ARTN (Association for Real Estate Market Development) has already published a complete analysis of the Czech real estate market called Trend Report 15 times. How far has the Czech Republic's real estate industry come in these 20 years?

There is indeed a significant change within our real estate market. The market is much more institutional, and international standards have been applied. The real estate industry is professional and transparent. Many brownfields have changed. We can admire great architectural achievements, unattractive areas and sites that have been redeveloped.

What is worth mentioning is that our market has created that our market generated many very strong and successful domestic developers and investors.

We can be proud of these trends moving the Czech Republic and Prague towards becoming a mature international market. But there is still much to do. We need to improve our transport infrastructure. We are still hampered by poor construction and planning laws. The planning process is slow and inefficient compared with other developed economies. Our most recent discussion meeting was about transport in our capital, and we have heard a great vision however there is a strong demand for faster action and progress in this crucial agenda. The market is now also much more concerned about ESG and all related social and environmental goals.

Zdenka Klapalová

Executive Director and Partner
Knight Frank Czech Republic

PhDr. Ing. Zdenka Klapalová, CSc. MRICS graduated from the University of Economics, where she also worked. She also studied psychology at Charles University, where she received her PhDr. She is a member of the professional association RICS. Zdenka Klapalová is the Executive Director and Partner of the real estate consulting company Knight Frank, which celebrated its 30th anniversary on the Czech market last year. She is also President of the Association for Real Estate Market Development (ARTN), where she has been working for more than twenty years to cultivate the real estate market. More »

In the latest issue of the Trend Report, you talk about how it is difficult, if not impossible, to predict almost anything in light of the war, pandemic and energy crisis.  You had written this in late winter. It's mid-summer now. Have your fears been confirmed? And how has our real estate business and the world changed since then?

Real estate is always seen as a safe haven. It is proven protection against inflation and income-producing properties usually offer inflation-adjusted rents. If you don’t speculate unrealistically, there is a high certainty that the property will retain its value and grow over a certain time horizon. Pandemics, war and the energy crisis bring high uncertainty. The related factor is the current interest rate. More expensive financing mainly in Czech korunas has a direct impact on the property value. Nonetheless, what is scarce and of high quality will remain expensive. The prime products are keeping their attractiveness and value. Property funds with well-balanced and performing portfolios can mitigate the risk and protect the investors’ investment. Real estate, although facing an uneasy time, is more stable and tangible compared with other asset classes.

In June this year, Bloomberg published its analysis of dozens of real estate markets, including the Czech Republic. This analysis predicts that there is a 100% probability that the real estate bubble could burst in our country. How do you see it? Will it burst or not?

I am always very careful when talking about the real estate bubble. There may be some overpriced challenging assets difficult to finance and uneasy to dispose of without a price adjustment. However, there will remain demand. People would like to live and buy good quality and well-located apartments and investors will continue seeking sustainable and performing assets. Money is broadly available, and we notice the liquidity. There may have been some transactions on the market where price expectations of sellers and potential buyers have been significantly different, which resulted in the property being taken off the market. However, if the seller is not forced to sell, he may as well keep the property for the time being as he may believe that there will be no price correction or in the longer term and he will achieve the required price then. As for the residential market, our Prime Global Cities research indicates that the price growth has slowed down and in fact, 42% of the tracked cities have experienced year-on-year price corrections in June, unlike in March when most markets were still growing. The Czech Republic has not seen such corrections yet, but the first figures indicate a significant drop in sales due to higher interest rates on mortgages, which will eventually affect pricing as well.

You are also a Partner at Knight Frank, which has been on the Czech market for 30 years. What's driving market activity right now? What kind of services are your clients looking for?

The market is always driven by an interest to buy well and dispose of well. In a period of high uncertainty, it is more challenging to find the balance and manage the expectation. There are many funds eager to allocate resources to real estate but it is not always easy to find suitable institutional products. The Czech real estate market has been for the last years also driven by Czech private capital. Within the last 30 years, I was able to follow the incredible growth of the domestic capital. A lot of successful businessmen and industry leaders have started to allocate their profits to real estate. We cooperate with many private individuals and family funds for whom we are allocating suitable opportunities.  These high-net-worth investors are interested not only in trophy assets and they are ready to consider any real estate across all market segments, including the non-traditional ones, where they see enough potential.

We in Knight Frank enjoy long-term relationships with such clients and we can provide them with a fully comprehensive service including property and asset management.

Today one of the main demand drivers is inflation as many investors are concerned about the value of their savings and despite the current yields not beating inflation, real estate is considered a longer-term investment where they still see the opportunity for value growth.

Financing in Czech korunas is more expensive and thus the demand for the Czech income-producing assets is declining and those landlords who want to dispose of their properties are trying to renegotiate their leases into euros.

However, the hike in construction costs is now over, and developers have an appetite to invest as there will be in the foreseeable future lack of quality residential and office space. The demand for the built-to-rent residential schemes remains unchanged with the expectation of residential rental growth.

And a final word of relief - is there any property in the Czech Republic that is impossible to sell? Why?

The simple response is no. We have always been - in any market period/cycle - able to dispose of any property. Small sites, obsolete properties, sheds in the unknown location, single-use properties, special assets, challenging properties with defects, simply everything.

The art of success is the right marketing, deep market knowledge and experience. Smart presentation and close relationships with the clients are key.

If there is trust between the client and the advisor and if there is enough time then we can identify the best strategy and anything will sell. That is why we are here….