Investor demand remains very strong on the Czech market and it seems that the only thing that can limit further growth is the lack of available product in most market segments. Mike Atwell, Regional Director, Head of Capital Markets Czech Republic and Leader Director CEE Capital Markets at JLL shared his expectations for the Czech market.
Join Prague Property Forum 2018 to hear more from JLL’s experts. Miroslav Barnas MRICS (CEO Czech Republic and Slovakia) will chair the CEE investment panel, Tomáš Soukup (Head of Retail Agency) will join the retail & logistics panel and John Newton (Managing Director, Tétris) will join the office panel.
How do you think the perception of the Czech Republic as an investment destination changed over the last years?
Prague has always been one of the key capital city destinations for capital in CEE. Recently, I have sensed a marked change in investor sentiment with Prague raising its position on the priority list of CEE capitals. The strength of Prague’s office occupational market and the growing significance of logistics across the country are the most likely drivers for this. Retail is in strong demand but a lack of prime shopping centres coming to the market has restricted deal flow in this sector.
What are your expectations for 2018 on the Czech investment market?
In Q1 2018 we have seen a noticeable drop in investment volumes and although investor demand remains very strong the market is restricted by the availability of product. There are numerous transactions ongoing and some larger portfolio transactions which may revive overall activity as we go through Q2 and Q3. With much of the international capital targeting Prague combined with the strength of local Czech capital I would expect to see an increase in volumes by year-end and a strong outlook going forward into 2019. It is clear that interest rates are rising and yet investors are still content with the suitable margins that can be enjoyed in the Czech market.
Do you expect new investors to enter the market within the next 12 months?
There are always new investors entering the market and the most recent and active source of capital is from Asia with Chinese and Korean investors particularly. There has been a clear decline in North American capital whilst the South African capital still remains active.
What is the most sought-after asset class right now? Are alternative asset classes gaining more popularity?
I would say that the two most active sectors are offices and logistics/industrial. We see numerous investors targeting these sectors. With regard to retail there are few opportunities in the Prague market and with the major prime retail schemes held by long-term investors, we are unlikely to see core product coming through soon. The alternative asset classes, such as student housing and senior housing, are most certainly on the radar of investors but this sector is in its relative infancy at present.
How have financing conditions changed in the last 12 months? Do you expect interest rates to rise anytime soon?
One thing that most real estate players can be certain of is the increase of interest rates. The recent rises have been marginal and if this rate of increase continues we do not see it having any significant impact on pricing. The CEE region generally offers suitable returns to give a sound debt recovery ratio but as we are starting to see top prime assets trade in the low fours that yield gap starts to diminish and certain investors become priced out of the market.
