Savills recorded 40 transactions closed in 2023 in the commercial real estate sector with a total investment volume EUR 1.2 billion. Investment volume in 2023 was down 32% in comparison to 2022. The retail sector was the driver of real estate investment in 2023, accounting for 43% of the total investment volume. Domestic investors undoubtedly dominate the Czech investment market. They are not only the most active, having closed 29 transactions, but also accounting for the largest (80%) proportion of investment volume this year. 31% of investment transactions in 2023 were closed in Prague.
The retail sector recorded 13 transactions with a total volume of EUR 512 million in 2023, the office sector saw 11 transactions with a total volume of EUR 344 million and the industrial sector totalled 5 transactions with a total volume of EUR 132 million. Residential, hotel and mixed use sectors accounted for the remaining 11 transactions.
TOP 5 retail transactions by investment volume in 2023:
1) TREI Portfolio
2) Palác Pardubice
3) The sale of the remaining 25% share of OC Arkády Pankrác by ECE to G City Europe [Savills note: not to be confused with the 100% sale of Arkády to Trigea, which was signed at the end of the year, but the closing is in January 2024].
4) Retail Park Trutnov
5) Albert Česká Lípa
Why retail dominates investment volume?
“The dominance of the retail sector in this year’s transaction volume is an interesting change to what we’ve seen in recent years. Reflecting on what could be behind this change we observe a few elements. Perhaps the most relevant is the fact that retail assets had already experienced a downward price shift pre-pandemic. This means that going into the current market environment retail prices appeared to be more marked-to-market compared to other sectors and this allowed for investors to capture returns in line with the prevailing sentiment,” says Fraser Watson, Head of Investment at Savills CZ & SK and adds:
“Other aspect contributing to retail’s appeal is the fact that post-pandemic spending in brick and mortar stores has rebounded strongly, demonstrating that physical retail assets have a bright and sustainable future, and do have the ability to fend off competition from e-commerce. A final factor is considered to be that in most cities across the country there will be no further significant development of shopping centres. This allows investors to predict and evaluate the longer term future in terms of competition, giving more stability and certainty. We expect that retail as an asset class will continue to be appealing to investors going into 2024.”
Retail parks investment
“In 2023, the retail park investment volume roughly doubled compared to the previous year, but retail parks accounted for about 8% of the total volume. The strongest year for retail parks was 2021, when their resilience to negative market influences made them highly attractive to investors during the pandemic period, accounting for 45% of total volume,” says Vojtěch Wolf, Senior Investment Analyst at Savills.
TOP 3 countries of origin of investors in terms of investment volume in 2023 were – 1. Czech Republic
2. Israel
3. France.
In Q4 2023, prime yields remained stable across all real estate sectors, with retail sector standing at 6.50%, industrial assets at 5.25% and offices at 5.25%.
Prediction for 2024
In 2024, we expect inflation to fall towards the targeted 2% level which will in turn lead to further cuts in the ČNB’s base rate, which can be expected also from ECB. We can cautiously anticipate a slight economic recovery in the first half of 2024 with a positive influence on real estate investment activity.
