Defying global trends, Prague developers plan large-scale projects
Real estate businesses worldwide are gripped by an ever-tightening credit crunch, but Czech real estate companies appear to live on a different planet.
Emulating the urban centers of other European cities, Prague’s largest developers are planning enormous projects that may reshape the face of the city’s neighborhoods.
Sekyra Group announced in early July that it will develop what is now a green Vltava River island into a new residential center. Located near the booming Karlín area, the 200,000 square meter development is to include shops, service outlets, a park and a nature reserve. A swimming pool will serve double duty as an ice-skating rink in the winter.
It’s the largest project for his company yet, said Sekyra group spokesman Radek Polák. The total investment volume will reach about 15 billion Kč, including acquisition of the property and construction costs, he confirmed. Construction work won’t start until 2015 and would take three years.
“Our strategy is to progress from the usual, smaller projects involving several buildings to larger projects, creating new city centers and taking Prague closer to other modern world cities in urban terms,” said Leoš Anderle, Sekyra Group’s real estate development director.
Rohanský ostrov is not the only major project the company is working on. Sekyra plans to build new city quarters around the Smíchov railway station and the former cargo train station in Žižkov.
“[Rohanský ostrov] is the largest multipurpose project adjacent to the capital’s historical center,” said Luděk Sekyra, chairman of the board of directors. “It is a challenge for us to ensure a well-rounded lifestyle and a pleasurable working environment for all in the area.” Sekyra had previously made his intentions clear to design the project in what he called Czech minimalist style. “Our priority is simple, distinctive and clear forms of buildings and interiors,” Polák said.
Bridges will connect adjacent Karlín and Libeň to the island, where an underground garage will provide parking options. The area around the B line metro station of Invalidovna will become the interim center of the development until the island’s main square takes over that function in 2018.
“A complex project such as Rohanský ostrov better suits the demands of working and living conditions in the 21st century than the existing [infrastructure in the] wider city center,” Polák said.
Asked why Sekyra Group chose the island location, Polák said it was the last remaining undeveloped area that is close to the Prague city center. Effective flood barriers will be erected on the island to protect its inhabitants from Vltava’s moods.
Another major player in the Central European real estate market, Orco Group, has also taken to inner-city development projects. The group recently won a tender to remodel the former railway station Bubny, located in Prague 7 between the Vltavská and nádraží Holešovice metro stops, into a “city within a city,” as the company announced. The new development will include offices, apartments, a shopping mall, hotels—and even a medical facility.
“We will build the hospital according to the needs of the future operator,” Orco Vice President Aleš Vobruba told journalists at a press conference. “We are now looking for one,” he added.
Ten years from now, Orco aims to sell the planned 2,500 flats in Bubny for an average price of 80,000 Kč ($5,355) per square meter, double the current average price in Prague of 40,000 Kč.
Financial analysts’ opinions on these projects reflect cautious optimism about general business conditions today. Developments the size of Bubny and Rohanský ostrav make sense so long as they create new city quarters and not just “glued-together” parts, said Robert Keller, part of the Equity Research team at Patria Finance.
Because the real estate sector follows a cyclical pattern, Keller said, it’s not warranted to dismiss a project in times of a real estate crisis if it’s a good one. While the real estate sector is under pressure and cannot be separated from overall global developments, shares might be undervalued at this time due to a pessimistic outlook, he said.
While the United States is still reeling from the sub-prime mortgage crisis and there are increasing signs of difficulties in the United Kingdom, the Czech economy is still doing reasonably well.
“Prices for real estate continue to grow in some market segments in the Czech Republic,” said Next Finance Director Markéta Šichtařová. The current situation can hardly be called a crisis, she said. Complex real estate development projects are attractive so long as investors can turn a profit, she added.
Care should be taken when choosing a specific development project, however.
“Objects remain vacant for longer periods after completion than in the past, but that doesn’t mean that they won’t be profitable,” Šichtařová said. “I wouldn’t discourage investments into real estate, but it depends on the specific appreciation, if a particular property will increase in value.”
Aleš Michl, a Raiffeisenbank portfolio strategist, took a more cautious approach. He said huge projects like Rohanský ostrov and Bubny don’t come without risks. “If you want to be successful in business, you have to accept risks in adverse times such as right now,” he said.
According to Michl, all companies in the real estate sector are listed in his portfolio as underweight or sell. “I would invest into real estate, but I would not yet invest into real estate developers’ [shares],” he said.
While Michl’s recommendations were not aimed at specific companies, “the real estate sector worldwide has many question marks surrounding it right now,” he added.