2023-09-21-莱坊-Czech_Investment_Market_Q2_2023_2页_638kb

Investment Market Summary - Q2 2023

Core Content

The Czech Republic's investment market in Q2 2023 continued to experience a slowdown, with total investment volume reaching €320 million. This represents a decrease compared to the previous quarter, primarily driven by a single large retail transaction: the purchase of Palac Pardubice by a local retail fund for approximately €120 million. For the first half of 2023, the total investment volume amounted to €891 million, with retail accounting for 54% of the total, which is unusually high given that retail is not typically a top priority for many investors.

Key Trends

• Prime Yields:

  • Office sector: 5.25%
  • Shopping centres: 6.25%
  • Industrial & logistics: 5.00%
  • These yields have been rising, albeit at a slower pace than the growth of interest rates, which has made properties in the prime segment less financeable by bank loans.

• Investment Deals:

  • €123.8 million: Atrium Palac Pardubice, purchased by Pardubice Retail Fund SICAV
  • €77 million: Opatov II - 50% forward purchase, acquired by Dostupné bydlení České spořitelny & Kooperativa pojišovna
  • >€60 million: Arkády Pankrác (25%), purchased by G City Europe (formerly Atrium Real Estate)

Market Dynamics

• Local Investor Dominance: Local investors accounted for 80% of total investment in H1 2023, highlighting their continued control over the domestic market. International institutional investors have been largely inactive, allowing Czech real estate funds to complete larger transactions that were previously the domain of foreign investors.

• Financing Challenges: With the Czech National Bank keeping interest rates unchanged and the ECB increasing its base rate to 4%, the cost of financing has risen. This has led to a situation where many prime properties are no longer viable for bank loans, pushing investors to rely on their own equity and local market knowledge.

Investor Behavior

• Portfolio Diversification: Czech investors, having accumulated significant wealth over the past 30 years, are increasingly diversifying their portfolios by investing in real estate.
• Pension Concerns: Many citizens are making conservative investments in real estate funds due to concerns about the future size of their pensions. They believe real estate can appreciate in value and outperform inflation over the long term.

Contextual Comparison

• Year-on-Year Decline: Mid-year investment volumes indicate a 35% decrease compared to the same period in the previous year.
• European Prime Office Yields:
  • London City: 5.25% (↑)
  • Dublin: 5.00% (=)
  • London WE: 4.00% (↑)
  • Amsterdam: 4.50% (=)
  • Warsaw: 5.25% (↑)
  • Berlin: 3.85% (↑)
  • Paris: 3.50% (↑)

Contact Information

• Research: Ondrej Vik | Head of Research and Consultancy
  Email: ondrej.vlk@cz.knightfrank.com
  Phone: +420 602 940 066

• Capital Markets: David Sajner | Partner, Head of Sales
  Email: david.sajner@cz.knightfrank.com
  Phone: +420 602 323 789

• Office Agency: Richard Curran | Managing Director
  Email: richard.curran@cz.knightfrank.com
  Phone: +420 602 225 765

• Industrial Agency: Markéta Vrbasová | Head of Industrial
  Email: marketa.vrbasova@cz.knightfrank.com
  Phone: +420 724 325 331

Conclusion

The Czech investment market is facing a slowdown, with local investors dominating due to rising financing costs and the withdrawal of international capital. The retail sector is showing strong activity, driven by large transactions, while prime yields continue to increase. Investors are turning to real estate as a means of diversifying their assets and securing long-term value, particularly in light of pension uncertainties.