December 20, 2019

Transaction volume in commercial real estate in 2020 will reach €3 billion in the Czech Republic

Transaction volume in commercial real estate in 2020 will reach €3 billion in the Czech Republic

CBRE predicts a positive trend in commercial real estate investments for 2020. Next year investments in hotels will continue to grow, and office buildings will be the most demanded.

"The interest of investors in Czech commercial real estate remains high; we’re monitoring more than twenty running negotiations at the moment, that some of them still may be closed before end year or will be closed during 2020. For the upcoming year, we predict a total transaction volume of around €3 billion. We believe that this will continue into 2020 where offices will be a key target sector but that also alternative sectors such as hotels and commercial residential will be in demand. We have already seen a shift towards hotels during 2019 with properties such as the Carlo IV, Intercontinental and Don Giovanni hotels, trading for example," says Chris Sheils, Head of Investment Properties at CBRE.

Prime yields in the office sector and high street will remain at the same level — 4.25 percent and 3.5 percent, respectively. Prime yields in the industrial sector will drop to 5 percent, and slightly grow to 5 percent in retail.

Vítězslav Doležal, Associate Director Investment Properties at CBRE, adds: "Central banks are set to keep pumping money into financial markets and economies next year. Besides the favorable debt financing conditions, funds constantly receive strong inflows. Therefore, prices of office and logistics buildings on the Czech market went up by approximately 10 percent in 2019, and we do not expect these segments to be cheaper next year."

CBRE expects the total volume of 2019 investments in retail, office, industrial & mixed-use sectors to be approximately €3 billion, which includes 65 closed transactions. In 2019, transactions in the office sector are expected to reach €1.2 billion, which is approximately 40 percent of the total volume. The hotel sector follows with 20 percent of volumes, which this year showed a significant increase. Retail is expected to also account for around a 20 percent share of the overall investments and the industrial sector should be around 10 percent.

"Investment volume in the retail sector have suffered slightly due to the decline in demand of foreign investors. This is part of a wider global trend reflecting problems in the retail sector in the US, UK and other western European countries. However, the retail market in the Czech Republic is very healthy and powerful. Turnovers in shopping centres grew by some 35 percent during the last five years, which is an exceptionally positive result and why we continue to recommend investments in retail real estate," comments Katarína Brydone, Head of Retail at CBRE.

Jakub Stanislav, Investment Properties & CEE Hotels Director, adds: “We have seen strong interest across the risk profile in the hotel sector in the region from the core leased hotel product to properties with the potential to unlock upside through renegotiating management agreements and rebranding. In the residential sector, we have seen transaction volumes triple across Europe in just over 10 years and that demand is finally starting to hit the Czech market. We expect the hotel sector and residential investment to grow significantly in 2020.”

5 biggest transactions in the Czech Republic in 2019

Waltrovka EUR 250-260 million Hanwha Investment & Securities (GLL) Penta

Hotel Intercontinental EUR 220-230 million R2G Best Hotel Properties/ J&T

Rustonka EUR 160-170 million Hana Financial Investment (White Star) J&T Real Estate

Amazon Dobrovíz EUR 140-150 million Samsung Securities (Roebuck Asset Mgmt) AEW Europe

Main Point Pankrác EUR 130-140 million Hana Financial investment (Mint Investments) PSJ Invest

The greatest volume of investments in commercial real estate during the past five years was in Prague, accounting for 62 percent of the total volume. In 2019 alone, investors showed even a higher-than-average interest in Prague reaching as high as about 80 percent of closed transactions.

Czech investors have continued to grow their influence on the domestic market and in 2019, they were the most active single nationality active in the Czech market.

The share of Czech investors is growing: while in 2015, the share of Czech investors in the total volume of transactions was about 23 percent, in 2019 Czech capital had around 40 percent of the total volume. South Korean investors were also very active this year, having almost a 20 percent share, followed by Germans with 10 percent.

Vítězslav Doležal, Associate Director Investment Properties at CBRE says about Czech investors: "During the past three years, CBRE closed almost 30 transactions with top Czech investors in the total volume of more than 30 billion crowns, which makes it the market leader. These investors are REICO, CPI, WOOD & Co, ZFP, DRFG, Investika, Raiffeisen’s reality fund or Trigea, to name but a few. Investments in Czech retail was dominated in 2019 by Czech capital with more than a 65 percent share."

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