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Demand for warehouses and production halls remains stable - automotive and rent reduction contributes

The domestic industrial real estate market had an interesting quarter in several respects. Data from the real estate consultancy 108 REAL ESTATE show that while 357,000 sqm of warehouses and production space was leased in the second quarter, 335,000 sqm of industrial space was leased from July to the end of September. Of these, 207,046 sqm were new contracts. The result was also achieved thanks to several successful international tenders from manufacturing companies that opted for the Czech Republic on the basis of improving lease conditions.

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Demand for commercial real estate in the Czech Republic is growing - capital comes mainly from domestic investors

Owners of several large shopping centres in the Czech Republic are looking for new owners or investors. Yet, surprisingly, it is residential real estate that has the domestic commercial real estate investment market on track to surpass the EUR 2 billion mark this year. Moreover, both the second quarter and the two summer months have shown continued activity by domestic funds and real estate investors. Czech capital accounted for more than 90% of all transactions in the past quarter. The total balance of over EUR 500 million was affected by the sale of the former Komerční banka headquarters on Wenceslas Square, which was acquired by the City of Prague for EUR 140 million as its future headquarters.

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The development land market is reviving. However, one of the reasons is the problems of companies

The market for development land and older, mainly industrial buildings and premises in the Czech Republic is reviving after a long period of stagnation. This would probably be positive news if the acceleration was not caused by the economic downturn in some sectors or even the closure of many companies in the Czech Republic. For many of them, selling surplus real estate or land intended for future expansion is one of the few ways to avoid economic loss. According to real estate consultancy 108 REAL ESTATE, which specializes in this type of transactions, the increase in ownership transfers is also due to price leveling and fear of land unavailability due to the expected stricter protection of the agricultural land fund.

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Several strong impulses await the investment market

The volume of real estate transactions in the Czech Republic should approach the usual EUR 2 billion this year. This is indicated by several large deals negotiated in recent weeks. Domestic capital remains the main driver of the investment market - notable is one of the biggest changes of ownership in recent times, the sale of OC Arkády Pankrác, which was acquired by the Czech real estate fund Trigea from the Partners group. The deal will not be reflected in the investment balance until this year due to the review by the Office for the Protection of Competition. According to real estate consultancy 108 REAL ESTATE, this will not be the only retail property: the evergreen retail parks will be complemented by the acquisition of several shopping centres or shopping malls.

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Stricter protection of agricultural land will also significantly affect the industrial space market

The amendment to the Agricultural Land Fund Protection Act, which was approved by the Government last October and is expected to be adopted by the Chamber of Deputies in the first months of this year, will have a significant impact on the construction of production and warehouse properties in the Czech Republic. It will have an impact on the planning and construction of industrial sites, on land classified as Class I and II (according to the Bonitated Soil Ecological Unit, BPEJ). The amended law proposes a ban on the use of agricultural land of this quality for plans to build shops or warehouses larger than one hectare, as well as a ban on the use of these lands for conventional photovoltaic power plants.

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Owners are disposing of older industrial sites - addressing rising operating costs

Skyrocketing energy and operating costs, improved cash flow, less accessible credit, partially higher efficiency of production or business activities... These are the main reasons why some owners of industrial premises or buildings have decided to sell them to investors. They then stay in the properties as tenants or gradually look for other premises. This is according to data from the real estate consultancy 108 AGENCY, which specialises in this form of sale and subsequent lease, known as Sale & Leaseback. The transactions and enquiries made indicate that isolated cases two years ago have grown to dozens in recent months.

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The year 2023 will be just as challenging, but will also bring new opportunities to the real estate market

The real estate investment market is impacted by increased inflation expectations, higher interest rates and the inflated cost of financing, and this will continue into 2023. This inevitably leads to increasing yield expectations. In most European markets, across various sectors, yields have increased this year. According to BNP Paribas Real Estate, some price corrections are still expected in some markets and asset types in 2023. The market is expected to stabilise in the second half of the year, when investment activity could also see some revival. Currently, most markets are in the stage of ‘price discovery’. Since the summer, we have been witnessing a ‘dance floor situation’ on the Czech real estate investment market. Buyers are sitting on one side of the dance floor and sellers on the other, and everyone is waiting to see who will dare to enter the dance floor first. CPI inflation could reach 15.8% this year according to forecasts from the Czech National Bank, and inflation could be double digit in the first half of 2023 at the very least.

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Real estate investment activity is slowing down, offering opportunities for domestic entrepreneurs and investors

The volume of real estate investment transactions in Q3 2022 reached 149 million EUR, which represents a 61% drop in comparison with Q3 2021. Cumulatively from January till September 2022, the investment volume totalled 1.4 billion EUR. If we added transfers of single assets and portfolios among related parties, the quarterly volume reached 390 mil. EUR, almost the same as in the same period last year. This is shown by data of the real estate consulting company 108 AGENCY.

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Investors seek shelter from inflation: residential and medical projects are popular

Real estate in the Czech Republic is still an attractive option for international and domestic investors to invest and maintain the value of their money. So much so that the volume of investment in commercial real estate increased year-on-year in the first quarter by a massive 213%! This was the highest in Europe, although Italy (+ 151%), Belgium (+ 146%), Spain (+ 99%) and Germany (+ 93%) also show increased investment activity. This is evidenced in the international investment analysis by BNP Paribas Real Estate, the real estate consulting company, and its alliance partner for the Czech Republic, 108 AGENCY. In total, property changed hands in Europe for a total of €63.2 billion, which is 28% more than in the same period last year. This is the best quarterly result in the past two years.

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