According to joint quarterly report of CBRE, C&W, Colliers Int., DTZ and JLL, office vacancy rates are on decline. 3Q07 Prague office vacancy rates declined to 5.25% or 113,000 sqm from 7.7% last year. New supply of office space reached 41,600 sqm and total stock thus increased to approx. 2.14m sqm. Prime rents are on the rise and reaching in some cases over EUR 20/sqm/month, while at the end of last year these rents were some EUR 2/sqm/month less. Similar trend can be seen also in wider city centre. Although the trend of declining vacancy rates should reverse in 2008 with more projects delivered, the situation should not change materially. According to DTZ new supply should reach 238,500 sqm in 2007 and 400,000 sqm in 2008, with highest portion of Prague 4, perceived as a Prague’s CBD.
Our view:
We see this news neutral for today’s trading, however confirming trend that we are seeing for couple months and which we have been pointing to. Fundamentals of the real estate remains strong and it is rather sentiment linked mostly to US subprime issues. We see similar trends also in other Emerging Europe countries, which give developers good negotiation position. Overall, we remain confident in the real estate developer’s business in CEE/SEE/CIS and even more in the commercial segment – office, retail, logistics. We still like (51 PLN, 0,00%) in general, however upside is getting to be limited from these levels, therefore (2 810 CZK, 2,07%) is our top pick mainly due to the valuation reasons.