Czech Republic

Prague, Czech Republic

The Czech Republic is one of the smaller central European countries with a population of just over 10 million. The country has attracted considerable foreign investment. Tourism is booming and the Czech retail scene has been transformed over the last few decades.

The Czech Republic is a stable market within the CEE (Central and Eastern Europe) region and is growing again. It is the most urbanized country in Central Europe, though Prague, the capital, is the only city with more than one million inhabitants. Brno, in the south of the country, is the second largest city in terms of population, and the next major retail centre after Prague. Both cities attract international retailers.

ECONOMIC SUMMARY
ECONOMIC INDICATORS*2016F2017F2018F2019F2020F
GDP Growth 2.4%2.3%2.2%2.3%2.3%
Private Consumption Growth 2.3%2.2%2.5%2.6%2.6%
Industrial Production 4.3%3.1%3.4%2.9%2.8%
Investment -2.9%2.0%2.8%2.6%2.1%
Unemployment Rate (%) 4.2%4.3%4.3%4.2%4.2%
Inflation 0.6%1.6%2.3%2.1%1.8%
KORUNA/€ (average) 27.026.326.326.326.1
KORUNA/US$ (average) 25.125.124.623.923.1
Interest Rates Short Term (%) 0.3%0.5%0.8%0.8%0.7%
Interest Rates 10-year (%) 0.5%1.1%1.9%2.5%2.9%
NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics Ltd. and Consensus Economics Inc

ECONOMIC BREAKDOWN
Population 10.5 million (2015)
GDPUS$ 185.3 billion (2015)
Public sector balance -1.4% of GDP (2015)
Public sector debt36,7% of GDP (2015)
Current account balance -0.8% of GDP (2015)
Parliament Coalition of the centre-left CSSD, right-centre ANO and conservative KDU-CSL
President Milos Zeman
Prime Minister Bohuslav Sobotka
Election date Oct 2016 (Senate), 2017 (Chamber of Deputies), 2018 (Presidential)
RETAIL SALES GROWTH:
% CHANGE ON PREVIOUS YEAR
Czech Republic2016F2017F2018F2019F2020F
Retail Volume5.02.72.72.92.8
Retail Value3.24.04.64.94.8
Source: Oxford Economics Ltd. and Consensus Economics Inc

LARGEST CITIES (2014)
CITYPOPULATION
Prague1,270,000
Brno380,000
Ostrava290,000
Plzen170,000
Liberec100,000
Olomouc100,000
Ceske Budejovice90,000
Usti nad Labem90,000
Source: Czech Statistical Office

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Prague: 50.075538, 14.437800
Brno: 49.195060, 16.606837
Ostrava: 49.820923, 18.262524
Plzen: 49.738425, 13.373620
Liberec: 50.766280, 15.054339
Olomouc: 49.593222, 17.253368
Ceske Budejovice: 48.975658, 14.480255
Usti nad Labem: 50.661116, 14.053146
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Prague
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Brno
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Ostrava
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Plzen
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Liberec
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Olomouc
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Ceske Budejovice
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Usti nad Labem

MAJOR DOMESTIC FOOD RETAILERS

My Food Market, Sklizeno, DELMART, Coop

MAJOR INTERNATIONAL FOOD RETAILERS

Tesco, Ahold, Billa, Lidl, Globus, Penny, M&S food

MAJOR DOMESTIC NON-FOOD RETAILERS

ALPINE PRO, HANNAH / ROCKPOINT, Sportisimo, Pompo, HM studio, Bata, Blazek, Pietro Filipi, TETA drogistic

INTERNATIONAL RETAILERS

M&S, H&M, Reserved and other LPP brands, Zara (and other Inditex brands), C&A, Peek & Cloppenburg, Van Graaf, Foot Locker, Deichmann, Mango, Michael Kors, Louis Vuitton

MAJOR DOMESTIC FOOD & BEVERAGE OPERATORS

Bageterie Boulevard, Cross Café, Fruitisimo, UGO Salads, Kolkovna Pub, Potrefena Husa Pub, Lokal Pub, Pizza Coloseum

MAJOR INTERNATIONAL FOOD & BEVERAGE OPERATORS

Costa Coffee, Starbucks, McDonalds, Burger King, KFC, Paul Bakery, SUBWAY, Sbarro, Hard Rock Caffe

TYPICAL HOURS
MONDAY - FRIDAYSATURDAYSUNDAY
08.00-18.00 but can vary between 08.00-10.00 and 17.00-20.00 (21.00 in some shopping centres); 07.00-21.00 some supermarkets. 09.00-20.00 Some high street retailers may close at lunchtime Independent retailers closed.

The liberalisation and development of the Czech Republic has made it an attractive destination for a number of major European retailers across many sectors and in all types of formats. Interest remains strong but space limited on its high streets. Prague is the only city with extensive high street shopping, while elsewhere in the country it is more limited (with the exception of Karlovy Vary and Brno). Many household names in European retail have representation on the high streets.

Shopping centres have developed strongly since their introduction in 1997 and have been developed across the Czech Republic, with the total now up to 98 centres. As at November 2016 there is now a shopping centre total stock of some 2.49 million sq.m, The mall saturation equating to some 151 sq.m/’000 population compared to the EU average of 238 sq.m/’000 population.

The aftermath of the financial crisis translated into a record low supply of new shopping centre space, but the supply of modern retail space has increased since the second half of 2013. The key openings of the last 12 months has been the opening of Central Kladno, Galerie Prerov and Aupark Hradec Králové. Many large schemes, especially in Prague, have already done or are planning major refurbishments to improve their internal environment, F&B offer and to see if they can squeeze in additional anchors. The extension of the Centrum Chodov shopping centre in Prague is expected to be completed in fall 2017. The other significant refurbishment and extension to be carried out in 2017 is Galerie Butovice, Prague. An additional 15,000 sq m is being prepared for KIKA retail.

The last couple of years were also marked by increasing development of retail parks. The trend towards retail warehouse development which started with the construction of hypermarkets and seemed to have matured with the introduction of retail parks has been newly revived by a new wave of big box development. Operators are increasingly aiming at budget oriented consumers in such sectors as sports (Decathlon) or furniture and household equipment (Lutz).

With the exception of the extension of Fashion Arena in Prague, the factory outlet segment has seen no major change over the course of the last couple of years, however there are four outlet centers currently in the pipeline. The tenant mix of the two schemes currently in operation (Fashion Arena and Freeport Hate) is predominantly mass market focused, with a few select premium brands. There are discussions about development of other outlet projects in the Czech Republic: Bohemia Village, Village Moravia and plan to open Prague The Style Outlets (2017). Internet based sales have continued to grow but account for a relatively low proportion of total retail sales. Web-based retailers are increasingly expanding into bricks and mortar units, while traditional shops are adapting their operations in order to accommodate online sales and ensure similarity in prices in the two business models. UK grocery company Tesco launched an online grocery shopping service for customers in Prague, the first in its sizeable Central European retail business. The latest trend in online retail in the Czech Republic is the fast growth of the coupon system, which has gained particular popularity in the restaurant and the service industry.

New Entrants to the Market

Hamley´sCOSPUPAFrench ConnectionMax&Co.
Tory BurchForever 21Polo Ralph LaurenNYXMarc O´Polo
BCBG MaxazriaPINKOTousCadenzzaLongchamp

TOP SHOPPING CENTERS BY SIZE
NAMECITYSIZE (GLA SQM) YEAR OPENED
Centrum Cerny MostPrague92,2731997
Olympia BrnoBrno87,1811999
Letnany Shopping CentrePrague76,5041999
Centrum ChodovPrague60,9722005
Forum Nova KarolinaOstrava57,7782012
SC Novy SmichovPrague55,8002001
Metropole ZlicinPrague55,0002002
Avion Park OstravaOstrava48,2482001
NC Nisa LiberecLiberec46,0321999
Santovka OlomoucOlomouc46,0002013

KEY FEATURES OF LEASE
ITEMCOMMENT
Lease TermsTypical lease terms for are generally five or ten years, often with options to extend. Rents are denominated in EUR or CZK, and payable in CZK. Rents are expressed on a per sq.m basis. Conditions to terminate are negotiable but must be clearly stated in the lease; otherwise there are limited reasons permitted by law for the landlord to break. While break clauses do exist, they are almost exclusively conditioned by penalty. Under previous regulations, tenants had the right to terminate their lease if the building changed ownership. This right has now been removed, hence boosting the security of income offered by real estate. These amendments are intended to apply retrospectively but are as yet little tested in court. Restrictive user clauses are not usually included in a lease but where added they are enforceable.
Rental PaymentRents are generally paid monthly (occasionally quarterly). Frequently turnover rents of between 3-10% (depending on use) are employed in new retail developments. Turnover rents are usually subject to a base rent. A security deposit equivalent to three months rent, service charge and VAT applicable on the amount is usually required or the equivalent parent company guarantee. Key money/premiums are allowable but not common place.
Rent ReviewIndexation is not common practice but is being seen on an increasing basis, together with fixed uplifts and can be particularly prevalent in the supermarket sector. The basis of rental review open market rental value (upward only even where rents generally have decreased) usually every 5 years. Most rents are indexed annually to the relevant inflation index, either the Eurozone or EU 27 HICP for Euro-denominated leases or Czech Statistical Office CPI for CZK leases. Security of tenure is not automatic but may be included in the lease by negotiation. Under old style leases, fixed-term leases were difficult for the landlord to break but these restrictions have been ended by the 2005 lease reform, although the enforceability of this retrospectively is yet to be tested.
Service Charges, Repairs and Insurance A service charge is usually payable in all building types. The charge normally includes management fees, security, cleaning, internal maintenance of common parts, servicing of elevators, external maintenance, external insurance, water, electricity, heating, air conditioning and snow clearance. It excludes internal maintenance of rented accommodation, internal (equipment) insurance and VAT. By law the service charge can not be included in the rent and must be quoted and paid separately. Landlord responsible for main Structure (may be charged to the tenant through the service charge) and large scale repairs and maintenance. The tenant is responsible for minor outlays and superficial repairs. In a multi-let building, the landlord will provide such services but charge back via the service charge. Lighting, Heating, A/C costs for the common areas are paid in advance. The landlords are responsible for insuring the main structure whilst the tenant pays internal insurance (sometimes also business insurance, in retail).
Property Taxes and other costs Real Estate Tax is payable by the owner, but the amount payable is very small. Despite this, the cost is often recovered from the tenant in the service charge. 20% VAT payable on rent.
Disposal of a LeaseSub-leasing is negotiable but is always subject landlord approval. Assignments are not recognised by Czech law and in practice; a written agreement by all parties is required. Early termination is only by break clause. Usually, the tenant is responsible for reinstating the premises subject to normal wear and tear.
Valuation MethodsZoning methods rarely used. Standards vary, with some landlords using GIF (retail), some BOMA, otherwise it tends to be Gross Internal Area, excluding vertical circulation. Most will include an “add factor” to allow for a proportion of common areas.
Lease TermsTypical lease terms for are generally five or ten years, often with options to extend. Rents are denominated in EUR or CZK, and payable in CZK. Rents are expressed on a per sq.m basis. Conditions to terminate are negotiable but must be clearly stated in the lease; otherwise there are limited reasons permitted by law for the landlord to break. While break clauses do exist, they are almost exclusively conditioned by penalty. Under previous regulations, tenants had the right to terminate their lease if the building changed ownership. This right has now been removed, hence boosting the security of income offered by real estate. These amendments are intended to apply retrospectively but are as yet little tested in court. Restrictive user clauses are not usually included in a lease but where added they are enforceable.


Czech Republic Contacts

JAN KOTRBACEK

Partner, Head of Czech & Slovak Retail
Na Prikope 1
110 00 Praha 1
Czech Republic
Tel: +420 234 603 510
Mob: +420 602 655 806