Investing in the Czech Republic – Outside of Prague – Part 1: Brno Property

Imagine if you had bought property in Prague 8 years ago….

Brno property has been getting a lot of exposure lately. And for good reason. Attractive deals in Prague are getting harder to find. Attention is beginning to turn elsewhere.

Brno is the second largest city in the Czech Republic. Being the business capital of Moravia it boasts some big name companies such as IBM, Siemens, Minolta CR, Honeywell Controls and FEI.

At the end of March 2005, RyanAir began daily direct flights from London to Brno. Flights from Dublin to Brno are rumored to be next on the list of priorities.

In 2008 a major motorway is planned to be completed that will link central-northern Moravia with Poland making the area more attractive for Polish investors and traffic.

Currently, property prices are a third of what is available in Prague and there is a strong and growing rental demand for quality properties.

What are outside sources saying about Brno?
The city of Brno has won the competition for European City of the Future 2004/2005 which is organized by the prestigious FDI magazine, a Financial Times publication, in the category of Visegrad group cities. It even beat out Prague and Budapest.

“Brno’s fast economic growth and high GDP-per-capita helped to push it ahead of other cities in the region. The judges also gave top marks for its economic potential and recent FDI deals involving UK-headquartered engineering firm IMI International, US technology group Honeywell and US advanced engineering company Danaher Motion, which between them created 900 jobs. Brno also scored well for its international promotion strategy and incentives.”

Swiss company Aguna chose to build their new plant in Brno. The company intends to invest almost 250 million crowns during the first two years. They will be able to employ at least 80 people in production and development of precision instruments. A large part of the employees will be college-educated specialists.

“The quality level of the work force was the deciding factor for Aguna.”

“Their representatives are convinced that they will find engineers in Brno who are just as capable and qualified as in Switzerland,” said Tomás Bohrn, Project Manager at CzechInvest, and added: “This precision engineering project demonstrates the huge potential of Brno as well as the South Moravian region to attract technically advanced engineering R&D investments.”

Daikin Industries Ltd. is a world leader in the production of modern air-conditioning equipment. After the double-billion investment in Plzen, the Daikin company has decided to build a new factory for the production of compressors into air-conditioners in Brno. In the first stage, the company intends to invest 1.2 billion crowns and to create more than 500 skilled jobs.

“Our decision to invest at first in Plzen and now also in Brno is strategic and very important for the future. The Czech Republic should become the important base for our production for the fast-growing markets of the European Union,” says Jiro Tomita, General Manager of Daikin Europe, and continues: “The factory in Brno will deliver compressors to our subsidiaries in Plzen and in Oostende, Belgium. It is the compressors that are the most important part and ‘heart’, which secures the functioning of air-conditioning units.”

Symbol Technologies launched operation of their new centre in Brno for shared customer support and financial services for Europe, the Middle East and Africa (EMEA). Symbol Technologies has already invested more than seventy million Czech crowns into technological equipment and within three years plans to set aside another almost half a million crowns for wages, training and operation. The centre will initially employ 200 people and this number is expected to increase by another 550 employees.

“We chose Brno for several reasons, namely the good offer of qualified labour, a good site and the good position of Brno in proximity to Symbol’s existing centres and customers in Europe,” said Steve Priestley, Vice President and General Manager of Symbol for EMEA. “By concentrating repair, customer call support and administration of finances, contracts and orders into one European centre we will be able to improve the overall standard of our services and keep it at a high level for the long-term.”

Austrian-German producer of health care and hygienic products Lohmann & Rauscher announced publicly the end of December, 2004 that they will build their new plant in South Moravia. The company is investing more than 41.5 million euros into expansion and modernization of its production facility here and will create over 160 new job opportunities.

“While the company in Germany concentrates on a selected part of health care products like plaster casts and bandages, we are gradually transferring production of medical dressings, operating masks and other surgical products to the Czech plants. Production at the enlarged plant in Slavkov near Brno should be launched within two years and the main customers will be the European subsidiaries of Lohmann & Rauscher,” said Rudolf Vonys, procurator of Lohmann & Rauscher s.r.o, and added: “Our final customers are health care facilities all over Europe, for example German, French and Austrian hospitals and Dutch, Swedish and Italian pharmacies.”

Japanese Company Ohmori Technos Corporation has decided to build a new factory in the area of Brno. At the outset, the company will invest about 15 million euros. Estimations suggest that at least 150 new positions will be provided in the Brno area. Production in the new plant is scheduled to start by the end of 2006.

“Today, the Czech Republic is known as the center of industry in Europe. In fact, a broad range of Japanese companies have successfully established their plants in the country. Assessing these situations, we have decided to carry out this investment,” commented Fumio Ohmori, president of Ohmori Technos Corporation.

The world’s largest airline, Lufthansa from Germany, has officially committed, as of the end of February 2005, to opening a new shared services centre in the Moravian side of Czech Republic. The new centre, which will be located in Brno, will assist customers of Central and Eastern Europe. It is expected to employ up to 100 people. This tenth call centre for Lufthansa, named Global Telesales Brno s.r.o., will start operations on June 1st 2005.

“Central and Eastern Europe is a strategic market for us where we plan in the coming years to double the volume of our activities,” commented Stephan Semsch, Lufthansa’s Director for Central and Eastern Europe, and added: “We thoroughly assessed 30 possible localities in total and ultimately chose Brno for its strategically favourable position within the region and its proximity to the important airline hubs of Munich and Frankfurt. Other great advantages of the Czech Republic are its membership in the EU, quality telecommunications and technical infrastructure and the motivated, qualified and cost-effective work force.”

Daido Metal, producer of bearings for the automobile industry, signed an agreement on future agreement on the purchase of land with the city of Brno today to build a new production plant. The investment of Daido Metal will amount to nearly 13 million euro and the plant will employ up to 100 persons in the first stage. The production should be launched at the beginning of next year.

“The Czech Republic has a very strong position in Europe in the automobile sector and even many of our clients have their production plants here. The production of our Czech plant will cover the demand generated both in the Central European countries and on the entire continent,” says Issei Yoshida, Managing Director of Daido Metal Europe.

“Our Czech branch, Daido Metal Czech, will be the first company within the entire group to operate fully independently, without a strategic partner from the same field. The only partners in the Czech Republic will be the locals, in particular in the area of technical engineering and development, We also intend to cooperate with the city of Brno,” says Tetsuro Nishiyama, Managing Director of Daido Metal Czech s.r.o.

Acer, the major manufacturer in the notebook sector will opened a new service center, with a related call-center for customers in Europe, Middle East and Africa (EMEA). The Acer shared services centre opened on July 1st in Brno, within the industrial complex Cernovická Terrace and is expected to provide at least 60 new jobs.

“We have been experiencing great market growth in the last two years in the countries of Europe, Middle East and Africa. The new centre will replace the current solution, where customer service is being provided via external service providers,” stated Stefan Engel, Region Manager North + Central Europe and added: “Our goal is to provide even better support to all countries involved in their native language and double the staff within one year.”

GigaByte Technology, a producer of computer components, is building a high-tech repair centre in Brno – Cernovicka Terasa where customers from all over Europe will send their laptops, graphics cards and motherboards. 25 million CZK is being invested with a projected 50 employees being required.

GigaByte Technology chose the Czech Republic over the other Central European countries, including Hungary, which was the Czech Republic’s main competitor. Brno won mainly owing to its quality infrastructure and sufficient, qualified work force.

The service centre will be built in Brno despite the fact that the company will not be receiving government investment incentives. Its executives thereby confirmed that Czech Republic has a lot to offer foreign investors.

Progeon Ltd, a leader in third party outsourcing in India, has completed its first phase of its project in Brno. The company currently employees 80 people in its downtown Brno office and provides process management services in sixteen European languages. Future growth plans will eventually offer career opportunities for hundreds of people from Brno and the surrounding area.

“The Czech Republic is an attractive destination for companies like ours that hope to reach a wide European market,” said Akshaya Bhargava, managing director and CEO, Progeon Ltd. “Brno has excellent infrastructure and facilities, a supportive government, and people with multiple language skills.

The best quality and most beneficial industrial zones in the Czech Republic were handed awards by the Czech ministers. The fifth annual “Industrial Zone of the Year” awards were presented according to the recommendations of the Ministry of Industry & Trade and CzechInvest in cooperation with the Association for Foreign Investment (AFI) and partners in the “Partnership to Support Foreign Direct Investment in the Czech Republic”.

The award for Industrial Zone with the Most Economic Benefits was given to the “Cernovicka terasa” Industrial Zone in Brno, while the Zone with the Most Social Benefit in 2004 was the Ostrava Hrabova Industrial Zone – 1st Stage. The Industrial Zone with the Best Town Planning Solution is being prepared by a private developer in Ostrava — CTPark Ostrava, and the “Brownfield of the Year” was won by the Skoda Plzen Industrial Zone.

Brno is a city that is going places. All indications strongly point that way.

But let’s see some numbers. What are flats currently going for in Brno and what could we expect for rental income?

Studio apartment (1 + 1). Seven minute walk to main town square. One minute walk to trams and biggest park in the downtown Brno area. Newly renovated apartment in a heritage building. Listed price 750 000 CZK. Est. Rent: 8000 to 9000 CZK

Two bedroom (3 + 1) flat on Merhautova St. Completely reconstructed. One minute walk to the trams. Balcony. 90 m2. Big storage space in the basement. Asking price 1 590 000 CZK. Est. Rent: 12000 to 13000 CZK

Three bedroom (4 + 1) flat in heritage building. Eight minute walk to downtown square. One minute walk to the trams. Window view of the biggest park in the downtown area. Newly renovated. Balcony off the master bedroom. Around 140 m2. Est. price 2 500 000 CZK. Est. Rent: 14000 to 15000 CZK

At Czech Point 101 we are not going to hype you with inflated figures. All prices are based on our analysis of living and working right here in the Brno market.

One of the most important things about buying investment properties is the neighborhood you buy into. We can advise on the current ‘hot’ areas and those that will be getting attention in the near future. Contact me at any time, for free, to get more information about the Brno real estate market or start progressing on investment properties now.