While in 2017 the difference between the yield from industrial real estate, the so-called industrial and office buildings in the Czech Republic was still relatively significant (6.20% vs. 4.65%), today the yield rates The two most common types of commercial real estate are getting closer. What is behind the reduction of this difference, when the best offices today have a yield of 4.65% and industrial 4.75%? And will the situation somehow further affect the commercial real estate market?
“For many years, investing in industrial real estate has been a way for investors to relatively easily come up with buildings with interesting returns and value their finances with a reasonable degree of risk. In the next three years, industrial in the Czech Republic will attack the limit of 10 million m2 of area, and we are thus one of the countries with the largest share of industrial real estate per capita. However, the supply does not meet the demand and there is a lack of space in attractive locations such as Prague and Brno, “says Radek Procházka, from Prochazka & Partners.
Although there has been a significant decline in the volume of real estate transactions over the past year due to the pandemic, there are still plenty of investors from the Czech Republic and abroad who are willing to invest more funds here. The fact that the market lacks sufficiently interesting projects for a possible acquisition thus becomes a greater difficulty. As a result, investors are trying to find alternative opportunities in the market and thus focus, for example, on transactions in the form of the sale and leaseback of production and warehouse space.
“In the Czech Republic and in Western Europe, the popularity of so-called sale & leaseback transactions is now growing in the industrial sector, where an investor buys his industrial property from the owner and leaves it in a building. Businesses want more equity for business due to the market slowdown and some need cash. At the same time, investors can find interesting new opportunities. It is a good connection between the interests of both parties and the reason why industrial real estate is attractive today. In addition, it is interesting for the investor to sign a longer-term lease with the company from which he bought the property (usually ten years for industrial real estate), which will provide him with a stable income at currently low interest rates and higher expected inflation, “adds Procházka.
Higher profitability in industrial real estate has always been due to the fact that the industrial market was more cyclical and more subject to crisis fluctuations, during which the production of key industries declines and the related transport of subcontracting and finished products. On the contrary, the current crisis caused by the pandemic has greatly helped certain sectors, leading, for example, to an incredible boom in logistics and warehousing services. Precisely due to the closure of retail and the transfer of stores to the Internet. Today, instead of shops, goods are in warehouses and this trend will certainly continue to grow – people learned more to buy online during the pandemic and the industry will grow.
