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Czech Republic: The quality choice for manufacturing

Thanks to its strategic location, next to Germany, in the centre of continental Europe, the Czech Republic is a highly attractive place for manufactures to near shore operations. It also provides an environment to progressively compete for cost-effective, value-added manufacturing, supported by a highly skilled workforce. The Czech Republic’s industrial real estate market had a record year in 2013, with over 1 million sq m of leasing activity. This is set to be mirrored or exceeded in 2014 with a great deal of new activity being recorded, especially in the regions bordering Germany, with Pilsen being a prime example of this.

“The Czech Republic has developed a fantastic reputation in terms of a great combination of a highly skilled, competitively priced workforce, great infrastructure, top quality class A industrial premises and is strategically situated in the heart of Europe. The recent increase of the minimum wage amount on the German market is only adding fuel to the fire, emphasising the aforementioned qualities of Czech Republic and increasing the popularity of it as an industrial/manufacturing destination,” says Harry Bannatyne, Head of Industrial Agency at JLL, and continues: “Two very good recent examples of this would be Johnson Controls and allyouneed.com who are both servicing German clients from the strategically located Pilsen region in Bor. These are both located on the D5 highway, within easy reach of the German border, which is only 10 minutes by truck and is estimated to save at least 10%-25% on industrial rental costs. In addition, with average labour costs being up to 3 times lower than in neighbouring Germany,  we believe many more names will be added to the list by the end of 2014.”

Harry Bannatyne adds: “Smiths Medical is a another great example of how the Czech Republic can attract such blue chip investors. Favourable conditions in the Czech Republic allowed Smiths Medical to be able to react faster to the ever changing and evolving European consumer market, helping to lower overall operating costs but maintaining a very high standard of a final product.“

Smiths Medical, part of Smiths Group, is a leading global provider of medical devices and equipment for the healthcare industry. Worldwide the company employs over 7,500 people, with manufacturing concentrated in the US, UK, Italy, Mexico – and from 2013, the Czech Republic. "Smiths Medical chose the Czech Republic to expand its operational base in Europe to serve our European customers and EU markets. The key benefits included the country’s stable economic base, its strategic location within Central Europe, the availability of highly skilled labour and the over cost effectiveness. After considering other locations in CEE and the Czech Republic, Smiths Medical chose to locate its CEE production base in Hranice, in northern Moravia, near the University cities of Olomouc, Ostrava and Brno. The location benefits from a combination of lower total operating costs, direct access to the European motorway networks and close proximity to skilled labour and a regional supply base,’’ says Mark Kelleher, Vice-President, European Operations at Smiths Medical.

The Czech Republic continues to attract a large share of Foreign Direct Investment (FDI), most recently with new investments from Nexen (tyres), Hyundai Mobis (automotive components) and Bell Helicopters. Among the strongest arguments for the foreign investors is the fact that the Czech Republic has the highest country ranking in CEE from all three major rating agencies and a good level of market transparency. Moody’s have ranked the Czech Republic A1, Fitch giving the rank of A+, both of them confirming the stable outlook. S&P ranked the Czech Republic at AA–. According to the JLL Global Real Estate Transparency Index, based on a combination of quantitative market data and information gathered through a survey of the global business network of JLL and LaSalle Investment Management, the Czech Republic has a transparent real estate market which is closing the gap with Western Europe.