Foreign investors help to fuel growth of the Czech Republic economy, says EC Harris (CZ)

The Czech economy is booming, driven by a growing housing market, high levels of foreign investment in the commercial sector, and increased funding for infrastructure, says EC Harris, in its latest European Focus. The end result of this is that construction output, which increased by 6% last year is forecast to show a further rise of over 25% in 2007.

Pavel Èermák, EC Harris' Country Manager in the Czech Republic, said, "The Czech Republic is undergoing the greatest boom in the construction of flats and housing since 1989, while the demand for offices is being boosted by an ever-growing number of new real estate investors / investment funds who are looking to invest in the country."

The economy saw strong growth in 2006 as GDP grew by 6.1% driven mainly by customer consumption with a further rise of 5.6% expected during 2007. Despite the high growth figures, retail inflation remains under control at around 2.6%, while unemployment figures in 2006 were around the 8% level.

The forecast is that economic growth will be maintained at around 5% to 6% next year, with inflation running at a marginally higher level, primarily due to increases in indirect taxes.

The property market in the Czech Republic is forging ahead on a number of fronts:

  • Residential – Prague and the bigger cities are leading the current boom in construction of flats and housing. Demographic conditions, increased living standards, low mortgage rates, and expected changes of VAT, have all been significant factors in the rise although the numbers of unsuccessful projects are now beginning to rise.
  • Offices - In the last two years this sector has been driven by two main trends: one is the development of office space outside Prague, the other is an ever-growing number of new real estate investors / investment funds who are looking to get into the market. Currently the total capacity of modern office floor area in Prague is more than 2 million m² with increases expected of 200,000 – 250,000 m² per annum over the next couple of years before a slowdown after 2008 as some saturation is reached.
  • Retail - During the past few years hundreds of new stores of various types have opened across the country creating a sharp increase in retail sales area. The position of multinational chains has been reinforced in the market but the main reason for the rise in retail space is an acquisition wave as international groups have opted out of the extremely competitive domestic market.
  • Industrial and Warehousing - 2005 represented a record-high for the storage and industrial space market. Take-up tripled, compared to 2004, although there was a slight slowdown last year. However, development is still continuing on a speculative basis, primarily in Prague, Pilsen and Brno.
  • Hotels and Tourism - Tourism in the Czech Republic, and particularly to Prague, has the potential to provide up to 22% of employment in the near future.

The main problem for hotel operators is the absence of suitable sites. As a result, the reconstruction and conversion of older residential buildings into small hotels or apartments is one of the predominant trends in the real estate market.

Source: EC Harris

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