Roughly a quarter of all investments flowed into offices last year. Despite this, relatively few are being built in the Czech Republic. According to Josef Eim, Vice Chairman of the Board of Českomoravská Nemovitostní, higher construction activity would require higher rents.
After the Covid pandemic, there was talk about the end of offices. Yet in recent years you have been buying them. Why do you still believe in them?
Since 2020, offices have been perceived as a somewhat unpopular asset class. Everyone thought people would work only from home, but that hasn’t materialized. Paradoxically, it is now American companies that are pushing people to return to the office. We see that in-person meetings are irreplaceable. You can communicate efficiently over Zoom, but only in a certain way, and offices are therefore transforming into stimulating places with benefits such as running tracks on rooftops, saunas, or relaxation rooms. Companies today are not afraid to invest in top-tier facilities, because in the competition for talent, high-quality office fit-outs and good locations are key attractions.
Since 2020, offices have been perceived as a somewhat unpopular asset class. Everyone thought people would work only from home, but that hasn’t materialized. Paradoxically, it is now American companies that are pushing people to return to the office. We see that in-person meetings are irreplaceable. You can communicate efficiently over Zoom, but only in a certain way, and offices are therefore transforming into stimulating places with benefits such as running tracks on rooftops, saunas, or relaxation rooms. Companies today are not afraid to invest in top-tier facilities, because in the competition for talent, high-quality office fit-outs and good locations are key attractions.
Not many offices are being built at the moment. Are we heading for a similar development to the housing market, i.e. a sharp rise in prices?
I don’t expect such a dramatic price increase in offices. The housing market is much more distorted. However, we must realize that land prices, labor costs, and the prices of commodities used to build offices are unlikely to fall. For developers to start building more, the cost of money would have to decrease—meaning interest rates would need to come down—and rents might need to rise. If rents on the outskirts of Prague do not increase to at least CZK 485 per square meter, under current conditions it doesn’t pay for developers to even break ground.
I don’t expect such a dramatic price increase in offices. The housing market is much more distorted. However, we must realize that land prices, labor costs, and the prices of commodities used to build offices are unlikely to fall. For developers to start building more, the cost of money would have to decrease—meaning interest rates would need to come down—and rents might need to rise. If rents on the outskirts of Prague do not increase to at least CZK 485 per square meter, under current conditions it doesn’t pay for developers to even break ground.
What criteria do you use to select buildings for your portfolio?
We try to buy high-quality, preferably new, office buildings located near metro stations. The metro is absolutely crucial for Prague. We also always look at the tenant’s credit risk—to ensure they won’t stop paying rent—and at proper rent structuring. One needs imagination and vision, because our investments are long-term in nature.
We try to buy high-quality, preferably new, office buildings located near metro stations. The metro is absolutely crucial for Prague. We also always look at the tenant’s credit risk—to ensure they won’t stop paying rent—and at proper rent structuring. One needs imagination and vision, because our investments are long-term in nature.
Have you adapted to a period in which interest rates remain higher over the long term than they were five years ago?
We enjoyed a period of cheap money and prudently fixed our loans for the long term. We even had loans fixed at rates of 1% to 1.5% for six to seven years. During that time, our rental income increased thanks to rent indexation. Refinancing our loans will therefore be compensated by this growth in collected rents.
We enjoyed a period of cheap money and prudently fixed our loans for the long term. We even had loans fixed at rates of 1% to 1.5% for six to seven years. During that time, our rental income increased thanks to rent indexation. Refinancing our loans will therefore be compensated by this growth in collected rents.
Real estate funds are also a very popular way for retail investors to grow their savings. What should they pay attention to?
On the one hand, I’m pleased, because this is a segment I chose myself. On the other hand, it’s important to recognize that there are not insignificant differences across the market. Investors should look at what each fund focuses on and how properties are valued. But in the long term, I believe in the stability of the market. I also see it positively that today the market is so diverse that it offers products both for retail and for qualified investors.
After roughly two years, how do you assess the long-term investment product—that is, an instrument that allows people to save for retirement, for example through real estate funds?
We are very enthusiastic about it. It’s a great tool that motivates people to start saving for retirement as early as possible. I’m surprised that the uptake of contracts has been slower than I expected. I thought people would jump on it more quickly. But like everything else, this also needs time to be explored and talked about. One thing is certain: unless demographics or migration change significantly, our pension system will have to change. It is therefore necessary to continuously motivate people to take responsibility for securing their own retirement.
We are very enthusiastic about it. It’s a great tool that motivates people to start saving for retirement as early as possible. I’m surprised that the uptake of contracts has been slower than I expected. I thought people would jump on it more quickly. But like everything else, this also needs time to be explored and talked about. One thing is certain: unless demographics or migration change significantly, our pension system will have to change. It is therefore necessary to continuously motivate people to take responsibility for securing their own retirement.
