Coronavirus: Rental of Residential Properties

1. What effect is coronavirus having on the residential rental market?

Since March 2020, tenants have suspended their relocation plans, either due to caution, uncertainty or changing circumstances. There has been a decrease in the number of foreigners living in Prague, and at the same time new ones are currently not moving here. Some people have left Prague because their industries were affected by the lockdown and they were let go from their jobs. This applies, for example, to employees of hotels, restaurants, etc. We are also seeing a decrease in foreign and domestic students currently living in rented flats. With the shutting down of the influx of foreign tourists, the real-estate market was flooded by inexpensive apartments usually reserved for short-term rentals. Especially in locations where there has been an increase in the supply of these flats, it is often necessary to reduce the price in order to motivate interested parties to rent. Apartments that are not in some way exceptional are now much harder to rent in these areas. Most of these flats are fully furnished studios or 2 + kk flats. On the other hand, properties that have something special and or are in a premium location are still renting very well and there is no need to go down much with the price. A unit with a terrace or garden on an attractive street has a great advantage. There is always a limited offer of these apartments. The impact of the pandemic has been smallest in the family house market segment; huge villas are being rented for practically pre-pandemic prices. Another phenomenon that we have been seeing in this time of Coronavirus is a greater tendency for renters to be picky. It has also stimulated a kind of "real estate tourism"; people are not even planning to move go to see property out of simple curiosity. Clients tend to bargain more. Occasionally, some existing tenants try to manipulate owners to negotiate a lower rental price or a contract extension on more favorable terms.

2. What are the most common questions now being asked by owners / clients?

• How will the market develop and what will prices be like?

No one has a crystal ball, and experts often differ across disciplines. However, the idea of ​​ the situation normalizing within 6-12 months appears to be a common one, on the condition, however, that there will not be a recession caused by widespread quarantine and global paralysis of the economy, or by a second wave of restrictions. We do not expect a drastic drop in rental prices. If so, we imagine a maximum of about 20%. People will still need to have somewhere to live and Prague is still an attractive place which, with the exception of 2013, is experiencing a steady increase in population.

• The tenant wants to reduce the price. Should I accommodate him?

It is a good and fair gesture to help a tenant in a difficult situation where, for example, his business has slowed down significantly or his employer has reduced his salary. A temporary reduction in rent is fine in this case, although we have information on tenants who have not been significantly affected and are demanding drastic discounts of up to 50%. Each situation can be a little different and it is good to consult your business advisor on how to proceed in a particular case.

3. What is the current situation on the residential rental market?

After a very weak April, market activity as of May is starting to increase again. People seem to be going forward with their plans where they left off in March.  Some optimism is returning;  small and large companies are carefully resuming operations and their employees are back at the workplace.

4. What developments are the expected by the end of 2020 and where do you see new opportunities?

We hope the situation is going to improve in the second half of the year. We are focusing on being prepared for a possible "delayed season"; after travel restrictions are released there may be a renewed influx of residents to Prague - corporations employees, managers, entrepreneurs and students. It is probably not going to be a massive shock wave, but rather a gradual increase in newcomers. However, it is also possible that the development will more closely resemble that seen between 2010 and 2013, when the migration of newcomers to Prague gradually decreased into negative numbers.

In general, the opportunity lies in the activity and the effort to get the most out of a difficult situation. Investors will re-evaluate and buy. Strong players in the short-term rental market will take over some of the weaker and less professional ones. Tenants can get a better price for housing for at least a year or two. Owners have a chance to improve how they administer their property and protect their returns if they start working with professionals and strong brands in the real estate market.