Total commercial property investment volumes climbed to €426 million in the Czech Republic during the second quarter of 2021, according to Savills latest research. This represents a 42% increase compared to the same period last year and a 47% increase in investment activity compared to the previous quarter.
Lenka Pechová, Senior Research Analyst, Savills CZ&SK, says: “In the second quarter of the year, we recorded a total of 14 investment transactions, slightly more than in the second quarter of last year, when 11 transactions closed. The office sector dominated market activity, with six transactions concluded, followed by the industrial and retail sectors.”
Domestic investors poured €160 million into commercial real estate across the country during Q2 2021 and acquired nine of the 14 properties that transacted, three in Prague and six in regional markets. Cross-border investment exceeded €266 million, 77% above the previous quarter and accounted for 62% of the Q2 2021 volume. Prague regained its crown as the top choice for foreign investors buying commercial real estate, as 90% of the Q2 cross-border volume was spent in the capital, compared to 51% in Q1 2021.
The average transaction size reached €30.5 million, which is still €10 million below the pre-pandemic quarterly average. The market still awaits the return of transactions exceeding the €100 million mark.
For the fourth consecutive quarter, since Q3 2020, prime yields remained unchanged across all asset classes. Prime office yields for the best assets in Prague stabilised at 4.10%, supported by a limited development pipeline and resilient headline rents. Prime yields in the industrial sector for well located and assets with attractive tenants are estimated at 4.25%. There is limited transaction evidence for the prime shopping centre sector, however, the estimated prime yields for the most successful schemes in Prague are still at around 5.75%.
Fraser Watson, Director, Investment Advisory at Savills CZ&SK, comments on the outlook: “The investment market in the Czech Republic is slowly recovering but still remains weak compared to pre-pandemic times. The Czech industrial market remains exceptionally strong and the extremely low vacancy rate combined with the structure of the market, could quite likely see a hardening of yields in the short to medium future. On the one hand, investors continue to demand offices, but the ‘lack of product’ theme continues and there are relatively few opportunities. On the other hand, investors are stepping into the residential market. Various deals were closed, the majority of them forward structures with investors pledging to acquire future developments before they are out of the ground or completed. Yields for this sector are currently the sharpest of all asset classes and it would not be a significant surprise if they hardened further.”