Despite the current weakening of investment activity in the Central and East European (CEE) region, investment volumes in commercial real estate in the Czech Republic posted a 36% year-on-year increase in Q1 2024. A total of EUR 545 million in capital was invested in the Czech Republic during this period, with local investors dominating the space. Revenues did not show any significant movement compared to the previous quarter. Colliers, a leading provider of diversified professional services in commercial real estate and investment management, estimates that total transaction volume in 2024 should reach the EUR 1.4 billion mark. This would indicate the end of a three-year period of decline and give hope that the Czech real estate investment market is bouncing back.

In Q1 2024, the Czech market saw a total of around EUR 545 million in capital invested in various types of commercial real estate. This was a 36% year-on-year increase and more than triple the volume compared to the previous quarter (Q4 2023); an excellent result compared to the 15% decline for the CEE market overall. For the time being, the dominance of local or CEE investors continues. The most significant transactions in Q1 this year included the sale of OC Arkády Pankrác and the sale of a 50% stake in CPI PG's hotel portfolio.

While the purchase price for the 40,000 m2 Arkády Pankrác OC was approximately EUR 270 million, with a yield slightly higher than our reported "prime yield" for Prague shopping centres, the 50% share in the Best Hotel Properties' portfolio consisting of eight CPI PG hotels was EUR 173 million, which, among other things, demonstrates the confidence in, and resilience of, the Czech real estate market; including the hotel sector.

Yields on "prime" properties are currently stable

"In terms of benchmark prime yields on the Czech investment scene, there was no significant movement in any of the major asset classes in Q1 2024, nor do we believe that any of the recent investment transactions warrant a revision of our current yield stance," comments Josef Stanko, Senior Analyst at Colliers, adding: "In our view, yields on prime office properties are at 5.50%, while yields on prime industrial properties are slightly higher at 5.25%. For the various retail sub-segments in the prime segment, yields on high street properties are at 4.50%, shopping centres at 6.00% and prime retail parks at 6.25%."

However, according to Stanek, the market mood remains volatile. Some investors with whom Colliers has spoken believe that prices on the Czech market have not yet fully corrected and expect further declines in capital values. On the other hand, it is not surprising that property owners or sellers express a rather optimistic view of the value of their properties. However, despite differing views on pricing, experts at Colliers believe that the gap between supply and demand is starting to narrow. This should support more transaction activity for the remainder of 2024. Another factor to consider is the expected future cost of debt financing. With the ECB expected to cut base rates later this year, such a move could facilitate negotiations and help narrow the cost gap.

Expectations are rising, but it will take time for the market to strengthen

With each passing month, a variety of assets are coming to market: such as the lucratively located Myslbek mixed-use development in the centre of Prague 1, S-Immo's Hradčanská office centre in Prague 6, Nova Real Estate's portfolio fund selling 16 assets, and even several sale & leaseback industrial properties located in or near regional cities.

It is obvious that property owners are trying to present opportunities that could pique the interest of investors still active on the market or even attract those who are still standing on the sidelines. However, the profile of many of these potential transactions could be described as value-add or opportunistic investments and are therefore more likely to attract established local investors who are willing to take long-term risks such as repositioning or refurbishing buildings.

"Given our Q1 results, we expect transaction volumes to reach the EUR 1.4 billion mark in 2024. Such a result would halt the year-on-year decline in total investment volume recorded over the last three years. This in itself may indicate that the Czech real estate investment market is bouncing back from a slump," concludes Josef Stanko adding that, despite rising expectations, it will still take a few quarters before the market really strengthens.