Czech Republic MarketBeats

Q2 2024: THE CZECH ECONOMIC GROWTH IS RESUMING FOLLOWING AN EXTENDED PHASE OF STAGNATION

The Czech Republic's economy is at last showing signs of revival following a lengthy stretch of stagnation. This upturn is primarily fueled by consumer spending, with household expenditures expected to gain momentum. However, the nation's economic rebound is likely to be irregular. High import levels and a reduction in inventory stocks may partially offset the boost from increased consumption.

Investment

Real estate investments in the Czech Republic have experienced significant growth, surpassing €480 million in the second quarter of 2024. This represents a notable increase both quarter-on-quarter and year-on-year, highlighting a robust investment market. 

• In Q2 2024, the total transaction volume reached €480 million, showing 28% quarter-on-quarter and 95% year-on-year growth. 
• The office sector led investment activity, followed by the industrial and residential sectors, with a key transaction involving the VN42 office building in Prague. 
• Domestic investors were the primary contributors to the investment market, accounting for the majority of the transaction volume. 
• Prime yield movements varied across sectors, with office yields rising in Prague while high street property yields compressed. 

Office 

After a slow start to the year, we have seen a revival of activity in the Prague office market in the second quarter. A surge in construction activity, an increase in office demand, and a positive net absorption confirm a stable and resilient office market. 

• Total modern office stock in Prague reached 3.95 million sq m in Q2 2024. Since the beginning of the year, five buildings have been completed, adding a total of 65,500 sq m to the office market.  
• Over 166,300 sq m are currently under construction, with completion scheduled between 2024-2027. About 50% of this space is pre-leased. 
• Total demand in Q2 2024 recorded a historical high of 220,600 sq m. However, the statistics were significantly affected by the "Owner-occupied" prelease of Česká spořitelna in the Smíchov City South complex in Prague 5, which will be its future headquarters. 
• The vacancy rate increased by 92 basis points year-on-year to 7.9% and, considering the 'grey area' available for subleasing, reached 9.4% overall.  

Industrial  

The Czech industrial market achieved a significant milestone, with total modern industrial stock reaching 12 million sq m, driven by the completion of over 117,500 sq m of new space. Although the vacancy rate rose slightly to 2.9%, reflecting a gradual increase over the past three quarters, it still indicates strong market health. 

• The total volume of modern logistics and industrial space increased to 12 million sq m in the Czech Republic. At the end of June 2024, about 969,800 sq m was under construction. 
• Almost 117,500 sq m of modern warehouse space was added to the market in Q2 2024. Since the beginning of the year, a total of 265,600 sq m was completed, representing a year-on-year decrease of 41%. 
• In Q2 2024, total demand reached 462,900 sq m, which was more than double the volume of demand in the previous quarter. However, year-on-year demand fell by 20%. 
• The vacancy rate has been rising slightly for the third quarter in a row, standing at 2.9% in Q2 2024. Despite this increase, the vacancy rate remains low. 
• Prime rent in Greater Prague has slightly decreased and ranges between EUR 7.00-7.50 per sq m per month, while in other Czech regions, it remains stable. 

Retail 

At the end of Q2 2024, the Czech Republic's modern retail space reached 3.96 million square meters, bolstered by the addition of 27,400 square meters in retail parks and the renovation of the Máj shopping centre in Prague. Currently, 134,400 square meters are under construction, a 27% increase from the previous quarter. Prime rents remained stable across all retail formats.  

• At the end of Q2 2024, the Czech Republic had a total of 3.96 million sq m of modern retail space. During this quarter, 27,400 sq m of retail space were added in three retail parks, alongside the completion of the Máj shopping centre renovation in Prague. 
• Currently, 134,400 sq m are under construction, representing a 27% increase compared to the previous quarter. This includes 25 retail parks across the Czech Republic, mainly around smaller regional towns. 
• Three shopping centres are currently undergoing renovation and expansion. The largest of these projects is at Centrum Černý Most, which is being expanded by approximately 9,100 sq m of modern retail space. 
• Prime rents remained stable across all retail formats compared to the previous quarter and the same period last year. In Prague, prime rents were €225 sq m per month in high streets, €142 sq m per month in shopping centres, and €13.50 sq m per month in retail parks.  

Hospitality 

Prague is again the leader of the CEE-6 capitals in terms of RevPAR, surpassing the average CEE-6 capitals performance by 10% in H1 2024.  

• Prague is No.1 in CEE-6 for RevPAR growth (Revenue per Available Room) with a 14.8% increase, while the average growth for CEE-6 capitals is 8% (compared to H1 2023). Both figures are above the European average of 5.3%.  
• In H1 2024, Prague's demand is still 4.2% below H1 2019 levels, though it shows significant improvement from H1 2023 with a 9.3% increase. This demand trend is in line with the pace of occupancy recovery. Moving forward, the limited growth in supply of 0.9% will further support the occupancy recovery. 
• Transactions in the Czech Republic reached EUR 35,175,000 in H1 2024 (incl. 5% contingency, as some deals are revealed with notable delay), which is 25% below H1 2023 figures and 92% below H1 2019 figures. This is primarily due to a lack of investable products and a gap between seller and buyer pricing expectations. 
• Recently, access to financing has improved due to the stabilization of interest rates. 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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