Q4 2024: GRADUAL RECOVERY AND PERSISTENT CHALLENGES
The Czech economy is gradually recovering from an extended stagnation, with private consumption driving the rebound. While household spending is likely to increase in the coming quarters, its overall effect may be dampened by high import levels and declining inventories. As a result, real GDP growth is projected to remain modest, with stronger growth anticipated in the following year.
Inflation rates are forecasted to stay significantly below the levels observed in 2022-2023, though projections for this year have been slightly revised upward due to a brief disruption in the disinflation trend. Overall, inflation remains within the Czech National Bank’s (CNB) target range. However, persistent price pressures and strong wage growth could prompt the CNB to take a more cautious approach to reducing interest rates.
Investment
The Czech real estate investment market showed strong recovery in Q4 2024, with transaction volumes reaching their highest level since early 2022. Retail properties led the activity, followed by offices, while domestic investors dominated the market with record-high shares throughout the year. As market conditions stabilize, a resurgence of institutional investors is anticipated in 2025, likely increasing competition in the sector.
- Q4 2024 saw a remarkable €714 million in real estate investment transactions, over three times higher than the previous quarter.
- Total investment for 2024 reached €1.7 billion, marking a 45% increase compared to 2023.
- Retail properties accounted for over 50% of Q4 investment, domestic investors dominated, with an 89% share in Q4 and 91% for the entire year 2024.
- Modest prime yield corrections in Q4 signal stabilizing conditions, with heightened competition expected from yield-focused institutional investors in 2025.
Office
The Prague office market experienced moderate growth in 2024, with total modern office space reaching 3.96 million sq m by year-end. Limited new supply contributed to a decline in the vacancy rate, particularly in high-quality Class A offices, where demand remained strong. Leasing activity was robust, driven by large transactions, while prime rents remained stable across all areas of Prague, reflecting tenant confidence in the market.
- Total modern office space reached 3.96 million sq m, with 72,800 sq m added in 2024. Only 24,600 sq m are expected to be completed in 2025, marking a historic low.
- Vacancy rate declined from 8% to 7.3% in Q4 2024, with zero vacancies reported in modern Class A buildings in the city center. Including subleases, the overall rate rose slightly to 7.7%.
- In Q4 2024, leasing totaled 185,100 sq m, driven by large transactions exceeding 5,000 sq m. Annual leasing activity reached 636,700 sq m, with renegotiations accounting for 48%.
- Prime rents remained stable at €30.00/sq m/month in the city center, €19.00/sq m/month in the inner city, and €15.50/sq m/month in the outer city.
Industrial
The Czech industrial market demonstrated resilience in 2024, with gross take-up surpassing 1.43 million sq m, reflecting strong demand from the manufacturing and logistics sectors. Key occupiers showed confidence in the market, with over 69% of space under construction pre-leased by the end of the year. While new supply declined significantly compared to previous years, developers remain optimistic about 2025, planning to deliver over 1.2 million sq m of new industrial space. Prime industrial rents remained stable across all major regions, further highlighting the market's steady fundamentals.
- Gross take-up exceeded 1.43 million sq m, led by manufacturing (51%) and logistics and transportation (27%).
- More than 69% of the 978,300 sq m under construction was pre-leased by year-end.
- Vacancy rate remained stable at 3.13%, though Shell and Core projects would increase it to over 5.7%.
- Prime headline rents stayed consistent, at €7.50/sq m in Prague, €6.50/sq m in Brno, and €6.00/sq m in Pilsen, with no growth anticipated.
Retail
The Czech retail market expanded in 2024, driven by significant growth in retail park developments, which accounted for a record-breaking share of completed retail space. By year-end, the total retail space reached 3.98 million sq m, with retail parks continuing to dominate new supply. Prime rents remained stable in high streets and shopping centres, while retail park rents experienced slight growth due to increasing demand.
- Total retail space reached 3.98 million sq m by the end of 2024, with 54,800 sq m delivered in Q4, all within retail parks.
- Major completions included Obchodní centrum Hvězdárna in Jindřichův Hradec (14,200 sq m) and Retail Park Kukleny in Hradec Králové (5,500 sq m).
- Retail parks accounted for 78,900 sq m of new space in 2024, the highest annual volume in 15 years.
- Prime retail rents remained stable at €225.00/sq m for high street premises and €142.00/sq m for shopping centres, while retail park rents rose slightly to €14.50/sq m, reflecting increased demand.
Hospitality
The hospitality market in the Czech Republic expanded significantly in 2024, driven by a surge in both leisure and business travel. By year-end, the total number of hotel rooms reached a new high, with luxury and boutique hotels accounting for a substantial share of the new supply. The market's resilience was further supported by increased passenger traffic from well-established customer segments such as the United States and a notable rise in arrivals, particularly from Asia. A significant increase in domestic tourism, was driven by local events and festivals. The total current supply of accommodation rooms in Prague is standing at over 38,000 keys.
- Prague is No.1 on par with Bucharest in CEE-6 for RevPAR growth (Revenue per Available Room) with a 10.5% increase YTD December 2024 (compared to YTD December 2023), while the average growth for CEE-6 capitals is 8.2%. Both figures are above the European average of 3.0%.
- In 2024, Prague's demand is still 4.1% below 2019 levels, though it shows significant improvement from 2023 with a 5.9% increase. This increase in demand aligns with the rate at which occupancy levels are recovering. Moving forward, the limited growth in supply of 1% will further support the occupancy recovery.
- Transactions in the Czech Republic reached €145.5 mil. in 2024 (incl. 5% contingency, as some deals are revealed with notable delay), which is 21% above 2023 figures and 76% below YTD December 2019 figures. This is primarily due to a lack of investable products and a gap between seller and buyer pricing expectations.
- After reaching a 2.5-year low in early December 2024, financing costs saw a slight increase since then, driven by ECB’s latest communication. The 5-year SWAPs are back to Q4 2023 levels, and a further decline would support market liquidity and boost market activity. Several properties are in various stages of disposition, and this, combined with continued performance growth and rising investor interest is expected to create a positive momentum for transactions.
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