The volume of investments in commercial real estate reached a total value of €368 million in the Czech real estate market in Q3 2022. Most of the investment transactions were mainly in the office and retail segments. Czech investors were the most active investors in this period. Demand for prime real estate is still stronger than what is on offer on the market, Knight Frank said in its report.
Key findings:
- In the third quarter of 2022, the volume of investment in commercial real estate in the Czech real estate market reached a total value of €368 million. After a strong first quarter, when €900 million was invested, the market has seen a significant decrease in investment activity for the second consecutive quarter.
- Real estate investment in the third quarter was virtually limited to offices and retail. Domestic investors were again among the most active investors in the third quarter, with a majority share.
- After a slight increase in returns in the first quarter, returns stabilised across all sectors in the second quarter. In the third quarter, as expected, yields responded to more difficult financing conditions, resulting in an increase in yields.
- Demand for premium properties continues to strongly outstrip supply, but there are a greater number of new developments in various stages of development.
During Q3 2022, investments in commercial real estate exceeded €368 million, almost the same result compared to the previous period. It should be added, however, that over 60% of these investments were property transfers between different investor groups. This is a growing trend in recent years, a typical example being the sale from a closed-end qualified investor fund to a retail fund of the same group.
In the first three quarters of this year, the volume of investments reached €1.68 billion, up 35% year-on-year. However, there is a noticeable decline in activity in the market. Nevertheless, we expect the volume for the full year 2022 to be at least the same as last year, i.e. just under €2 billion.
"The market is currently in a sort of pending phase. Because of this, significantly fewer properties are entering the market compared to the past. As financing has become significantly more expensive, even in euros, an upward correction in yields is necessary. Unless property owners are under pressure, they are keeping their properties. If they have fully rented the property, they are also counting on rent indexation, which, given this year's inflation rate, maybe a relatively interesting increase in income and thus another reason not to sell the property at the moment. However, we still see a lot of interest from both domestic and foreign investors in quality properties in established locations. We see significantly higher activity in land sales and development projects in various stages of readiness. This is due to the fact that many smaller players on the market are affected by the rising prices of inputs - labour and construction materials and significantly higher financing costs, which has made development unprofitable for them in the current situation", comments David Sajner, Partner at Knight Frank, on the current situation on the commercial real estate market.
Significant investment transactions
The largest real estate transaction in Q3 was the purchase of a portfolio of retail properties by Austrian firm Immofinanz from CPI Property Group for a total of €191 million, involving 36 properties in the Czech Republic and Poland. The estimated share of the Czech part of the portfolio exceeds €180 million.
There is still a shortage of suitable properties on the market, especially premium properties, which are still in demand. On the other hand, the market is witnessing an increasing number of development projects in various stages of preparation, ranging from land to projects with building permits. Especially in the case of manufacturing and logistics properties, this is currently one of the few opportunities to secure suitable premises. Potential buyers are also recruited from among end-users who have minimal experience with the operation of such properties or do not have suitable staff for them. Such purchasers can then expect a sale & leaseback upon completion of the property.
