COVID-19: State of the Occupier Update - Prague

Approximately 80-90% of our office clients have staff working from home. Where employees are still occupying offices, there are restrictions and guidelines to adhere to.

Most of our clients have asked for a general update on the situation and Savills opinion of the future outlook. We have prepared a report on the COVID-19 situation across the real estate market in CZ that is available on request.

For those clients for whom we were active in the market pre-COVID-19, we are revisiting negotiations with landlords in light of the new market dynamics. We have already seen some improvements with extended rent-free periods being offered.

OCCUPIERS?

Short-term paralysis in leasing activity is anticipated. Although transactions that were near completion are still proceeding, we are seeing many decisions put on hold where possible. Occupiers have shifted their focus to business survival right now. We expect occupiers to be more cautious in the 6 to 12 months following the immediate health crisis, as they reconsider relocation plans and focus more on lease renewals. Preleasing activity is, therefore, projected to slow down. 

Rent levels are forecast to remain stable with no anticipated growth in next 6 to 18 months. We are not expecting a significant drop in rents at this stage. It is a similar story with incentives for new leases. 


LANDLORDS? 

Construction projects are expected to be slightly hindered by short-term labor shortages and social distancing measures, causing delays (perhaps of 1 to 2 months) in the completions of new buildings and refurbishments. Some new developments are likely to be postponed or put on hold.

Following the crisis, landlords will pay even more attention to the financial health of their tenants.


DEVELOPERS / INVESTORS?

There has been a sharp contraction in investor activity with new acquisitions being postponed or slowed (across all real estate sectors). Those projects in their final stages should complete successfully. Marketing campaigns and opportunities planned for sale are also being postponed.

Investment activity is expected to pick up in the second half of 2020, but overall annual investment volumes will certainly be lower than had been predicted before the crisis.

Investors are likely to shift their focus to core assets and top credit covenants. Interest rate cuts will support financing, and this should dampen yields to some extent. Yields are, therefore, forecast to increase only moderately.

In comparison to the equity market, which will suffer from low dividends, and the debt market, which reflects the low interest rates of central banks, real estate as an asset class will continue to offer superior returns.

Over the next 12 months, landlords are expected to focus on lease renewals to secure tenants and stabilize cash flows for their buildings. We expect tenants should see some interesting incentive packages being offered. 

Remote working is unlikely to gain more widespread traction after the crisis. The enforced working from home will more likely draw attention to the benefits of an office environment in terms of collaboration, focus and the immediacy of personal contact. The coronavirus crisis surely induced the largest work-from-home experiment to date, serving as a good test of the ability to form virtual teams and perform within them.

Contact us.