CZECH REPUBLIC

REAL ESTATE INVESTMENT& ECONOMIC OUTLOOK

By Lilia Tome

Spring 2011

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AGENDACZECH REPUBLIC

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• Introduction – Investment Climate

• History & Economic Transition and Privatization

• Country General Information

• Economic Outlook

• Commercial Real Estate Analysis

• Investment Recommendations

INTRODUCTIONCZECH REPUBLIC

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•One of the most developed transitional economies

• European Union Member

• First country in Central and Eastern Europe accepted into the OECD

(Organization for Economic Co-operation and Development)

• The country is a NATO member fully integrated in other major

international organizations such as the IMF, WTO, and EBRD

• The Czech National Bank has maintained

exceptional monetary stability since 1991

• The Czech Crown is fully convertible

INVESTMENT CLIMATE

GENERAL INFORMATIONCZECH REPUBLIC

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• Size area: 78,866 km2

• Population: 10.527m (Sep 2010 est.)

• Population growth: 0.62% (average, 2006-2009)

• Land boundaries: Austria, Germany, Poland, Slovakia

• Language: Czech

• Government type: Parliamentary democracy

• EU entry date: 1st May 2004

• Education: Literacy 99.8%

Labor Force is considered highly educated

HISTORY OF THE COUNTRYCZECH REPUBLIC

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•After World War I, The Bohemian Kingdom became

Czechoslovakia (was among the 10 most

Industrialized

nations in the World)

•AfterWorld War II Czechoslovakia:

Was more or less physically intact

(avoided air bombardments and invasions)

With help of Soviet Union, Germans and

Hungarians were expelled

• For 41years (1948-1989) was a Communist State

• Between 1989 - 1993 the pacific Velvet Revolution

ended the Communist government

ECONOMIC TRANSITION & PRIVATIZATION

CZECH REPUBLIC

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• TRANSITIONAL ECONOMY is an

economy which is changing from a centrally

planned economy to a free market

• PRIVATIZATION is the transfer of property

or enterprises from the state to private

ownership, and the creation of a financial

sector

•RESTITUTION involved the return of

private property to original owner, or their

heirs

•The Velvet Revolution in 1989 ended Communist control in the Czech

Republic

• Economic reform and privatization were priorities for the new government

• One of the first goals was the extensive restitution of property that had been

seized from its original owners during the Communist takeover.

• Real estate made up the largest segment of assets to be restituted.

Farmers, businesses, and religious orders were the main recipients

MORE THAN EIGHTY PERCENT OF THE CZECH ECONOMY IS NOW IN

PRIVATE HANDS

A RESTITUTION CASECZECH REPUBLIC

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• In Prague 6• Neighbors :

President Vaclav Havel’s

Turkish Ambassador

Spanish Ambassador

Swiss Ambassador

Japanese Ambassador

Market Price: $5,000,000 (sale)

$25,000 (lease)

Aprox 4,500 Sq Ft +3 floors

2 car garage, basement, double lot

ECONOMIC OUTLOOKCZECH REPUBLIC

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•The Czech economy grew 2.3% in 2010 German economic recovery

•For a small, open, export-driven Czech economy is very sensitive to

changes in the economic performance of its main export markets (80%

exports go to Western Europe, 1/3 to Germany)

• Czech financial system has remained relative healthy

•Economy has not been directly affected by the debt crises

•Czech crown (CZK) has been on a general appreciation trend since 2001

• The budget deficit was 5.2%of GDP (Goal to be 3% 2013)

• Government debt was expected to reach nearly 40%of GDP

• Inflation rate increased to 1.5%in 2010 (from 1.0%in 2009)

• Unemployment rate by Nov. 2010 7.1% (according to Eurostat)

ECONOMY OUTLOOK CZECH REPUBLIC

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General

Data

TRANSPARENCY AND

CORRUPTIONCZECH REPUBLIC

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CORRUPTION IN THE PUBLIC

SECTOR

“Transparency and accountability are critical to

restoring trust and turning back the tide of

corruption”

Czech Republicis:

Global ranked 54/178

Regional ranked 24/30

Source: Transparency InternationalCorruption Perceptions Index 2010

FOREIGN INVESTMENT CZECH REPUBLIC

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• Advantageous location in the center of Europe

• Relatively low cost structure

• Well-qualified labor force

• Foreign and domestic investors are treated identically. Both are subject

to the same tax codes and laws

•A 15%withholding tax is charged on repatriation of profits

•This tax is reduced when double taxation applies For U.S companies

with more than 10% of shares on Czech company the rate is rate is 5%

Maintaining an open trade and investment climate has been a key

element of the Czech Republic's efforts to strengthen its market

economy

FOREIGN INVESTMENT CZECH REPUBLIC

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Foreign Direct Investment (FDI)

26%

15%

11%

6%5%

5%

32%

Leading Foreign Investors 2009

Germany

Netherlands

Austria

France

43%

21%

19%

9%

7% 1%

Foreign Investment by Sector 1998-2010

ManufacturingFinancial ServcReal Estate

Utility ServicesTransp & Telecom

Source: CzechInvest

INVESTMENT MARKET UPDATE Q4

2010CZECH REPUBLIC

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Investment activity with €384 million

Small to medium sized office and

retail

Activity was in Prague & Metro Area

2011 will have similar total

transaction volume with sustained

appetite from

domestic based investors.

Assets acquired manly by Czech investors

Total investment volume in 2010 €664 M

48% more than in 2009 but still

37% lower than in 2008;

INVESTMENT MARKET UPDATE Q4

2010CZECH REPUBLIC

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COMMERCIAL REAL ESTATECZECH REPUBLIC

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OFFICE SECTOR

•Q4 had investment deals for just

below €100 million

•Q4 showed highest level of

absorption in 2010 in Prague (71,500

sq.m)

• Vacancy level over Q4 at 13.15%

•Prime yields in Q4 held firm in

Prague

• Tenants still have the power

lease renegotiation, upgrades &

consolidation

(9,800 sq.m Oracle renewal)

COMMERCIAL REAL ESTATECZECH REPUBLIC

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RETAIL SECTOR

• Stable inflation and unemployment

rates decreasing stronger retail

environment.

• Adjusted retail sales rose by 3% Q3

2010

• Good occupier demand for prime retail

in Prague which have out-performed the

market during the downturn

• Retail rents have remained stable over

the fourth quarter

• No plans for new development

COMMERCIAL REAL ESTATECZECH REPUBLIC

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INDUSTRIAL SECTOR

•The continued economic growth

driven by the accelerating industrial

output

• Levels of demand for modern

industrial space in the country

•Strong activity IN Q4 was evident

in Prague, and the regional cities of

Ostrava and Pilsen

•Strong occupier activity + low

development activity, vacancy rate

fell 10.6% by the end of Q4

INVESTMENT RECOMENDATIONCZECH REPUBLIC

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CONCLUSIONS

Economic recovery will continue in 2011 and the industrial

sector will expand by another 6.2%

New Industrial (logistic) development of well

located prime assets offering secure and long term

Increase in demand for core office space could be seen by

the rising employment levels and economic growth but its

positive effect on rents will be affected by speculative

development pipeline

EFFICIENT CAPITAL MARKETSCZECH REPUBLIC

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•Domestic banks belong to major European banking groups Very

conservative

Czech banks were healthy throughout the financial crisis.

CR had no need of capital injection into the banking system

•Foreign investors have access to loans in local markets at market terms

•Prague Stock Exchange small, only 15 companies

listed

• 2010 trade volume USD 20.4 billion of stocks

• 2009 trade volume USD 24.5 billion

• Average daily trading volume approximately USD 81

million

• The PSE index increased by 9.62 percent in 2010.

•The secondary market has Limited Transparency

• Prices on the Prague exchange are unreliable, with

large differences between bid and ask prices

THANK YOUCZECH REPUBLIC

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VISIT THE CZECH REPUBLIC

Fantastic Beer

Magnificent

Castles

Romantic Cities