Czech Republic Czechs are still moody

Revenues did not show any significant movement compared to the previous quarter. Colliers estimates that total transaction volume in 2024 should reach the EUR 1.4 bln mark. This would indicate the end of a three-year period of decline and give hope that the Czech real estate investment market is bouncing back.

In Q1 2024, the Czech market saw a total of around EUR 545 million in capital invested in various types of commercial real estate. This was more than triple the volume compared to the previous quarter; an excellent result compared to the 15 pct decline for the CEE market overall. For the time being, the dominance of local or CEE investors continues. The most significant transactions in Q1 this year included the sale of OC Arkády Pankrác and the sale of a 50 pct stake in CPI PG's hotel portfolio.

While the purchase price for the 40,000 sqm Arkády Pankrác OC was approximately EUR 270 mln, with a yield slightly higher than the reported "prime yield" for Prague shopping centres, the 50 pct share in the Best Hotel Properties' portfolio consisting of eight CPI PG hotels was EUR 173 million, which, among other things, demonstrates the confidence in, and resilience of, the Czech real estate market; including the hotel sector.

In terms of benchmark prime yields on the Czech investment scene, there was no significant movement in any of the major asset classes in Q1 2024, nor do we believe that any of the recent investment transactions warrant a revision of our current yield stance. In our view, yields on prime office properties are at 5.50 pct, while yields on prime industrial properties are slightly higher at 5.25 pct. For the various retail sub-segments in the prime segment, yields on high street properties are at 4.50 pct, shopping centres at 6.00 pct and prime retail parks at 6.25 pct.
Josef Stanko, senior analyst at Colliers

However, the experts admits the market mood remains volatile. Some investors with whom Colliers has spoken believe that prices on the Czech market have not yet fully corrected and expect further declines in capital values. On the other hand, it is not surprising that property owners or sellers express a rather optimistic view of the value of their properties. However, despite differing views on pricing, experts at Colliers think that the gap between supply and demand is starting to narrow. This should support more transaction activity for the remainder of 2024. Another factor to consider is the expected future cost of debt financing. With the ECB expected to cut base rates later this year, such a move could facilitate negotiations and help narrow the cost gap.

With each passing month, a variety of assets are coming to market: such as the Myslbek mixed-use development in the centre of Prague 1, S-Immo's Hradčanská office centre in Prague 6, Nova Real Estate's portfolio fund selling 16 assets, and even several sale & leaseback industrial properties located in or near regional cities.

Colliers is convinced that property owners are trying to present opportunities that could pique the interest of investors still active on the market or even attract those who are still standing on the sidelines. However, the profile of many of these potential transactions could be described as value-add or opportunistic investments and are therefore more likely to attract established local investors who are willing to take long-term risks such as repositioning or refurbishing buildings.