CBRE published this year's outlook for the commercial real estate market in the Czech Republic.
Real estate investment aspire to record levels of 2016 and 2017
CBRE expects real estate investment to increase due to the continuing good economic situation. New opportunities should emerge in the market to attract the interest of institutional investors.
"Looking at investment turnover in 2020 we believe that there is the potential to match and even surpasss the levels recorded in 2016 and 2017 (over EUR 3.5 bln). The crucial factor in this respect will be the availability of suitable products on the market, especially premium office buildings, of which investors are most interested."
The office market will be affected by slower recruitment of workforce to administrative centres
Office employment, a key driver of user demand for office space, will see slower growth. This already started to affect leasing activity in 2019, which reached 280,000 sq m (drop by 15% y-o-y). In 2020, we expect demand to stabilize. Occupiers see labour and skills shortages as one of their top three strategic challenges. As a result, corporates´ appetite for flexible space will continue. Currently, there is around 70,000 sq m of modern office space in Prague in flexible offices.
With low unemployment and the increasing importance of corporate social responsibility, potential tenants are increasingly being pressured to pay more attention to responsible approach to employees and the environment. As a result, building certification in LEED and BREEAM high levels or the quality of indoor environment proven by the WELL Core & Shell standard are becoming increasingly important.
Despite of very low vacancy level (5.5% as of 2019 year-end), development pipeline is very low. This year, only 204,000 sq m is expected to be delivered, however, more than one half of this space is already preleased. As a result, the lack of available space in central locations is pushing prime rents up. It is currently between 22.50 - 23.00 EUR / sq m / mth.
Growth in the turnovers in shopping centres will continue. The household purchasing power will attract more new brands
This year, retail performance will be driven by household good purchasing power and growth in e-commerce (CBRE expects its share to stabilize at 17% in the Czech Republic till 2023.). Nonetheless, the Czech consumers still like to shop in brick and mortal shops: in the last five years there has been a strong growth in the turnovers in shopping centres and this trend will continue in 2020.
The purchasing power of the population has increased and so has the interest of new brands in the Czech market. Every year, several of them enter it and this year is no exception. Czech market is awaiting the arrival of two prestigious luxury fashion brands on Prague high streets, but also Primark, which will open its first shop in the Czech Republic on Wenceslas Square in last quarter of 2020.
During the year, only one shopping centre is scheduled to open. It is Bořislavka in Prague 6. The local market is already mature so today's biggest challenge is not a new competition, but above all “to not to be behind the times”. Throughout the year, several shopping centres will start to renovate or expand their premises, for example Spektrum in Čestlice, Centrum Černý Most in Prague and Varyáda in Karlovy Vary.
Prime shopping centre rent is expected to grow slightly to 155 EUR/ sq m/ mth. High street rent will reach 240 EUR/ sq m/ mth by the end of the year.
Industrial and logistics real estate segment: this year will be marked by innovations
The industrial property market is changing and facing new challenges such as the lack of suitable premises for industrial property (land is still available, though permitting is becoming more complicated and land is more expensive), or labour shortages. However, companies take a proactive approach to these challenges and see potential for further growth: according to the CBRE survey, almost one-half of companies were forecasting growing profitability whilst almost two-thirds expected to increase revenues in the year ahead. Although the careful management of rising costs is vital, they are investing in new technologies and innovation. They do it not only in the context of the growing influence of e-commerce, but to streamline their businesses and increase the productivity.
Companies are also increasingly putting pressure on the quality of buildings and the indoor environment in order to attract new talent and retain an existing trained workforce.
Despite a constant flow of new development projects, vacancy rate is expected to remain low and stable at around 4.5%.