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COVID-19 Impacts on Czech Real Estate

Marie Baláčová • 6/25/2020

The Czech Republic continues easing restrictions imposed due to COVID-19. As of 1 July, face masks are no longer required on public transport and in public buildings, including shopping centres. Restrictions on restaurant opening hours have been lifted. Face masks are required only on the Prague metro, in medical establishments and in parts of the north-eastern Moravian-Silesian region, where infections have spiked in two neighbouring coal mining areas. The area most seriously impacted is the mining town of Karvina. Several hundred miners and their family members have been tested positive. Most have only mild symptoms. They are being quarantined and the authorities are tracing their contacts to limit any further spreading of the virus. Access to the area remains without restrictions.  

Business associations presented the government with 30 measures to support economic recovery. They are proposing lowering the fuel tax and introducing extraordinary write-offs for newly acquired assets. The Automobile Industry Association is demanding that the state support liquidity and employment by anchoring the German Kurzarbeit model in Czech law. 

 


25 June

The COVID-19 situation continues to improve in the Czech Republic. The limit for attendees to organised events was increased from 500 to 1,000 people and even up to 5,000 people if they are separated into sectors. The operation of swimming pools, zoos, cultural facilities and playgrounds within shopping centres have returned to normal as well. The obligation to wear face masks inside buildings and public transport is expected to be abolished from 1 July across the whole country except for Prague and places with local outbreaks.  

Country officials are still devoted to preventing a second wave of the disease, which has already occurred in some countries. Nevertheless, the Government has declared that it will not be possible to restrict the economy to the same extent as in the spring even if there is an increase in the number of cases. If restrictive measures are put in place again, they will certainly first curb large events or only apply them to certain locations. 

Despite the shops reopening, retailers in shopping centres have still been recording lower sales than in the same period last year. This is the case regardless of whether the shops could be opened during the lockdown period or not. Many retailers are therefore changing their strategy. They are focusing on online sales channels and some brands intend to reduce the number of stores they occupy. 

 


18 June

On Sunday, 14 June the total number of coronavirus infections in the Czech Republic exceeded 10,000. However, the number of active cases remains below 3,000 since mid-May and the situation is stable enough for epidemiologists to recommend further relaxing of preventive measures. The Ministry of Health is now focusing on the timely detection of local outbreaks of infection, which are under control. At the same time, early warning system mechanisms are being set up across the country. 

Travelling to most EU countries is now possible without the COVID-19 test and airlines are resuming their flights abroad. Nevertheless, the number of tourists expected to visit the country will be significantly lower than in previous years. The hotel and high street sectors will be hit hard particularly in Prague, which has been one of the most visited cities in Europe recently. 

 


11 June

The situation regarding the spread of the COVID-19 infection has remained stable for 6 weeks now and the Government is continuing with the planned relaxation of lockdown measures. There are still some restrictions on borders, the maximum number of people that can meet is 500 and face masks are obligatory on public transport.  

According to Oxford Economics, GDP declined 3.6% in Q1 2020, which is the sharpest quarterly contraction in history and a fall of 5.2% is expected for the year 2020. Some restrictions will still be hampering the recovery in hospitality, tourism and culture, while many consumers will delay durable purchases. At the same time, investment plans are likely to be delayed rather than lost, but the prevailing uncertainty will exacerbate the output shock in H1 this year. 

The unemployment rate rose 0.6pp to 3.6% in May since the outbreak of the crisis, a large increase by historical standards. On the other hand, it is still relatively low in the European context, attributed to the Government’s policies supporting employment. 

The European Commission approved the Czech public support programme COVID - rent. The programme means compensation for the period from April to June 2020: the state will pay 50% of rents to tenants if lessors provide a discount of 30%. 


3 June

Despite the significant easing of measures since 11 May, the situation regarding the spread of COVID-19 remains stable in the Czech Republic and people are gradually returning to their normal lives, including shopping, going to restaurants and leisure activities. 

According to our estimates, in the first 2 weeks after the shopping centres reopened, the number of customers was only 30% lower than in the same period last year. Equa bank reported, that payment card transactions have returned to their pre-COVID level in the middle of May. In some categories, such as clothing and footwear or health and beauty, they have even been recording an increase. 

The number of people returning to the office from their home office is increasing as well. This trend is visible, especially in the increasing intensity of individuals and public transport in large cities. Cultural events are still limited to 300 people, and it is mandatory to wear face masks inside public buildings, as well as on public transport. 

All road and railway crossings with Germany and Austria have been open since 26 May, but people must still have a negative test for COVID-19 and tourists are not allowed to enter the Czech Republic. Cross-border contact with Slovakia is easier provided the traveller returns within 48 hours. Border closures except for commuters persist in Poland. 

 


28 May

The spread of COVID-19 remains stable/good with only some local outbreaks. As of 25 May, most facilities and services can be opened, and are working again with primary schools; public gatherings are allowed up to 300 people. The Government Ministers also supported the easing of the border regime from 26 May.  

Importantly for tenants and landlords, the Government approved a long term negotiated support programme, COVID-rent, which means state compensation of rents up to 50% provided the landlord offers a 30% discount off the rent and the tenant pays the remaining 20%. The maximum amount of support will be CZK 10 million for the period April to June. The European SURE loan programme has also been approved in the amount of €100 billion. It should help fund kurzarbeit or direct assistance for self-employed people. 

According to an e-shop solutions provider Shoptet, 210 new online shops were established by companies in April 2020, including producers of liquors, toys and furniture. The main reason for this is the creation of a simple sales channel able to work under any circumstances. Over 70% of companies plan to keep their new e-shop. 

 


21 May

After over 2 months The State of Emergency in the Czech Republic ended on Sunday, 17 May. The number of new cases has remained below 100 since 30 April and the last wave of easing restrictions is expected to be implemented on Monday, 25 May. Restaurants, cafés and accommodation facilities, as well as swimming pools and zoological gardens should reopen. Mass events for up to 300 people is expected to be permitted, medical and social facilities will allow visitors and elementary schools will open for pupils. At the same time, face masks will no longer be obligatory outside, although many are expected to continue to wear them. There is also debate about the gradual opening of borders. 

Economic performance in Q1 2020 dropped 3.6% q/q and 2.2% y/y, according to preliminary estimates by the Czech Statistical Office. This was caused by the cost shock and the disintegration of the supply chain and the forced and voluntary closing of shops. The subsequent demand shock will probably not be as dramatic but likely to be longer instead. Recent forecasts by the Czech National Bank suggests, that the economy will fall by 8.0% in 2020. 

According to the Labour Office, the number of unemployed persons rose to 3.4% at the end of April, which is a relatively low number in the EU context. Unemployment is expected to continue to rise as employees won't be able to get further compensation after the end of the State of Emergency.  

 


14 May

From Monday 11 May a significant lockdown easing means people can visit shopping centres, gardens, restaurants, or go to cultural events for up to 100 people. Barbershops, massage services, manicures and pedicures can start operating again. The ban on the operation of international rail and bus transport was also lifted.

In the Czech Republic, people must still wear face masks in public spaces until June. Although epidemiologists admit that it is likely to be reintroduced in the autumn with the onset of a new flu season. 

The Government approved the National Reform Programme of the Czech Republic 2020 (NRP). The document describes measures aimed at restoring economic development and its long-term sustainability. The document will be submitted to the European Commission, which evaluates the Czech economic policy and then proposes recommendations. The NRP has been adapted and updated to consider cabinet action in response to the COVID-19 pandemic. 

The Ministry for Regional Development is preparing an extraordinary action plan for the rescue and subsequent restart of the tourism sector for the period 2020 - 2022. 

Czech embassies in selected countries have started to accept applications for government visa programmes. This primarily applies to programmes pertaining to workers. Entry will also be enabled for holders of long-term visas so they can accept residence permits. Upon entry into the country, they will have to present a COVID-19 test. The measure also legalises the stay of foreigners whose residence permit expired during the State of Emergency. This is a reaction to the acute shortage of foreign workers in some Czech companies. 

 


7 May

The epidemiological situation continues in a positive direction in the Czech Republic with only dozens of new cases daily. The Government has therefore decided to speed up the loosening of preventative measures. The retail market is eagerly awaiting 11 May, when shopping centres and stores over 2,500 sq m will be reopened. Many traders were relieved, as this step was not planned to take place until 8 June. 

Negotiations are ongoing regarding other forms of government aid to companies and entrepreneurs. There is talk, for example, of rent compensation, where the tenants, the landlords, and the state would share the rent of closed establishments in thirds (i.e. equally). In addition to compensation, investment incentives and subsidies to support business real estate and infrastructure are being prepared, extended, or expanded. This would also apply to individuals to reduce the energy intensity of real estate and/or improve rainwater management. 

Travel across the border is also returning, albeit cautiously. Trains and buses will start crossing the border again starting on 11 May, and Václav Havel's Prague Airport has announced the resumption of its first flights. Although due to strict measures, including a possible two-week quarantine after return, it is still recommended not to go anywhere unless necessary. The restoration of international tourism will likely not take place until July, but the specifics regarding which countries this will apply to remain unknown. It is probable the re-opening will focus on countries of Eastern Europe, including Austria and Croatia, where the situation with the spread of COVID-19 is not as serious as in some Western European countries. 

The hospitality industry is, therefore, trying to benefit from the increased interest in spending holidays in the Czech Republic. Many travel agencies have already reserved domestic hotels and even campsites to compensate for losses from cancelled foreign trips. 

 


30 April

The epidemic situation in the country has been improving rapidly and the lock-down rules have been relaxed.

Based on a decision by the Government, the Czech Ministry of Health, together with the Ministry of Industry and Trade and the Ministry of Education, Youth and Sports, have updated the schedule of easing of entrepreneurial activities and measures at schools and educational facilities.  

Instead of 5 stages, business activities will be relaxed in 4 stages by 25 May 2020. 

Stores with an area of up to 2,500 sq m can open on 27 April 2020. However, stores located in shopping centres can only open on 11 May (still almost a month earlier than was previously planned).  

Also on 11 May, gyms and fitness centres, driving schools, zoos and botanical gardens (except for indoor areas) can reopen.  

The Government made it possible for universities and spa facilities to open with a limited regime. Rules have been changed for crossing the state border.  

Conditions for opening of some services related to the tourism remain unclear. 

 


23 April

Parliament confirmed the prolonging of the current state of emergency until the end of April and the Government announced long-awaited release plans for lifting the restrictions for businesses and services in 5 waves: 

  1. 20 April – crafts, farmers’ markets, car showrooms
  2. 27 April – shops sized up to 200 sq m 
  3. 11 May – shops sized up to 1,000 sq m 
  4. 25 May – restaurants only with window sales or outside seating, beauty services, museums, galleries and zoos 
  5. 8 June – shopping centres and business premises over 1,000 sq m not located in shopping centres, rest of restaurants, hotels, taxis, theatres or mass events with a defined number of participants 

The plan is based on the proposal of epidemiologists who see shopping centres as places with a very high risk of infection. Therefore, closed units in shopping centres over 5,000 sq m should open as late as the last wave, regardless of their individual size. This decision has been consequently criticised by many stakeholders and some shopping centre owners endeavour to amend the decision. 

On the other hand, epidemiologists admit that the release measures might be reduced, should the number of newly infected people increase to around 400 people per day (currently fluctuating around 115). 


16 April

The Chamber of Deputies has approved the extension of the state of emergency until 30 April 2020, which includes closed borders and movement restrictions.  

However, the Health Minister said that the uncontrolled spread of the coronavirus has been halted and it is possible to prepare for a gradual return to normal life, as the share of positive cases among the overall number of conducted tests continues to fall. Consequently, on 6 April the Czech Government approved the easing of selected emergency measures and a system of a smart quarantine using mobile operators’ data has been put in place.  

A widespread discussion about the COVID-19 measures and its impact on the economy has been in full swing. In its analysis, the Czech National Bank said that the economy slowed even before the outbreak of the pandemic. However, restrictive measures do not trigger a classical recession, it is the immediate shutdown of some parts of the economy. Therefore, the Government has adopted a wide range of fiscal measures and is preparing to release restrictions. 

In March, the unemployment rate in the Czech Republic (3%) was not yet affected by measures to counter the spread of the coronavirus and showed a much better result than the markets were expecting. That said, many expect the coronavirus to impact the unemployment rate over time to 8%.

Preliminary Q1 2020 data on real estate markets show about 75% y/y decline of investment activity in the Czech Republic. Office transactions were down by two thirds. 

 


9 April

It has been 3 weeks since the start of the state of emergency in the Czech Republic and the Government proposed its extension at least until the end of April. However, current growth of the number of confirmed cases became linear and the strict crisis measures including restrictions of the free movement of people could be moderated soon.  

Meanwhile, impact of COVID-19 on Czech real estate became clearer: construction activity is expected to slow down in the short-term mainly due to foreign labour shortages and social distancing measures. This will cause delays in the completion of new office, industrial and residential buildings, and refurbishments.   

Occupiers have postponed many office leasing transactions, with companies more interested in shorter and more flexible lease terms. Retail and hospitality sectors are the hardest hit segments, similarly to the other European markets. There are both positive and negative effects in the logistics sector. On the one hand it is facing difficulties due to suspended deliveries of goods from abroad and the risk of employees being quarantined. On the other hand, the increasing demand for e-commerce will help the sector.  

The global pandemic has accelerated the implementation of digital technologies in many aspects: from a digitalisation of the school system, attempts to use telehealth solutions for at-home symptom checking or extensive use of contactless payments to the effort to sell more online. In the end, we may see a transformation of the Czech economy with many positive outcomes. 

 


2 April

Shortly after the first confirmed cases in the Czech Republic at the beginning of March, and prior to many other countries in Europe, the Czech Government gradually introduced strict measures to prevent an outburst of COVID-19, including obligatory wearing of face masks, closed borders, schools and most shops.

Subsequently, the number of patients among the most vulnerable elderly people as well as the number of dead is still relatively small, and the Czech healthcare system seems to cope with the challenge well. 

The Government has provided relief and compensation for Czech businesses. The Czech Republic had one of the lowest levels of public debt and unemployment in the EU before the crisis which promises a comparatively fast recovery for the Czech economy after the crisis. 

However, many companies are able to continue their business: the office based professions have successfully moved to the home office and e-commerce operators report up to four times the turnover they normally see this time of a year.

We are witnessing an unprecedented social cohesion in the whole Czech Republic with the common motto “We can do it together”. 

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