There haven’t been many dull moments for Josef Wiedermann as MD of UBM Development Czechia. He took the helm of the Austrian-based development company in March 2020. First, the pandemic hit, leading to fears that the residential boom would finally end. Instead, the Czech National Bank unleashed a buying frenzy by dropping interest rates to nearly zero.
“It was really an incredible time,” says Wiedermann. “We could sell everything we had in stock until this summer, including some disposals for assets that didn’t fit our concept… None of us, even those who have been working in development for more than 20 years, have ever seen such a willingness of customers to buy properties.”
In addition to finishing, leasing and selling the office portion of its Astrid project in Prague 7, UBM completed its Andaz Prague hotel project in central Prague just as the city’s tourist market began to pick up again.
Rising interest rates, war and chaotic inflation brought an end to the easy times, though Wiedermann insists there’s still some demand for flats. “It will take longer than it did for the last two years,” he says. “But that was a crazy time.” Like most large, established players, UBM is looking for ways to take advantage of its size. Asked if weaker developers are trying to sell off projects yet, Wiedermann says many are hesitating before beginning work, but most are unwilling to compromise on price.
That’s a problem, he adds, because “the important thing is not to pay too much, because then the math doesn’t work. I see more offers now that are too high. My answer for one offer was that I could only pay half as much. They said that’s impossible, that they’d never accept it…Two months later they were back at the table.”
As for construction prices, UBM’s solution is to go DIY if tendering doesn’t work. “Normally, in the first round of a construction tender, the price is around 30% higher than what you need. In the second round it’s around 15% higher, and you arrive at the price you require in the third round.”
In one recent case, Wiedermann says, “we were at 20% higher than we needed, but they weren’t willing to go down further. That wasn’t feasible for us. So, we had either had to stop the project or manage it on our own.” They have decided for the second option. “It’s more demanding on us,” he says. “But I think it’s also the only way we can get to the budget we need so we can realize the project.”
So far, however, residential is the only thing Wiedermann is really in the market for. Hotels are off the table, for the time being, and he’s skeptical about anything but the best (located) office projects. “I think there is oversupply on the market and I don’t know when it will normalize…There are still companies who can offer space they don’t need for prices that you can’t beat if you build a really nice development.”
UBM recently announced its acquisition of a 3,900 sqm brownfield site on Na Plzeňce in Prague 5 – Smichov for 150 flats which it hopes to begin construction on next year.
UBM Development Czechia in 2021
Completed Astrid Offices (Prague 7)
Completed Andaz Prague (Prague 1)
Began Arcus City (Prague-Stodulky)
Began Astrid Garden (Prague 7)
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