Feri Rating & Research gives ‘A’
Feri Rating & Research AG, one of the leading European rating agencies for the valuation of investment markets and investment products, has given an ‘A’ rating to the Prague real estate market, saying that the “low investment risk” is based on high demand at above-average supply and very strong increase in prices.
The Czech capital’s office real estate market as well as the retail real estate market are rated “AA” by Feri, the owner homes market is rated “A” and the rental apartments market gets a “B+”. In the comparison of 150 cities around the world, Prague ranks eighth for offices, fifth for shops and fifth for residential real estate.
Since the nineties, Prague has benefited from more foreign direct investment than any other East European metropolitan region. Furthermore, several international companies have located there.
In recent years, the service sector has been gaining ground, as financial and business-related services, in particular, have exhibited noteworthy growth.
Nevertheless, the need for further catching-up in tertiary segments remains; in general, the service sector still has potential for further growth. Thus, the overall medium- and long-term outlook for Prague's economy points to an ongoing "tertiarization" process, that might adversely affect both the secondary as well as the transport and trade sector, Feri said in its report.
The lacklustre rent development recorded over the last several years mainly reflects a large proportion of low quality office space that doesn't meet Western standards. Nowadays, this is a thing of the past. During the last years, there was a continuous stream of modern space, which can still be expected in the short run. In the meantime, the vacancy rate went to a low level, which is contributed to the persistent demand. Since the end of the nineties, an ongoing trend has seen suburban areas becoming the favoured site for offices. Projects to expand the supply of office space are easier to realize in suburban regions than in the inner city. Therefore suburban offices typically offer a higher standard of quality. In the years to come, moderate increasing rents can be expected, as demand for office space should rise at a healthy clip.
Prague is the country's main shopping city, and several international retailers have made it their point of entering the Czech market. The stock of retail space has doubled since the nineties, mostly new shopping centres in the capital’s suburbs. However, inner city retail space does not suffer from this suburban competition. The supply of retail space in the inner city cannot practicably be expanded and excess demand already exists. Demand that can't be met in the city centre will tend to be accommodated by the peripheral shopping centres. As a result, more traditional secondary retail locations will be put in a comparatively disadvantageous situation.
Nonetheless, one can expect rents for space at both top and secondary retail locations in Prague to rise during the years to come.
In the Czech Republic, the private rental market still accounts for only a small share of the residential market as a whole, but it is steadily growing. In recent years, a stable rent increase has been established, which ought to be anticipated as well for the renewal years. The market for the purchase of residential property, like its residential rental market, was privatized at the beginning of the nineties, and is consequently very young. The greatest demand is for renovated condominiums in existing buildings in the inner city; for dwellings of this type, demand exceeds supply.
Foreign investors are the main source of this demand. Houses and condominiums in a more rural setting are also well sought after, but in this segment most of the demand comes from the native population. In the coming years, one can expect rising sale prices in all segments of Prague's residential real estate market, Feri concluded.
