Data on Prague

Data on Prague

Data on Prague

BASIC INFORMATION ON PRAGUE (MIPIM 2011)

The effectiveness of the Prague economic base as a whole is logically linked to the development of the national economy and in many aspects, due to its openness, to the European and world economies. Some of the current negative global trends are therefore also projected into Prague. Its diversified sectoral structure, previous positive development and the measures taken helped the economy of the city of Prague to fairly successfully resist the pressures and direct impacts of the financial and economic crisis . In view of the strong interconnection of the city budget with public budgets (fiscal sources), a strategy was prepared to react to restrictions of these sources of finance. The chosen scenarios are based on the objectives of minimising the impacts of these external negative influences, further developing business opportunities and preserving the existing strong factors of Prague’s attractiveness.

Measures - solution of the city’s administration

The development of the economy has a negative influence on the budget of the City of Prague. On the side of incomes, fiscal problems appeared already in 2009 and it was necessary to reckon with them in both 2010 and 2011. Prague City Hall is therefore adopting operative decisions that will create a hierarchy of the city’s needs. A priority is the needs of Prague citizens, but also those who ensure the functioning of Prague as the state capital and a globally acknowledged unique historical place. Neither are we neglecting the city’s activities that contribute to the stability and good quality of the business environment and conditions for investors.

Nevertheless, the city administration is aware of the necessity to establish development visions and strategies, especially in the currently inclement period. The purposefulness of decision-making can find support in two basic instruments containing the long-term intentions of the City of Prague’s development within a timeframe of 10–20 years, which are at the present time either completed or broken down into a proposal of implementation steps.

The first of these is the Implementation Programme for the Strategic Plan of the City of Prague for the period 2009 - 2015. It is based on the Strategic Plan 2008 Update (approved by the Prague City Assembly in December 2008), which formulates Prague’s ideas of the economic, social and spatial development visions for the capital. It allows the city’s authorities and those of its boroughs to take decisions within a wider conceptual framework and to coordinate the interests and activities of subjects operating in the city. The Implementation Programme adopted by Prague’s local government bodies in 2009 is a complex collection of the most important measures in the management and programming of the further development of the city in the period up to 2015. Obviously, the proposed individual actions and aggregated solutions are reacting to the current economic situation, but efforts are also being made to fit them into the set of mid- and long-term strategic development objectives.

The second instrument is the Land Use Plan of the City of Prague, which in the long-term perspective designates the concept of development and land use. This document contains a range of implementation objectives and the requirements arising from them, including those for the layout of the territory and the location and form of buildings. One of the tasks of the land use plan that cannot be neglected (and at present is exceptionally topical) is the creation of conditions for eliminating the consequences of sudden economic changes and for economic expenditure of public financial resources. One of the outcomes of the Land Use Plan will consist of binding measures directed at land protection and creation of reserves for the investment that is essential for the conflict-free future development of the city. These also include measures that together with delineating large-scale lands with multifunctional development potential will create the basic conditions for new and successful investor options (transport, technical facilities).

The attractiveness of Prague for investors

Prague has for a long time maintained good ratings (Standard & Poor’s A – or Moody’s A1). The city administration intends in the future also to assist in the growth of the Prague economy by purposefully directing its decisions and financial resources into supporting the city’s attractiveness. Prague’s continued attraction for investors is also confirmed by the appraisals of important consultancy and real estate firms. For example, according to the European Cities Monitor (Cushman & Wakefield – C&W) Prague has been for a long time in the mid-range of the most important European cities rating. In 2010, Prague reached 21st position among 36 cities with a lead over the other Central and East European metropolises. Its very well appraised attractiveness factors include, in particular, cost of labour and the climate government creates for business. Respondents also identified some problems, for example in the area of external transport links, which, however, remain the chief priority for both the Prague budget and that of the whole Czech Republic. An example of a crucial solution is the completion of more than 20 km long section of the Prague’s city ring-road in autumn 2010, which represents a significant contribution to road transit traffic. The Cities Monitor for 2010 also confirms continuing interest of entrepreneurs in setting up an office in Prague. It appreciates the ability of the city to present the possibilities available for future investors. . Attractiveness of Prague can be also demonstrated by a high representation of multinational companies operating in various branches of advanced business services - according to the City Development Authority analysis, 65 out of 100 monitored global companies are represented in Prague in 2010 (i.e. more than in Vienna, Berlin or Budapest).

Macroeconomic indicators

Prague has in the long term produced more than 25 % of the GDP of the Czech Republic, i.e. more than double the volume per capita than that of all other regions. Prague (as a NUTS 2 cohesion region) exceeds 170 % of the average regional GDP per capita in the European Union (based on purchasing power standard), and Eurostat ranks it among the five to ten best performing. The increase of economic performance is projected into rapid growth in standard of living. Citizens’ consumption is becoming, together with businesses’ activity, an important factor of demand and thus an indicator of production growth.

Labour market

Investors’ interest in Prague, accompanied by increased capacities especially in the area of services, was reflected in the increase of job opportunities. Attractiveness and stability led to an influx of labour force which has become one of the pillars of the city population growth. Within the context of the Czech Republic, Prague constitutes the largest regional labour market - the number of workers fluctuates around 900,000. It represents more than 15 % of the national volume. It is a source of job opportunities for foreigners (more than 100,000 with a strong representation of EU nationals) as well as for commuters (a surplus of 120,000 persons), mainly from the environs of the city. Prague labour market is characterized by its quality and variety of professions, which are supported by a great potential of qualified labour.

Naturally, some current global crisis influences have been projected into a reduction in the number of jobs offered by labour exchanges and, so far, by partial growth in the number of registered unemployed (32,000 persons in the spring of 2011). However, the level of unemployment is still only half of the national average and at the present time, it fluctuates around

4 %. Therefore, the situation cannot be considered critical and a significant deterioration in the mid-term is not expected.

In fact, its stabilization is predicted.

Sectoral structure

The transformation of Prague’s economic base that has been in progress since 1990 fundamentally affected both ownership and branch and sectoral structure The sectoral structure of the Prague economy has the standard appearance of big West-European cities and more than 80 % of GDP is generated in the service sector. In particular, the group of commercial and strategic services with high innovation quality has been developed which now represents 25 % of the Prague’s economy performance. Activities (investments) particularly supported are those that ensure Prague’s role as the national centre of knowledge economy and thus the state’s competitiveness on the “international metropolis market.” This should also benefit from the activation of an extensive research and development base in Prague, which represents roughly 40 % of national capacities (especially in the universities and in institutions of the Academy of sciences as well as in the developing private sector). In manufacturing industry, which represents less than 10 % of the overall economic performance, the fundamental branches are pharmacy, polygraphy, IT and electronics and food production.

Real estate market

The increased caution of investors (both individuals and companies) as well as the stricter conditions of banks for lending financial resources during the economic crisis, i.e. the common hallmarks of all real estate markets on a global scale, obviously appeared also in the Prague real estate market. It underwent a fall in the construction of new projects and the number of transactions concluded. The prices of of (new) appartments dropped and office rents have remained at the same level for a longer time. On the other hand, despite this slump, the Prague real estate market remained relatively active and prospective. In this respect, the situation in the capital is more positive than in the other regions of the Czech Republic and also remains above the average level of activity in comparison with other large Central European cities. The Prague real estate market segments are considered stable and once the current negative economic situation ends entirely, renewed dynamic growth can be anticipated with great probability. This is evident for example in the area of land plots, the prices of which remained high, thus to a great extent confirming the interest of owners-investors in exploiting them in the future.

For the residential market some of the stated signs of critical development are symptomatic. A number of planned residential projects was halted during the economic recession and even in the near future we cannot expect a large number of newly initiated projects (in 2010, there were only 2,878 dwellings initiated, which represent a 50 % decrease in comparison with 2009). The completion of dwellings, however, still takes advantage of the exceptionally extensive capacity arising from projects under construction in the preceding period of economic prosperity and the highly active real estate market in the last five-year period (in 2010, there were 6,151 and in 2009 even 7,397 dwellings completed, which represent the second highest number in the modern history of the residential market in Prague). We expect that 4.5-5.5 thousands of dwellings will be completed in 2011 on the territory of the city of Prague. Over the period 2012-2016 there should be approximately 25-30 thousands of dwellings completed in Prague (i.e. 5-6 thousand of dwellings yearly on average). A higher intensity of housing construction is expected mainly in the second half of this period.

For the citizens of Prague, the development of apartment construction in the immediate environs of the city is important. This area represents an essential supply source especially for those interested in living in family houses. In this case, development is influenced more by the financial situation of individual investors (individual families). In the surroundings of Prague, which can be defined as the territory of the Prague-East and the Prague-West administrative districts, there were 3,493 dwellings completed in 2010, which represents a 4% increase in comparison with 2009. Nevertheless, in the pre-crisis years 2007 and 2008, there were more than four thousands of new dwellings completed per year. It’s worth mentioning that the intensity of completed housing construction in the administrative district Prague-West resembles that of the city of Prague (i.e. culmination in 2007 and a significant decrease afterwards), while in the Prague-East administrative district stable amounts of completed dwellings per year were recorded in the last years (even with a slight increasing tendency). Based on these figures we can conclude a partial slowdown occurred in the suburbanization process in the west part of the Prague metropolitan region.

The partial restriction of investment in the residential area is, however, associated with some positive aspects: on the one hand, some risky projects are not being implemented and on the other hand, prepared projects are considerably more comprehensive and of better quality. The demand of certain group of the population for new housing where in the past the possibility of paying loan and mortgage was not in tune with the reality of earnings is also coming into a rational position.

A logical consequence of the supply and demand is a reduction in the prices of new apartments. According to data from the real estate consultation company King Sturge, in 2009, the average price per m2 in a new Prague apartment was EUR 2,222 (approx. CZK 54,000), while in 2008, the average price was EUR 2,486 (approx. CZK 60,000). In 2010, there was a slower decrease in the prices of new housing recorded in comparison with the previous year (by 4%). Due to a significant amount of unsold new apartments, some of the developers are coming onto the market with projects that are even more economical, where the basic price is in the range of CZK 40 – 50,000 per m2.

The total area of modern office spaces in Prague has already reached 2.7 million m2, of which 50 % is concentrated in the inner city, 32 % in the outer city and 18 % in the city centre. Approximately 71 % of modern offices are in new buildings and the remainder in quality reconstructions. The record year of 2008, in particular, when 322,500 m2 of office spaces were launched on the market, saturated the majority of demand. Despite the fact that during the year 2009 the Prague office market was already negatively affected by global economic crisis, the volume of completed office spaces was 161,700 m2 thus exceeding the long term average. Full scope of negative consequences of the economic recession became apparent in 2010 when only 42,000 m2 of office space were completed in Prague.

This does not mean, however, that there is no room for new, suitable investment in this area of the real estate market. Some projects have already been launched and allocated to the inner and outer city zones, as well as to the very sensitive environment of the city centre and its historic core. In view of the large volume of projects in progress, the increase of the volume of newly completed office capacities can be expected in 2011 and 2012 (in comparison with 2010). There are also extensive multi-functional projects under preparation, where office spaces are to become a fundamental element. This should be underpinned by a more comprehensive approach of developers, consistent respect for the character of construction spaces and urban planning demands as well as new innovative approaches in building technology.

There is interest in new office capacities in Prague. We can regard as positive the indicator of level of demand realised, which amounted to 214,700 m2 in 2010. Similar value of yearly take-up was recorded also in 2009, when 245,400 m2 were leased. However, these relatively high values are somewhat misleading because a significant part of the realized demand was due to renegotiations (42% in 2010).

At the end of 2010, the vacancy rate of office space was 13.2%, while the figure was only 5.6% in mid - 2008. A stabilization of the vacancy rate can be anticipated in the immediate future.

The level of monthly rent for the best office spaces in the city centre is about 20–21 EUR / m2, in the inner city it fluctuates around 15-17.5 EUR / m2, while the rent in the outer city is between 13-14.5 EUR / m2. The level of rent has been relatively steady for a long time and significant movements in rent levels cannot be expected in the coming period.

The intensity of developers’ interest in building commercial spaces has fallen in Prague after decades of intense development. In 2010, Galerie Harfa was opened with 49,000 m2, one of the largest in Prague, close to O2 Arena in Vysočany. During the last two years, the Arkády Pankrác shopping gallery (45,000 m2) and Galerie Fénix were opened. Prague has thus achieved a leading position in Europe - at present, Prague and its neighbouring areas have over 900,000 m2 of retail spaces in modern shopping malls alone. Apart from further developments of specialised capacities of international retail chains in existing shopping centres on the edge of the city (Prague-Tuchoměřice, Prague-Černý Most), commercial activities are returning to the inner city and the historic centre itself. The Copa Centre at Národní Street is in preparation phase. Space for investors and retail chains remains, but new projects are still prepared with caution. Porta Möbel became a new owner of Asko Šterboholy, one of the biggest furniture shops in Prague.

Interest in retail space is focused on main shopping streets and their vicinity where the rent reaches up to 180 eur/m 2 per month and experts expect further growth . Greater differentiation between shopping centres can be expected, following rent differences, Rent in best shopping centers in 2011 grew to 95 Euros per m2/month, in others it oscillates around 70 Euros per m2/month.

The metropolitan area of Prague represents the largest industrial market and logistics warehousing market in the Czech Republic. In the City of Prague and its immediate environs approximately 2.2 million m2 of modern spaces are presently available for logistics purposes or light industry. (including A and B-class properties and owner-occupied stock). During recent years, the industrial real estate market in this area has grown significantly, as a result particularly of considerable demand on the part of logistics operators (for example: 1.35 million m2 of industrial spaces at the end of 2006, 1.7 million m2 at the end of 2007, 1.97 million m2 at the end of 2008 and 2.1 million m 2 at the end of 2009).

In the period of economic recession, the industrial real estate market experienced an enormous slump in the construction of new projects that were formerly conducted for the most part on a speculative basis. Whilst 150,000 m2 of new spaces was delivered to the market in 2009, in 2010 completions were only 17,000 m2, which represents the lowest recorded level of completions in the last 12 years. Construction activity remains limited with developers focusing on keeping existing tenants and leasing empty premises.

Current development of realised demand can be viewed more positively. Whilst only 145,000 m2 of industrial and warehousing spaces was leased in Prague and its environs in the whole year 2009, during the year 2010 326,000 m2 was leased. The comparison of these figures points out to certain stabilization and the recovery of demand on the Prague’s market with industrial, logistics and warehousing premises.

The decline in interest and the strong supply of capacities created before the economic crisis were reflected in the growth of vacancy rate of industrial real estate from 9 % at the beginning of 2008 to the current 11.9% (vacancy rate decreased already during 2010). The increasing volume of unused spaces then created pressure on price reduction of industrial properties in the course of the economic recession. However, the decline of rents was stopped in 2010 due to demand recovery. At the end of 2010, monthly rents for the best spaces fluctuated in the range of 3.8-4.5 EUR/m2 (in case of smaller projects it was possible to achieve rents between 4.5- 5.5 EUR/m2 ).

The implemented (and planned) improvements in connecting Prague and its environs to European transport routes create the prerequisites for maintaining and possibly strengthening investor interest in the area of creating industrial and logistics capacities. Some locations therefore continue to remain the subject of developer activities.

Tourism

Prague ranked among TOP 5 most successful European cities in city destination incoming tourism.

In 2010, a record number of 4.7 million tourists visited Prague accommodation facilities. Vast majority of 87% coming from abroad. The results for the first quarter of 2011 confirm a positive trend. Concerns about long-term decline were not fulfilled. Number of overnight stays in 2010 exceeded 12 million which is about the 2008 level. Number of resident’s overnight stays increased slightly.

In spite of decline of investors’ activities, building of new accommodation capacities

continues as well as new hotel projects development. At the end of 2010, Prague had 82,559 beds available in 38,726 rooms which places it at the top of European tourist destinations. Services are offered by 531 Prague hotels, of which 205 are high standard ones (4* and 5*) located in attractive spots.

At the beginning of 2010, Spanish chain “NH hotels” entered the market by opening hotel Radlická close to metro station Anděl. NH hotels plans further activities in Prague within 2 years (2013).

Increasing occupation of beds in the capital will be a signal for investors to intensify their activities.

Net occupation of beds increased by 3.8 percentage point. The occupation rate reached 47.4% in 4* hotels and 52.8%.in sought-after 3* hotels

In 2010, a total of 4,230 congresses and conferences took place in Prague accommodation facilities with more than 50 participants per action with a total of 561,000 participants which is 15% more than in previous year. The city management, Prague Convention Bureau and subjects involved in the city tourism take measures to attract interesting meetings. According to ICCA (International Congress and Convention Association), 85 meetings took place in Prague last year which placed Prague at the 13th position among European congress cities. In 2010, for example, Prague hosted the 61th International Astronautical Congress. Major nephrology specialists meeting, the 48th ERA-EDTA 2011, a medical congress with more than 10,600 participants became the largest classical congress that ever took place in the Czech Republic. Preparation of further meetings from different fields is under way, for example Veterinary Medicine Congress or 12th Medical EFIM Congress.

Drafted by: Strategic Planning Department, City Development Authority Prague, July 2011