In terms of asset classes, the volume was fairly evenly divided between retail real estate (31%), industrial real estate (30%) and residential real estate (27%), with a smaller portion (12%) going to the small office building segment. Perhaps the most significant transaction of the third quarter was the REICO fund's entry into the BTR (build-to-rent) residential sector, when it acquired the G1 building in the Nový Opatov project through a forward purchase.
"In terms of the origin of capital, the results of the third quarter are clear, 100% of buyers were from the Czech Republic. This continues the trend from previous quarters, when international capital is rather waiting and investment activity is driven mainly by domestic players," adds Josef Stanko, Director of Market Research at Colliers.
Retail is growing, offices are waiting for new opportunities
The total investment volume for the first three quarters of 2024 exceeded one billion euros and amounted to 1.03 billion euros within 34 transactions. Approximately half of the properties that have been transacted so far in 2024 are located outside Prague. “This is evidence, among other things, that opportunities are being found across the Czech Republic and that domestic investors are increasingly familiar with and comfortable with locations outside the capital,” comments Josef Stanko.
While investments in residential BTR projects attract a steady inflow of capital and the retail sector has recently experienced some growth, the office real estate market is still struggling to attract investor interest, and this has been the case since the end of the Covid pandemic. With three quarters of 2024 already behind us, only EUR 235 million has been invested in offices this year, which is roughly half the average for the same period in the last three years. However, the outlook for the office sector could improve by the end of the year, as intensive negotiations are currently underway for several office properties.
Prime yield stable, transactions are mainly in the "Core+" and "Value-Add" areas
"Regarding the reference prime yields on the Czech investment scene, we believe that recent transactions do not give reason to further reduce yield rates. We have maintained the same view on prime real estate yields as we stated in the first and second quarters," says Josef Stanko, adding that the yields on the best office properties are 5.50%, and yields on prime industrial properties are 5.25%. In the case of prime retail properties, it depends on the specifics of the sub-market. For high street properties, yields are at the level of 4.50%, for shopping centers at the level of 6.00% and for the best retail parks at the level of 6.25%.
Although prices in most Western and Central European markets have already bottomed out, this is not yet the case on the Czech market. However, the gap between the offer and the sale price is narrowing, which should help transaction activity in the last quarter of 2024. Another important factor is the future cost of debt financing. The recent ECB cut to 3.25% could put some transactions on hold as buyers speculate on a possible improvement in their loan terms.
Better times are coming
Economic and geopolitical challenges persist to some extent, and many events are affecting real estate and investor confidence, not least the recent US presidential election. “However, the Czech market benefits from a strong base of domestic investors and the market continues to move, especially in the case of transactions with a lower nominal value. We expect the total annual investment volume to be around EUR 1.5 billion,” says Josef Stanko.
