Commercial Real Estate investment in subprime locations: Case study of an office project in Zlin

Real estate investment in subprime locations is a risky undertaking. The investor needs to carefully analyze the local market, its saturation, as well as nature of a given project. This thesis focuses on analysis of an office asset development project in the location of regional city Zlin. Firstly, the theoretical background of the topic is analyzed through a literature review centered on the topic of real estate, real estate investment and investment strategies, and subsequently the most important drivers of asset performance. The theoretical knowledge is then applied to the analysis of the national and local office and investment market, as well as the market for flexible spaces. Combination of quantitative and qualitative research allows for formation of educated assumptions utilized in a complex real estate investment model. The model is used to analyze the impact of three main project specific areas – the alternative modes of operation, the impact of subsidization by the EU, and the potential for refinancing. The findings identified significant limitations to operation of flexible space solutions, mainly arising from the increased costs caused by a different regime cost allocation. The results suggest that investment in a subprime location in the Czech Republic, particularly in an A-class asset, is problematic without outside influence.