It's always preferable not to hurry when it comes to market activities of any kind. It's always better to go on a sustainable pace rather than to see how your investments lose ground because of imprudent market strategies. Everyone remembers what happened in Japan or South Korea when businessmen made wrong projections of their activities in the future. The huge investments turned counterproductive and many businesses went bankrupt. Needless to remind that even today Tokyo can't attain the real estate market price and rent levels of the late 80s. The similar situation went on Wallstreet a year ago. Before that for months and years the share prices bubbled without any link with the expected profits. The only question was not whether but when this bubble will burst. The question whether the US economy will fall into a recession this year is disputable but there is no doubt that the investors on NASDAQ will have to wait many years before recovering from their losses.

These facts are only extreme examples of a true economic nature. Its first rule is that you can't for a long time pretend to be what you aren't. The second following the first is that it will come a time (sooner or later) to pay the excesses. So if you want not to be among those who pay the bills, you have to be ready to leave the party before it is too late.

These rules are very simple but the human nature 1) Is the same anywhere in the world and 2) Never wants to learn the lessons of the past.

So it's not very surprising that the same phenomenon that has shaken the markets in the developed countries like the USA or Japan may produce negative effects in some less developed states in transition such as the Czech Republic.

When this country began its transition towards the market economy the process was considered by almost all experts as one-way road without major hurdles and setbacks. The prices and rents on the real estate market were seen as going only in one direction - upward with expectation that some day they will reach the average market levels of the European Union. The investors were lured by the market bubble and didn't notice how the office supply was accelerating while the demand growth remained relatively slower. Then in 1998 came a moment of truth - a small financial crisis that forced investors who have put their money in new development projects to began to pull out.

Before the crisis, in 1997 the office market in the capital of Czech Republic increase by 50 000 sq.meters (1 sq.meter=10 sq.feet), in 1998 - by another 100 000 sq.meters. In 1999 were finished another 200 000 sq.meters which remained largely vacant. The market reacted and in 2000 the new office spaces were cut to 150 000 sq.meters. For 2001 the forecasts are for only 100 000 sq.meters. i.e. the level of 1998.

The result of this quick oversupplying of the market with A-class offices in Prague* was the downfall of the rents. If before the crisis the average monthly rent was $60/sq.meter, now it has fallen to $35/sq.meter**. The true rents are even lower because the landlords are offering up to 3 months rent free to attract constant clients***.

* - The two-thirds of the office surface in Prague was built in the last 10 years.

** - In Prague the rents are linked with the German mark but are paid in Czech Koruna. On 1st January 2001 it is expected that the rents will be linked with the Euro which then will replace the national currencies including the German mark.

*** - The lease lengths are in general 5 to 10 years and the rent update is made annually according to the inflation in Germany.

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See also the directory of companies providing real estate services in, and general real estate information of Czech Republic.