Savills recorded 40 transactions closed in 2023 in the Czech commercial real estate sector with a total investment volume of €1.2 billion. Investment volume in 2023 was down 32% in comparison to 2022. 31% of investment transactions in 2023 were closed in Prague.
The retail sector was the driver of real estate investment in 2023, accounting for 43% of the total investment volume equal to €512 million represented by 13 transactions. The list of top 5 deals includes Trei portfolio, Palác Pardubice, the sale of the remaining 25% share of OC Arkády Pankrác by ECE to G City Europe earlier last year, retail park in Trutnov and Albert in Česká Lípa.
Fraser Watson, Head of Investment at Savills CZ & SK, explains the dominance of the retail sector in this year’s transaction volume: „It is an interesting change to what we’ve seen in recent years. Reflecting on what could be behind this change we observe a few elements. Perhaps the most relevant is the fact that retail assets had already experienced a downward price shift pre-pandemic. This means that going into the current market environment retail prices appeared to be more marked-to-market compared to other sectors and this allowed for investors to capture returns in line with the prevailing sentiment.” He continues: “Another aspect contributing to retail’s appeal is the fact that post-pandemic spending in brick-and-mortar stores has rebounded strongly, demonstrating that physical retail assets have a bright and sustainable future, and do have the ability to fend off competition from e-commerce. A final factor is considered to be that in most cities across the country, there will be no further significant development of shopping centres. This allows investors to predict and evaluate the longer-term future in terms of competition, giving more stability and certainty. We expect that retail as an asset class will continue to be appealing to investors going into 2024."
Vojtěch Wolf, Senior Investment Analyst at Savills, adds data about retail parks investments: "In 2023, the retail park investment volume roughly doubled compared to the previous year, but retail parks accounted for about 8% of the total volume. The strongest year for retail parks was 2021, when their resilience to negative market influences made them highly attractive to investors during the pandemic period, accounting for 45% of total volume."
The office sector saw 11 transactions with a total volume of €344 million and the industrial sector totalled 5 transactions with a total volume of €132 million. Residential, hotel and mixed-use sectors accounted for the remaining 11 transactions.
Domestic investors undoubtedly dominate the Czech investment market. They are the most active, having closed 29 transactions, and accounting for the largest (80%) proportion of investment volume this year. In Q4 2023, prime yields remained stable across all real estate sectors, with the retail sector standing at 6.50%, industrial assets at 5.25% and offices at 5.25%.
In 2024, Savills expects inflation to fall towards the targeted 2% level which will in turn lead to further cuts in the ČNB’s base rate, which can be expected also from the ECB. In Savills, they also cautiously anticipate a slight economic recovery in the first half of 2024 with a positive influence on real estate investment activity.
