Bohemian rhapsody

CZECH REPUBLIC Investment activity in the Czech Republic was particularly intense in Q3, when the country had the largest investment volume of any CE country. So where is all this increased demand for Czech real estate coming from at the moment? Some of the investors are the local players who have dominated this area of activity over the last few years, such as Czech Property Investments (CPI). At the end of August, CPI announced the acquisition of a 50 pct stake in the EUR 160 mln Copa Centrum Národní mixed-use development in Prague (50,000 sqm), and a few weeks ago completed a CZK 5.4 bln (app. EUR 217 mln) transaction to buy 19 office buildings across the country with a combined area of 122,000 sqm from PPF Group. But what is noticeable about the current activity is the reversal of the trend in recent years for local investors to take the lion's share of transaction volumes. According to data provided by Colliers International, last year more than two-thirds of the total investment volume came from Czech investors; however, this year a more "normal" investor profile has emerged, with Czech investors being reduced to a quarter of the total. UK investment in the country's real estate has risen to over a third, while Austrian, German, Israeli and Canadian investors account for the remainder.
Taking a mall in
At the end of September it was announced that Israeli investor Atrium European Real Estate had bought the 37,600 sqm gla Palác Flóra shopping centre in Prague for EUR 191 mln from AFI Europe and Avestus Capital Partners. This was shortly followed by the news of the acquisition of the 58,000 sqm gla Forum Nova Karolina and the 27,000 sqm gla Forum Ústí nad Labem malls (in Ostrava and Ústí nad Labem respectively) by London-headquartered Meyer Bergman European Retail Partners I (MBERP) and Canadian pension fund Healthcare of Ontario Pension Plan (HOOPP) in a EUR 300 mln deal. Shortly before this, Multi also sold its 50 pct stake in the 45,000 sqm Forum Liberec to Tesco (the holder of the other 50 pct) for an undisclosed sum.
According to Chris Sheils, director of investment services for Colliers International in the Czech Republic: "Local investment is still rising in absolute terms - nearly EUR 500 mln has been transacted by local investors so far this year, as opposed to around EUR 400 mln in 2010." But the truly remarkable statistic is that so far this year, according to Cushman & Wakefield's figures, the Czech Republic has had an investment volume of around EUR 1.9 bln, pushing Poland into second place with EUR 1.82 bln. Does this represent a significant shift away from Poland to the Czech Republic? Chris Sheils disagrees: "The market began to recover earlier in Poland. It just so happens that a number of larger deals have all closed within a short space of time in the Czech Republic after a couple of years of reduced investor activity," he explains.
In his view there has been a return to confidence in the Czech market, as prices have stabilised for the first time in a few years, and thus the time and the conditions are finally right for international investors to make their move. "Vendors can now sell into a buoyant market. There is a greater pool of investors and therefore a greater chance of finding a willing counterparty. I think what we're seeing is that investors are comfortable about the Czech Republic being a core investment destination. There have been fewer deals in the last few years, but the recent upswing in activity is a ringing endorsement of the Czech market," says Mr Sheils.
From the office to the shops
And it is not just the make-up of investors that is radically different this year, but there has also been a major shift between asset sector investment. According to Colliers' figures, in 2010 office deals accounted for 49 pct of the total volume, compared to 29 pct for retail. This year 57.74 pct of the transaction volume was for retail properties, while office deals have fallen to 26.71 pct (logistics investment has risen from 2 pct to 15.56 pct over the period).
"This doesn't mean that interest in office properties is falling," asserts Mr Sheils, "but just that a number of large retail transactions have closed recently, and in general retail transactions are of a larger lot size than office deals. Furthermore, there has been a constrained supply of major office properties on to the market. There is still a strong pent-up demand for offices, and in the next 6 to 12 months more office projects will be brought to the market that will help to demonstrate this demand."
Recent transactions outside the retail sector include London-based Tristan Capital Partners' October acquisition of an 80 pct stake in a portfolio of six logistics parks from VGP for around EUR 140 mln, and later in the month the announcement that US-based Invesco Real Estate is to buy the Futurama Business Park project in Prague 8 in a transaction worth EUR 50 mln (a total of 41,300 sqm office space in four buildings is planned for the complex, with the first 14,000 sqm stage having already been completed). Both prime Prague office and prime retail yields at the moment are at around 6.5 pct, while logistics yields are at 8.5 pct, with Colliers expecting yields to slightly compress further towards the end of the year.
Nathan North