The Russian invasion of Ukraine is putting businesses in the Czech real estate market in a difficult position again: pushing up inflation, interest rates and overall uncertainty. The impact of war on the Czech economy will be significant due to a high reliance in the economy on Russian oil and gas, migrant workers in the construction and logistics sector and further disruptions of the supply chains. In 2022, GDP growth in the Czech Republic is expected to reach 2.6%, the lowest rate in the CEE region, while inflation could exceed historical levels at 13.1%. However, according to the latest forecasts, the negative trends should not continue in 2023. Moreover, the unprecedented situation and the severe economic sanctions can lead to opportunities in the CEE markets, including the creation of new jobs, additional labour, and consumers.
Over 306,000 sq m of warehouse space was newly completed within twenty industrial parks in Q1 2022, with more than 1.4 million sq m planned to be finished by the end of 2022. The industrial stock is thus nearing 10 million sq m. The vacancy rate is minimal, and the high demand causes rental growth in all regions.
The new office supply in 2022 is expected to exceed the relatively low level of the previous year. Leasing activity exceeded the five-year quarterly average. However, limited absorption of the newly supplied office space led to an increase in the vacancy rate in Prague. Rents increase in the city centre and some outer city locations driven by new projects.
The performance of the shopping centres remains solid. While the sales exceeded the levels reached in Q1 2019, the number of visitors kept lower than pre-pandemic. On the other hand, real retail sales growth was limited due to the high inflation. The retail development currently focuses on smaller retail parks; however, some shopping centre extensions are also in the pipeline.
The Czech property market is still defined by the limited number of properties available for sale. Due to ongoing evolution in critical parameters like rental levels, indexation, financing, operating, and construction costs, the market faces a high level of uncertainty. However, sectors, submarkets, and properties whose downsides are naturally hedged by the upsides are resilient even amid this volatility.
Continued restrictions led to constrained hotel performance in H1 2021, which recorded an occupancy of 6% and ADR of €55. Nonetheless, performance has been picking up even with a partial lifting of restrictions, with RevPAR in June reaching 41% above the same month last year, generating optimism for a healthy post-COVID market recovery once restrictions are fully lifted. Accordingly, investor interest in hotels is returning and the gap in buyer-seller expectations is narrowing, however the number of hotel assets being put on the market in Prague remains limited, partially due to owners’ misconceptions that now is not the right time to sell.
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