According to the analysis of international real estate consultants Colliers International, the future development of commercial real estate depends mainly on the renewal of bank loans. Tenants now hold the trump cards no matter if it goes on office nor industrial space. If developers can temporarily compromise on their demands, they may help themselves significantly during the crisis.
The fact that the recovery of activities on the Czech real estate market is held back by commercial banks and their current reluctance to lend is nothing new. However, a deeper analysis of the current situation reveals that the solution really depends on the tenants themselves. The current market offers them a unique position in negotiations concerning new rental terms.
"In the case of long-term leases, it is not uncommon for some developers to offer rent-free periods covering up to one fifth of the total rental period, which represents a minimum savings in rent of approximately 20%. Other incentives such as free fitting according to client's requirements or significant discounts on office equipment need to be added," states Sona Volfová of the Office Department within Colliers International. Tenants who will now proceed to lease terms renegotiations or complete relocation of their premises can only benefit.
Satisfied tenant equals a good investment
Tenants in themselves also have an effect on the investment market. This year there have been only three significant transactions, the acquisition of office buildings Jungmannova Plaza, Budejovicka Alej and the headquarters of Unilever located at Thámova 18, Karlin. All three transactions have one thing in common all buildings were fully occupied with quality tenants for long-term periods. This is the factor that can attract investors, even in times of crisis.
"The value of a building is in its yield the ability to recover the invested capital within the shortest period of time possible. Only quality tenants can generate such return on investment," explains Ladislav Szabo, Director of Investment at Colliers International. "Currently, we are watching the negotiations of another three significant transactions that may be closed by the end of this year. Long-term lease agreements are signed even in these projects," adds Szabo.
In practice, this means that if the developer can attract a quality tenant and slightly compromise on terms, which he was used to in recent years; he can use it to raise capital for further development without the aid of banks. This will also significantly stabilize his economic situation and he will obtain a stable supply of cash flow to cover his current and future loans.
If tenants manage to negotiate favorable lease conditions they have the opportunity of subleasing their unused premises to smaller companies, which would not be able to afford them under normal circumstances. These way even tenants can optimize their costs and ensure a stable supply of cash flow.
The same formula applies to warehouses
The situation on the industrial property market is, to certain extent, the same. The impacts of the crisis on the industrial leasing activity are probably the most apparent in view of the fact that a large portion of the Czech economy depends on the automotive industry and its subcontractors, i.e. on the sector, which was hit hardest by the crisis. Decline in demand in 2009 is more than 70% year-on-year.
The decrease in leasing activity is a record and, according to analysts from Colliers International, it replicates the pattern of GDP growth with a delay of approx. 1-2 years. "In the current situation, when we have probably yet to see the bottom of the decline in GDP, it can be assumed that the decline in leasing activity or its stagnation is not over yet. Especially landlords should realize this and adjust their requirements towards tenants," pointed out Karel Stransky, head of the Czech branch of Colliers International and Director of Industrial Department.
Even the industrial market i