Volume of investment in commercial real estate in the Czech Republic is declining

The total volume of investment in Czech commercial real estate amounted to EUR 190 million in the third quarter of this year. This was a 48% decline quarter-on-quarter. Czech investors continue to be the most active buyers, accounting for a full 80% of all transactions in the Czech Republic this year. Yields on prime Czech real estate are 5.25% for office properties, 5% for industrial and logistics properties and 6% for shopping centres. Taking an optimistic view, annual investment volume is expected to reach approximately EUR 1.3 billion by the end of the year according to a survey by Colliers, a leading provider of diversified professional services in commercial real estate and investment management.

"Although the number of transactions recorded in the last quarter was similar to previous quarters, most of them were under EUR 10 million. Total volume measured in terms of capital value, however, is on a downward trend," points out Josef Stanko, senior analyst at Colliers, adding that the total volume of investment in Czech commercial real estate in Q3 this year was EUR 190 million, a 48% decline quarter-on-quarter. Total investment market volume from Q1 to Q3 was approximately EUR 953 million, down from the same period in both 2021 and 2022. This represents a 21% decline compared to 2021 and a 28% decline compared to 2022. "These results are not surprising given that investment volumes in the CEE region in Q3 2023 were among the lowest on record. What is striking, however, is that the decline in overall volume in most other CEE countries was much stronger than in the Czech Republic, with drops ranging from 65% to 72%. In comparative terms, the Czech Republic is much better off in terms of investment activity," adds Josef Stanko.

Czech investors most active.

The most significant transaction in Q3 was the sale of the Via Una building in Prague 1 to Trinity Bank for approximately EUR 90 million. The property is a recently renovated historic building in the city centre, which the bank will use as its new headquarters. Other notable transactions included a large retail park in Trutnov and the older Zirkon office building located in the popular Karlín office district in Prague 8.

Volume share by asset class in Q3 was skewed by the Via Una transaction, which alone accounted for almost half of the total and represents the third largest transaction of the year. As a result, office space represented a 67% share, followed by retail with a 24% share, while industrial and residential properties accounted for the remaining 9% share.

Czech investors continue to be the most active buyers. They accounted for 80% of all transactions in the Czech Republic and also accounted for almost one-third of the EUR 3.2 billion investment volume in CEE. Geographically, the Czech Republic also took a 30% share of total capital invested in CEE. These figures illustrate the importance of Czech capital and the country itself within the overall CEE investment scene.

Yields lowest in Central and Eastern Europe.

Yields on prime properties are 5.25% for office properties, 5% for industrial and logistics properties and 6% for shopping centres. These yields represent a year-on-year increase of 25 to 75 basis points, but they are still currently the lowest in Central and Eastern Europe.

"Earlier in the year, we adjusted our view of key yield metrics upwards across the major sectors. We still believe there is a gap between the bid and offer price, and this is one of the factors that explains the lower transaction volumes," comments Josef Stanko, adding: "We acknowledge that prime property yields could shift further, but for the time being we have kept yields at the same level as we reported in Q2 due to the limited number of prime property transactions."

What can we expect from Q4 and from 2024?
Although it is often said that the Czech real estate market is in its own stable bubble due to its characteristics, it is experiencing, in terms of investment, trends similar to those seen across Europe, i.e., lower transaction volumes and asset revaluation.

Increased activity in investment transactions is normally expected in the last quarter of the year. An optimistic view would suggest that annual investment volumes could reach around EUR 1.3 billion by the end of the year. As for the outlook for next year, given moderate economic growth, persistent inflationary effects and little prospect of falling interest rates, we expect the Czech real estate investment market to face a challenging period.

"International institutional capital will likely take a more “wait-and-see” attitude towards the Czech market, while domestic investors with so-called dry powder will be more comfortable buying assets in their home market. Needless to say, both groups will continue to be specifically interested in transactions that, in their view, reflect fairly the trend of market overvaluation and which can be concluded with attractive risk-adjusted returns," concludes Josef Stanko.