Your favourite restaurant may be replaced by a franchise. New brands are coming to the centres, tradesmen are disappearing from them
Not only Prague, but the shopping streets of other major Czech cities are about to undergo the most visible change in five years – and perhaps even a decade. Landlords have been forced to reflect at least some of the inflation in rents and are increasingly favouring new concepts of space use. Especially in larger cities, however, the customer can profit from this mix: new brands will come in, often represented by those trying to profile themselves primarily by low prices, notes Jiří Skotnica, head of the valuation department at consultancy RSM.
The last 24 months have been turbulent for the Prague parterre. It has been associated with a significant increase in rents, and while those who pay rents in euros in shopping centres and logistics parks, for example, paid on average about 10% more, according to RSM statistics, the difference in the case of crown rents is 16% compared to last year. “In the case of premium locations in tourist-exposed places, it is up to CZK 2,000 per meter,” Skotnica adds. Subsequently, the energy crisis, coupled with a rise in other operating costs, has caught up with everyone without exception. However, for many shops, catering companies and services, this increase in costs also meant the end of their business.
As far as rents are concerned, this year saw higher indexations reflecting high inflation, which landlords were partly able to reflect in rents. According to Jiří Skotnica, head of the valuation department at consultancy RSM, we are in the midst of quite rapid changes, at the end of which we will see a new shape not only of Prague’s rents.
“As always, when the margin space decreases, the market will basically divide into two groups. Into entrepreneurs who can do their business with high added value and at above-average money, and those who can generate profit through quantity and tend to undercut themselves on price,” Skotnica explains. “And accordingly, they are steaming for available business space. But the change should primarily benefit customers.”
Restaurants, bistros and cafés, at least in Prague, can rely on the fact that demand for quality gastro remains relatively high and that Czechs have so far been able to accept higher prices. The years-long extinction of “threes” and “fours” is thus entering its final phase. This is conducive to a significant professionalisation of gastro as a premium service. Followed hand in hand by the emergence of concepts from the opposite end of the spectrum, offering limited service in exchange for lower prices.
“In the Czech Republic, I expect a combination of the ‘New York’ and ‘Berlin’ or ‘Warsaw’ model. On the one hand, restaurants where you pop in for lunch once every couple of years and where you have no chance of getting in without a reservation, on the other hand, a combination of fast food and ‘vending machines’ for the 21st century – that is, concepts that we know from, for example, foodcourts in shopping malls,” Skotnica enumerates.
The very first street to undergo such a change was Prague’s Vodičkova Street, where the first McDonald’s went up in 1992 and KFC two years later. “Today in Prague, franchises are expanding into the centres of individual city districts, and in the case of gastro, you will often find Czech and foreign chain concepts right next to each other,” says Jiří Skotnica of RSM, adding that in the case of Brno, the centre is particularly popular, where franchises and chains are also significantly represented, and a similar trend can be observed in Liberec, for example, and it is far from being limited to restaurants. It is also supermarkets that are opening new, smaller but premium stores in the city centres. The trend of boutique outlets should follow in the future.
The changes in the commercial real estate market are well illustrated by another phenomenon: the growing interest of brands that have not been present in the Czech Republic before and that now identify it as an important market. Their appetite is increased not only by the growing purchasing power of the metropolitan population, but also by the chances of acquiring a suitable business location. And this applies equally to establishments that need hundreds of square metres, as well as to large stores that require several thousand of them. And it doesn’t always have to be brands that undercut on price.
“For new players, two important things are coming together – a significant change in the mindset of the Czechs, whose middle class has become so rich in recent years that it is no longer price-sensitive on such a large scale. And then also the ability to ‘sniff out’ good commercial space, without which their business cannot be done and which becomes available literally once a decade. Particularly in the city centre and the wider centre, there is still a shortage of good premises with adequate facilities, and this is illustrated by the speed with which the parters of new developments fill up immediately,” Skotnica mentions.
Thus, the Czech Republic is opening the way for new franchises – whether gastronomic or retail – thanks to moves in prime locations, for example. Many of them will be entering the market after years of waiting for suitable premises and they will continue to compete for rent not only on price. For example, Duck Donuts, Pizza Inn, Pepe Taco or The Good Burger are currently looking for franchisees in the Czech Republic, and there is already official talk of opening the first restaurant of the Five Guys chain in 2024. In the field of technology, the first Czech Google Store will compete with the premium iStyle store in Prague’s Masarycka district next year. In fact, owners learning from the coronavirus crisis are paying increased attention to the mix of their tenants – the key is to have a mix of retailers in the business units that are resistant to economic shocks and attractive to a new generation of customers and visitors.
