles, try to share them efficiently and gradually start to move away from internal combustion engines. Our vision is to have a fully electrified vehicle fleet by 2030.”

The new building in Hradec Králové is one step ahead

The recently opened regional headquarters in Hradec Králové meets the strictest ecological standards. There they also use heat pumps and energy from the earth’s massif, achieving exceptionally economical operation. It is yet just another proof that ČSOB really takes environmental protection seriously. There is even a well there. It could therefore be said that when it comes to energy savings, they achieved the possible maximum. “There is always more that can be done, and the search for savings in reducing the energy demand of buildings is a never-ending process due to the constant emergence of new technologies and innovations,” says Daniel Rubricius, and specifies: “We will focus more on the use of air conditioning systems for both cooling and heating. During the heating season, we will lower the internal temperature and continue the installation of photovoltaic panels, which we started three years ago.”

It is more complicated in the regions

However, ČSOB branches are not only based in modern buildings with top technologies. Their own as well as leased premises have been undergoing continuous optimalization for several years now. The total number of branches generally has a downward trend, where the main effort is to reduce their area. It is a consequence of digitization and the development of the way of servicing clients. Reducing the number of branches or reducing their area represent savings in operational services, including energy, and thus also reducing the carbon footprint. “We strive for a sustainable and ecological approach in all objects, even though it is not easy in some of them. LED lighting, MaR systems and energy-saving cooling and heating technologies come as a general standard. Another area we gradually focus on is photovoltaics. We currently operate photovoltaic power plants on the roofs of our buildings in Zlín, Břeclav and Blansko, having a total of 52 panels with a combined output of more than 16 kWp. We plan to gradually increase the number of solar power plants,” concludes Lukáš Cerman.

New ‘City’ to grow in Prague Airport vicinity in the future

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It is among the fastest growing airports in Europe in its category. It employs approximately 3,000 people, while another approximately 15,000 people work for companies operating at or near the airport.

Václav Havel Airport Prague is on its way up again, after the Coronavirus pandemic, and thinking about the future. The largest international airport in the Czech Republic is getting ready for the development of air traffic and at the same time wants to make the most of its further potential.

The airport and its neighbourhood are a great area for investment

Prague Airport was at its peak before the start of the global pandemic. In 2019, it handled almost 18 million passengers and looked forward to further growth. Now, after three years significantly affected by the pandemic, better times are again in sight. Last year, the airport handled almost 11 million passengers. This year, also thanks to the resumed routes, it should exceed the 12.5million mark. More than 60 carriers will offer direct flights to more than 165 destinations around the world, including popular destinations such as New York, Seoul, Dubai, Istanbul, and Doha. In addition, more than 8.5 million people live within a two-hour-commute of Václav Havel Airport Prague, which represents considerable potential.

Prague Airport is therefore focussing not only on the development of airport operations and increases in its capacity, which is to be ensured, for example, by the expansion of Terminal 2, but also on the development of opportunities not directly related to passenger handling. This is precisely the goal of the Airport City programme, which is designed to contribute to greater economic stability of Prague Airport in synergy with the surrounding area and its development.

An important international airport near the centre of the capital city of Prague offers a great opportunity for investment. The area surrounding the airport is compact with an already existing Airport City core, which has a great potential for further development.

Airport City North

Václav Havel Airport Prague envisages further growth in the number of handled passengers, and therefore wants to expand the range of its services offered. As part of the land use study, Airport City North is divided into three basic zones: CENTRE, SERVICE, and BUSINESS, and a fourth supplementary arrival zone, GATE. All zones are interconnected, and in terms of operating, directly and indirectly connected to the airport terminal buildings.

The study anticipates new development in this area of the airport, with the solution concept focusing on complementing the existing infrastructure elements with a well-arranged development featuring a clear ‘street’ block-based pattern and central axis. In terms of operation, alongside the direct support for passenger handling processes, the objects are to house additional services for passengers, the public, and employees. New administrative premises, hotels, parking buildings, a congress centre, and other commercial venues are also to be included. New and existing greenery and public spaces are to be appropriately and proportionally used across the area, while the concept aims to create a local sub-centre of an urban character with the dynamic airport traffic at its centre.

In the first phase, the construction of a new parking building B and hotel facilities is planned in this area. BNP Paribas estimated in its 2018 study on future hotel capacity demand that the offer in the vicinity of Václav Havel Airport Prague was low compared to similar airports in Europe, with 27,000 passengers per hotel room compared to 5,000 passengers in Warsaw. The airport plans for the nearest future therefore include a three-star hotel with a capacity of up to 200 rooms.

Key milestones for Airport City North comprise the expansion of Terminal 2 with a new Pier D and at the same time the launch of operations of a railway line and a station right beside the terminal buildings. Public transport is used for trips to the airport by approximately 30% of passengers and members of the public, who currently use busses. Recently, the construction of the electric bus line has commenced, while the railway connection to the city centre should be in operation close to 2029. The airport is also easily accessible from the Prague ring road and the D7 motorway, of which capacity increases are planned by the Road and Motorway Directorate of the Czech Republic.

Airport City South

Airport City South is divided into three basic areas. The south part of the site represents great potential for Aviation Business offering enough space for the construction of new hangars, terminals, and logistics centres.

The Dlouhá Míle area is also part of the Airport City South development plans. Currently, it is a partially urbanized area that began to develop with the establishment of the airport. There are several administrative buildings, dormitories, apartment buildings, and healthcare facilities. The airport goal is to complement the zone turning it into an urban sub-centre benefiting from the railway station and commercial infrastructure.

The Area South is very closely linked to the existing and prospective urban development within the territory of the Prague 6 municipality, and the relationship between the airport and the city in this area will continue to deepen in the future as the city moves closer and develops more intensively towards the airport. Concurrently, the airport will create and integrate new capacities, including commercial, within the area.

An area of open ‘campus type’ complexes with adequate block-building structure is proposed in the central zone of Airport City South. Its open arrangement aims to support more flexibly structured premises with capacities for research, education, specialised production and, to a limited extent, administration. Operations located in this area can optimally connect to and commercially benefit from the airport infrastructure proximity and aviation activities.

How to save on heating?

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Sunlight represents the cheapest source of energy. Solar radiation can be strong enough to heat a house even in the winter. One only needs to let it in through the windows. That is why a well selected glazing is a key factor in reducing the costs of heating the house.

The issue of glazing is currently gaining importance mainly due to high energy prices for heating, but also in connection with recurring hot summers and subsequent overheating of interiors. “The choice of insulating glass and its placement affects whether the residents of the house are not to be too hot in the summer, how much heating they are to use in the winter and how much light is to penetrate through into the interior. Well-chosen glazing works with solar energy, either letting it through or blocking it as needed. This significantly increases energy savings and comfort in the house,” explains Ing. Petr Stejskal, business manager at HELUZ IZOS, the largest supplier of window glazing in our country. The choice of suitable glazing is simple and based on the logic of the matter – choosing glazing according to the cardinal points and the purpose of the particular room and using different properties of glass in terms of reception or, conversely, blocking of thermal energy, noise insulation and safety.

 Solar energy is for free

Glazing represents a great potential especially in the winter months, when it enables us to obtain thermal energy from solar radiation. The thing is that the sun is not the one to send us cheques… Passive solar gains, i.e. energy obtained via the penetration of sunlight through windows, will help reduce the need for interior heating by up to tens of percent. „Glazing becomes a fundamental step in the design of the entire house as it helps to significantly reduce not only operating costs, but also the cost of acquiring technological equipment for the house,” explains P. Stejskal.

That is why the southern, eastern, or western sides of the houses should be fitted with glazing with high heat penetration from sunlight. This is characterized by the so-called solar factor g – the higher its value, the more heat the glass lets through and the more it heats up the interior. And the less we have to heat the house.

 Insulation of the building in the north

There is no need to deal with the solar factor in the north, where the sun does not shine. What plays the key role there is the highest possible thermal insulation capacity that is characterized by the heat penetration coefficient Ug. The lower its value, the better the window insulates. „The best quality products are made of three panes of glass with a special plating that prevents heat leakage. The value of the heat penetration coefficient Ug for these products reaches up to 0.5 W/m²K, which is a level that is, with a great reserve, even satisfactory for passive houses. The resulting triple glazing can be inserted into a plastic, wooden or aluminium frame according to the client’s preference,“ explains Ing. Stejskal.

 Comfort and safety thanks to window glazing

Properly selected glazing can help us solve various construction situations efficiently. Glass with high light reflection can, for instance, solve the overheating of the house if we cannot or do not want to shade the windows with blinds. Thanks to this, we can significantly increase the comfort of living and save on the operation of air-conditioning.

Owners of houses located on busy roads will appreciate the glazing with anti-noise film, which reduces outside noise to a level of around 52 dB. Safety glass, for a change, protects the occupants of the house from injury in the event of falling into the glass pane, which shatters into granular chunks due to its tempered glass protector. If the glass is supplemented with a safety film, it significantly eliminates the risk of uninvited guests entering the house and protects the property from vandalism.

A more beautiful and enjoyable Palladium

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The three-year reconstruction of the Palladium shopping centre under the baton of Sentient has. been successfully completed.

The international consulting company Sentient is proud to have successfully managed the organization of a complex refit of the Palladium shopping centre in Prague. The total reconstruction of the common areas was carried out from the beginning of 2020 while the shopping centre was in full operation so as to minimize interventions and the impact on existing tenants and customers.

Reconstruction under full operation

The reconstruction and refit included, among other things, the construction of a new floor behind the main entrance together with a new reception and distinctive anodized elements hiding the technology leading to the roof; unification and replacement of awnings on both historically protected entrances to the shopping centre; modifications of the facade to match the new design of the shopping centre; full replacement of common area lighting with remote control and monitoring, including the installation of Preciosa designer lighting fixtures in the entrances; a new programmable LED tunnel around the main escalator to the food court, as well as a total reconstruction of the food court floor. All of this was achieved without any interruption to the operation of retail and restaurant units.

The visitors did not notice anything

“The owner of the building put great emphasis on architectural detail and the quality of the execution of all of the work. Most of the construction activities took place at night, and during the reconstruction period it was necessary to deal with a whole series of organizationally and technically demanding tasks as a result of working during the full operation of the centre. It was crucial to phase each stage of the project so that all the retail units could remain open the whole time, and the customers would ideally not even notice that anything is going on. Furthermore, the project was affected by complications related to the coronavirus pandemic, which, among other things, brought significant pressure on our ability to keep sufficient workforce on the construction site and the subsequent extreme increase in construction costs. Nevertheless, all phases of the reconstruction were completed to the required standard, in accordance with the planned time schedule and within the approved investor’s budget,” says Martin Scheuch, Director of the international consulting firm Sentient, which provided the services of project and cost management, quality control, technical tenant coordination and health and safety coordination on the project.

The organization of similar complex reconstructions and refits is one of the long-term specializations of Sentient, which provides a wide range of consulting services across the CEE region. The first significant projects of this type include the reconstruction and extension of The Mark hotel (formerly the Kempinski Hotel Prague), the reconstruction of the Škoda Palace, and especially the reconstruction and expansion of the Černý Most shopping centre. In recent years, the same approach was used during the completion of the reconstruction and refit of the Myslbek and Karviná shopping centres and during the ongoing reconstruction and extension of the Grand Hotel Evropa on Wenceslas Square, which is being transformed to the first W Hotel by Marriott in the Czech Republic.

Parking systems for almost all purposes

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GREEN Center is the largest Czech manufacturer, supplier and seller of parking systems and automatic barriers.

It also offers a camera system for recognizing registration plates, a system for guiding one to free parking spaces and other technologies. It provides customers with comprehensive services and can respond flexibly to their special requirements. The Director of the company, Tomáš Zdobnický, answered our questions.

Green Center belongs to the top in the field. Do you have an overview of all the places where your parking systems can be found?

In total, we have over 1,200 installations of which about one hundred were installed in the last year. Most of them are in the Czech Republic, followed by Poland, Romania, Croatia, Greece, Slovakia or Israel, etc. Our clientele is a cross-section of the entire B2B market – it can therefore be hospitals, shopping centres, hotels, administrative centres, airports, etc.

Which of your products do you consider to be the ‘top’ in terms of technology?

Our flagship is the Variant parking system – it enables a wide range of solutions and covers the needs of customers throughout all the aforementioned segments. In the future, however, we see the greatest potential for the PGS system, which will fulfil the functions of a navigation, parking and reservation system at the same time – it will basically allow to approach each location as the entire carpark. Worth mentioning are also new products such as kiosks and turnstiles for collecting fees.

Are there differences in the parking systems for shopping centres and let’s say for hotels? What do they consist in?

What is important is the purpose for which the customer acquires the system – its functions must be adapted to this (parking fee collection, traffic regulation, parking space reservation, etc.). The fundamental difference in this case is that the driver usually parks in the shopping centre at a one-time basis. So, the whole parking process starts with the entrance and ends with the exit. In the case of a hotel, on the other hand, the driver usually parks there repeatedly – for the duration of the stay and thus we have to allow him repeated entry and exit. That means that the parking process is not completed until he is logged out of the system and his last exit.

What are the biggest challenges when designing atypical custom-made parking systems?

The most difficult thing is to connect various customer requirements with regard to overlapping types of operations. For instance, in the case of multi-functional buildings, administration, housing, culture and business can all overlap – and each operation has its own specifics…

What is the ‘most complex’ system you have prepared?

The thing is as to how to define a ‘complex system’. Whether as a large project with many entrances and exits, or as a smaller system with many specific requirements (for instance, as in the previous answer). As for the recent installations, I can, for instance, clearly highlight a large system in Poland – Malta Office Park, which represents a combination of business and administration. As for the Czech Republic, the one that ‘stands out’ above the others is Galerie Harfa with its own loyalty programme. In Slovakia, I would highlight the Digital Park administrative complex and the reservation system for ESET employees.

What does the complexity consist in?

As I have stated in the answer regarding atypical systems – it is primarily a question of matching the needs of the customer with the requirements of different types of operations.

What direction do you think the development of parking systems will take and what role will artificial intelligence play there?

The future is clearly moving in the direction of connecting various services into one complex system. It can be about urban mobility, electric car charging, space reservations or other services, such as delivery of a parcel to a parked car. Artificial intelligence can already be used primarily in predicting occupancy in connection with dynamic pricing and image recognition for vehicle detection.

The department store Máj applies for the BREEAM certification

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About half a year ago, Development News reported on the reconstruction of the department store Máj situated on the corner of Národní třída and Spálená Street in Prague. The construction work has, meanwhile, progressed significantly.

We discussed the progress with the brothers Václav and Martin Klán, the representatives of Amadeus Real Estate a. s., which is implementing this complex reconstruction in the centre of Prague.

How has the reconstruction of the department store Máj progressed since our last interview some six months ago?

Václav: What has fundamentally changed since our last meeting is that the reconstruction of Máj was physically started. The building was taken over by the construction company Metrostav, with which we cooperate very well in all of our activities. Demolition work is currently underway and according to the schedule, it will be completed at the beginning of next year. Then we should start with HVAC and other related activities.

What has been, so far, the most challenging?

Martin: What is the most demanding on the entire reconstruction is the location in the very centre of Prague. It means to perfectly match the logistics – material transport and waste removal, which is very challenging. The temporary installation of a mammoth crane on Národní třída or other necessary occupations that required the complete closure of the entire street alone was very complicated to organize, but we have, so far, been managing it perfectly with Metrostav.

How does cooperation with a construction company in such a complicated area work?

Václav: We are naturally in daily contact, we have work meetings once a week and regular inspection days at the construction site, but physically, we are permanently on the construction site every day, when we check the scope and quality of the work. The cooperation works very well on this basis.

You are currently completing the demolition of the interior, which means the removal of waste material directly from the centre. How is it going?

Václav: There is a large amount of construction debris and other waste that needs to be removed from there. What really helped us there were the original car lifts that were installed in times Máj was built (1972–75, author’s note) and which were really oversized. This really helped us with the removal, because we can’t even imagine how we would manage to remove the construction waste without the car lifts – and the construction would also be certainly prolonged by several months.

How are you managing to stick to your financial plan in these, shall we say, difficult times? 

Martin: What we perceive very positively is that even now – with regard to the increase in the prices of materials and construction work, the financial plan remains in its original setting, that is the total costs will be CZK 4 billion once the reconstruction is completed. We naturally expect that there will be some additional work, but that happens on every construction site. However, we still stick to the set budget.

Have there been, so far, any cosmetic changes to the overall appearance of the building during the reconstruction?

Václav: We still stick to the original concept – there will be a supermarket on the underground floors, and shops on the ground floor and first floors – the so-called impulsive shopping. People who pass through the department store will be able to buy coffee across the street, to get something from a bakery, newsagent, flower shop, pharmacy, perfumery… Several tens of thousands of people will pass through the department store every day.

Have you mapped out the frequency of people in the given location? 

Martin: About 90,000 people pass through the junction by Máj every day, and around 45,000 people pass through the shopping arcades at Máj. We do not anticipate large purchases, but rather something on a daily basis. Máj will be linked with Quadrio on three levels. The gastro zone situated one floor higher will be extended in order to satisfy the enormous demand, because such a concentrated range of restaurants in one place is barely to be found in Prague. It will basically represent an expansion of the food court range in Quadrio. On the upper floors, we plan entertainment for families with children. By the way, the upper floors will provide visitors with a wonderful panoramic view of Prague.

This prompts the question as to how is your cooperation with the neighbouring Quadrio going?

Martin: The buildings are connected on three levels. We work together and we must work together, and I would like to point out that our relations work very well. Once the department store Máj is completed, we want to create a large location where many visitors will not even notice whether they are in Máj or Quadrio just because of passing through a passage. In no way do we feel that we should compete with each other.

What do you consider to be the biggest crowd-puller compared to the competition?

Václav: Probably only few people know that there are breathtaking views from the terrace of Máj that have not yet been made accessible. In the past, there were technologies, which are already outlived by their dimensions. Today, they are more modern, smaller and also more economical. And since it would be a shame not to make the upper floors accessible to visitors, we decided to place the technology in the basement and thus offer people really beautiful views of Prague. We believe that they will like to spend time there and enjoy the view of the panorama of Hradčany.

Martin: I would like to add that the original Máj had six accessible floors, but after the reconstruction, there will be nine of them available to the public. The mass and size of the object remains the same, but the point is that the technologies were at the inaccessible upper levels.

 

Let’s get back to the technology. What are your plans in this regard?

Václav: It is a big topic for tenants today! Common operating costs are also important to us because we look at it from a long-term perspective. The goal is, of course, savings on the operation of the building for both us and the tenant. That is why we looked at the certifications we can achieve. And since we are located in the centre of Prague, we only have certain limited options as to how to achieve the certifications. We cannot, for instance, have solar panels on the roof of the building, use grey water and such things that we can afford in our other projects. However, it is not possible in this case because we are in a conservation area. And that is why we decided on the BREEAM certification, which is not quite the standard in the case of a listed building. But we have decided that this is a certain direction to take, and of course, we want to achieve the greatest possible financial savings and positively influence the surrounding environment.

How do you want to solve the distribution of goods in such an exposed location in the centre?

Martin: By keeping the original car lifts, we have a huge added value in terms of supply. Despite the fact that we are in the centre of Prague, the supply will be relatively simple and very comfortable: A lorry will arrive at the car lift, go to the appropriate floor and unload the goods.

In parallel, you certainly have to continue communicating with tenants. How are you doing there? 

Václav: First of all, we keep to the deadline for the completion of the reconstruction that is March 2024. We are in daily contact with future tenants, we finalize contracts and continue negotiations with some of them. We expect that some will come at the last minute, because for some it is a long time. We know that we have another challenging period ahead of us in this regard, which is not unusual. But we still proceed according to the schedule and do not deviate in any fundamental way.

Martin: Regarding the fact that we are actually a new department store in the centre, tenants are showing great interest. Most of the contracts are currently signed and we are negotiating with other interested parties, so we still have a few units for rent. At this moment, we can reveal that some new brands that have not yet been in the Czech Republic will come to us and are planning to expand there.

How does the cooperation with preservationists work? 

Martin: Every week, we consult the current reconstruction process, material solutions or perhaps the reflectivity of the facade lights. We should achieve a design that will be as similar as possible to the original building. That means that we are not changing the size and appearance of the building fundamentally, and the materials will basically be a replica of the original ones. But we are planning to change certain details, such as the entrance to the building in the parterre from Spálená Street or the relocation of the front soffit onto the street line in Národní třída. We have to keep the exterior appearance, but we can afford some changes in the interior. I will introduce a new interesting feature – an opening in the ceilings towards the gastro zone, which will help to open up the space more. This will result in making the customer more comfortable for the opening will give him greater clarity of the space and at the same time, it will entice him to visit the upper floors. I would also like to point out that we invited the original authors, architects Martin Rajniš and John Eisler, to the reconstruction. Cooperation with them is extremely interesting for us. Both architects still have incredible energy, and they are incredibly enthusiastic about the reconstruction that we are implementing together. And we really sincerely appreciate that.

Arnošt Wagner | Photo: author and archive of Amadeus Real

The industrial real estate market continues to grow

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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.

Green certifications are becoming part of the construction process

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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.