Q3 2024: STEADY ECONOMIC REBOUND EXPECTED FOR THE CZECH REPUBLIC IN 2024
Czechia’s economy is slowly recovering from a long period of stagnation, mainly thanks to a rebound in consumer spending. Household spending is expected to grow over the next few quarters, helping boost the economy. However, the recovery may be uneven, as high import levels and lower inventories could offset some benefits. Overall, GDP growth for 2024 is predicted to be moderate, with improvements picking up gradually over time.
Investment
In Q3 2024, the Czech Republic's real estate investment market saw a significant contraction, with total transaction volume reaching approximately €197 million. The cumulative investment volume for the first three quarters of 2024 amounted to €1.1 billion. Despite the third-quarter decline, there is optimism in the market, with several substantial transactions expected to close by year-end.
- In Q3 2024, the total volume of real estate investment transactions was approximately €197 million, marking a 50% decrease compared to the same period last year and a 59% decline from the previous quarter.
- The retail (34%) and industrial (29%) sectors dominated Q3 investments, while the office sector saw decreased interest, comprising only 7% of total investments.
- Domestic investors were the main drivers of the Czech investment market, accounting for 88% of the transaction volume since the beginning of the year.
- Prime yields remained stable across sectors, with office yields at 5.75%, logistics at 5.15%, high street retail at 4.50%, shopping centres at 6.0%, retail parks at 5.50% and hotels 6.50%.
Office
The Prague office market remained stable in Q3 2024, with modern office space totalling 3.96 million sq m by the end of September. Although no major office developments were completed this quarter, the volume of projects under construction reached 166,600 sq m by the end of the period, up 94% y-o-y. Despite rising vacancy rates, gross take-up showed positive year-over-year growth and prime rents remained stable, indicating steady demand in the market.
- By the end of September 2024, the total volume of modern office space in Prague reached 3.96 million sq m. One office project, Riveroff Office House (1,400 sq m), has been completed after renovation.
- The office vacancy rate rose to 8.1% (9.1% including sublease space) at the end of Q3 2024, marking the third consecutive quarterly increase.
- The gross take-up (incl. renegotiations) for the first three quarters reached 458,100 sq m, a 27% increase from last year. However, new lettings in Q3 2024 were significantly below the long-term average, totaling just 48,200 sq m.
- Prime rents in the city centre remained stable at €30.00/sq m/month, with slight increases registered in the inner city (€19.00) and outer city (€15.50) locations.
Industrial
In Q3 2024, Czechia's industrial real estate market saw a slight rise in vacancy rates alongside a modest drop in demand. The total industrial stock reached 12.2 million sq m, with 163,500 sq m of new space added and another 242,100 sq m expected by year-end. Speculative construction increased to 36%, and although demand dipped compared to the last quarter, it remains well above levels from a year ago. Prime rents held steady across key regions.
- Industrial stock expanded by 163,500 sq m in Q3 2024, with 76% of new space pre-leased at delivery. A further 242,100 sq m is expected to be completed by year-end, while ongoing construction totals 1,045,000 sq m.
- Speculative construction increased slightly, reaching 36% of projects under construction, with major activity in Karlovy Vary (33%), Moravia-Silesia region (17%), and Pilsen (12%).
- Occupier demand declined by 28% quarter-over-quarter to 335,100 sq m, though it rose 61% year-over-year. Production companies drove demand, representing 65% of gross take-up in Q3.
- The vacancy rate rose slightly to 3.1% in Q3 2024, while prime industrial rents remained stable at €7.50/sq m in Prague, €6.50/sq m in Brno, and €6.00/sq m in Pilsen.
Retail
In Q3 2024, the Czech retail sector continued to expand, reaching 3.92 million sq m, with significant growth in retail parks. Currently, 150,100 sq m of retail space is under construction, mainly in smaller towns. Shopping centres saw improved foot traffic and lower vacancy rates, while prime rents remained steady, except for a slight increase in retail park rents.
- The total retail space reached 3.92 million sq m, with 3,700 sq m of new space added in Q3 2024 across retail parks in Šumperk and Lovosice.
- An additional 150,100 sq m of retail space is under construction, with 67,400 sq m expected to be completed by the end of 2024, primarily focused on retail parks in smaller regional towns.
- Shopping centre visitor numbers rose by 1.8% as of July 2024, marking a 1.4% annual increase, while shopping centre vacancy rates dropped to 3.5%, the lowest level since 2019.
- Prime rents for high street locations and shopping centres held steady at €225.00/sq m and €142.00/sq m, respectively, with a slight increase in retail park rents to €14.00/sq m due to strengthening demand.
Hospitality
Prague continues to lead the CEE-6 region in RevPAR growth, achieving an impressive 11.5% increase year-to-date (YTD) September 2024 compared to the previous year, well above the CEE-6 average of 7.6% and the European average of 5.9%.
- Prague is No. 1 in CEE-6 for RevPAR growth (Revenue per Available Room) with a 11.5% increase YTD September 2024 (compared to YTD September 2023), while the average growth for CEE-6 capitals is 7.6%. Both figures are above the European average of 5.9%.
- As of YTD September 2024, Prague’s demand remains 5.7% below the levels seen in YTD September 2019. However, it has significantly improved compared to the same period in 2023, showing a 7.1% increase. This trend aligns with the pace of occupancy recovery. Looking ahead, the limited supply growth of 1% is expected to further support this recovery.
- Transactions in the Czech Republic reached EUR 50,925,000 YTD September 2024 (incl. 5% contingency, as some deals are revealed with notable delay), which is 61% below YTD September 2023 figures and 91% below YTD September 2019 figures. This is primarily due to a lack of investable products and a gap between seller and buyer pricing expectations.
- Financing costs further declined in the last quarter with 5-year SWAPs back to Q4 2022 levels. This supports market liquidity and further ECB rate cuts in the coming quarters could boost market activity. Several properties are in various stages of disposition, and this, combined with continued performance growth and rising investor interest, is expected to boost volumes in the next 12 months.
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