Investing in Czech real estate
Located in the heart of Europe, the Czech Republic is the right choice when you are looking to invest in commercial property. The country remains an attractive option for new investors due to its open investment climate with political and economic stability, existing research and development platforms and safe and secure business environment.
Investment opportunities
Real estate is often seen as a natural hedge against inflation, as most commercial leases are tied to annual inflation rates. In 2023, total investment volume in the Czech Republic reached approximately EUR 1.58 billion, marking another slight drop from 2022. Foreign investors contributed around one-third of this annual volume, while domestic investors remained highly active, continuing trends from previous years. Retail assets attracted the most investment in 2023. In 2024, the commercial real estate market is showing signs of recovery and returning to higher transaction volume, driven by both decreasing interest rates and growth in specific sectors. Key transactions completed this year have provided fresh benchmarks and injected new energy into the market. Coupled with major leasing agreements, these developments are fostering a renewed sense of optimism across the market.
Industrial sector
At the beginning of 2023 the industrial market saw its peak in prime rents which have since been going down, providing tenants more accessible rental options and boasting growth. At the beginning of 2023 the average rent for one square meter per month reached 6.15 EUR and since then, the overall average has gone down to 5.91 EUR in the third quarter of 2024. Developers are also more inclined to offer more incentives and to accommodate the client in all their requirements for premium industrial space. Strong construction activity in 2023 and in the beginning of 2024 secured enough available premises across the Czech Republic for further growth. Mainly automotive companies are making use of new development as Czech automotive sector doesn’t face the same problems as in the western countries, especially in Germany. Meanwhile e-commerce is facing fierce competition from Poland and China. As household consumption has decreased significantly in recent years as a result of high inflation. This trend is expected to continue until 2025.
Retail sector
After complicated year 2023 we see a slow increase in household consumption during 2024 driven by overall better economic situation. However, the performance of the sector has been very diverse by type of retail. While prime shopping centres have recovered well, secondary locations are struggling to return back to pre-covid performance. There was a significant number of new brands entering Czech market in 2023. As economic situation will improve, we expect slight grow in this sector. Retail parks have also proved to be crisis-resilient and are expected also to cope well in the economic downturn, due to their tenant structure, which is focused on convenience retail covering daily shopping needs. New development remains limited, and the focus remains on refurbishment and remodelling of existing centres. New development is largely restrained to smaller retail park concepts.
Office sector
By the end of 2023, the market continued to stagnate with no projects entering construction phase. The shortage of new construction and rising construction costs have driven up rental prices, even in the outskirts of the city, where both the highest achieved rent and the lower range have increased. In 2023 the office market in general recorded a slight decline year-on-year, but in 2024 the trend of mostly home office, set by COVID, is declining and employees are returning to offices. The vacancy rate dropped in 2023, but in 2024 increases again to offer companies a wide range of modern office premises for growth. In the middle of 2024 few new buildings entered construction marking the end of period of stagnation. A positive outlook includes further interest rate reductions, more favourable prices of construction material, and economic recovery in 2025, which could help boost investments in the office market.
Prime yields
Source: 108 REAL ESTATE, 2024
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Jakub Holec |
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