H1 2015 the Most Successful First Half of the Year Since the Financial Crisis: €1.17 Billion in Transactions Closed
Prague, August 31, 2015 — Colliers International today released its newest Research & Forecast Report pertaining to H1 2015 in the Czech Republic. The report, which covers the investment, office, and industrial markets in Prague and throughout the Czech Republic, provides both summaries and analyses of developments in the last quarter, and also looks ahead to the future.
Investment Market Highlights
The first half of 2015 saw a total €1.17 billion of real estate investment transactions close across the Czech Republic, which represents a 73% increase from the same period in 2014 and is 214% above the level in H1 2013. The Q2 transaction volume of €431 million was, however, below the €760 million seen during Q1.
To date, transactions volumes have been dominated by deals in the retail sector, the largest of which was the purchase of Palladium in central Prague by Union Investment. The second largest transaction completed in H1 2015 also involved a Prague based shopping centre, with Atrium European Real Estate (AERE) purchasing Unibail-Rodamco’s 75% stake in the Arkády Pankrác shopping centre in Prague 4 during Q2. ECE will retain their 25% stake and continue to manage assets of the centre.
“We are still predicting that 2015 will be a record year in terms of investment volumes in the Czech Republic, as the current level of investor interest shows no sign of abating. A similar trend is being witnessed across Europe as this bull market has attracted large flows of capital into real estate investment,” said Omar Sattar, Managing Director, Colliers International Czech Republic. “We are registering demand across the sectors and interestingly also along the risk curve. Whilst demand in previous years has been concentrated on core sectors and locations, investors are increasingly looking to core- plus and opportunistic properties.”
The second half of the year will see benchmark yields set across the asset classes as we see further evidence of yield compression. Office yields are set to breach the 6% mark, regional shopping centres are beginning to trade in the low 6% range, and prime high street retail in Prague should trade below 5% for the first time.
H1 2015 Prague Office Property Market Highlights
Total office stock in Prague stood at 3.13 million m2 by the end of H1 2015; four new office buildings were completed during Q2 2015 totalling 68,590 m2. Key office projects completed in Q2 included both BB Centrum DELTA (40,600 m2) and Green Line (13,700 m2) in Prague 4 and Crystal Prague (12,800 m2) in Prague 3. Of the new office space delivered in Q2, just over 50% was leased prior to completion, which is a significantly higher amount of pre-leasing than seen in previous quarters.
Despite a fairly strong delivery pipeline in Q2, Prague vacancy rates actually dropped slightly from 17.1% in Q1 to 16.8% in Q2. This marginal fall was of course helped by the strong pre-leasing activity. Total vacant space in Prague amounted to 526,000 m2, an almost identical number to Q1, though one-fifth higher on a year-on-year (y-o-y) comparison.
“The second half of 2015 is expected to deliver a further 90,100 m2 of new office space to the market, giving a total annual supply of some 190,000 m2. The bulk of new office construction in 2015 is focused on Prague 4 and Prague 5,” said Omar Sattar.
The three largest projects out of the five scheduled for the second half of 2015 are Enterprise (29,000 m2) in Prague 4, Aviatica (27,000 m2) in Prague 5 and Corso Court (17,300 m2) in Prague 8. All of these buildings are new building constructions. Overall, some 39% of the additional 2015 office supply space has been pre-leased to date. The highest volumes of pre-leasing were registered at Corso Court (93%) followed by Enterprise (51%).
Prague experienced a very active leasing market in H1 2015 with some 204,000 m2 of gross take-up recorded during the first six months. Q2 proved to be a particular strong leasing period (129,600 m2); even ignoring the large lease renewal of the telecom provider O2 (29,600 m2) would still have proved to be one of the busiest quarters on record.
Key Q2 Office Figures
Total Modern Office Stock: 3.13 million m2
Gross Take-up: 129,600 m2
Vacancy: 16.8%
Prime Headline Rent: €19/m2/month
H1 2015 Industrial Property Market
Q2 2015 saw the completion of industrial premises totalling nearly 100,000 m2 of which 93% was pre-let prior to construction. Together with the Q1 2015 supply, Czech industrial stock grew by 139,800 m2 during H1 2015 (28% less than in H1 2014), reaching 5.26 million m2. Almost 40% (2.1 million m2) of the total inventory is located in Prague. Prologis was responsible for delivering the three largest warehouses to the Czech market during H1 2015. All were built in the Prague region, including 31,800 m2 for Mall.cz at Jirny and a 30,000 m2 for Červa Export Import along with a similar sized speculative building at Jeneč.
The countrywide vacancy continued its declining trend for the third quarter in a row, reaching 6.9% at the close of Q2 2015 (down from 7.8% in Q1 2015). This equates to 363,400 m2 of unoccupied industrial premises ready for immediate occupation across the country. Prague had the largest portion of vacant premises at the end of Q2 with 144,900 m2, which translated to a vacancy rate of 6.9%.
A total of 370,700 m2 was transacted during Q2 2015, mostly in the form of pre-lets (36%) and lease renewals (30%). The combined gross take-up figure for the entire H1 2015 came to 614,000 m2 and again was largely made up by pre-leases (31%) and prolongations of leases signed in the past (26%).
Net take-up, which excludes lease renewals, reached 260,700 m2 in Q2 alone. Compared to the corresponding period of last year this is almost double in terms of volume and more than double in number of signed deals. The Q1 and Q2 figures combined resulted in the total net take-up of 456,800 m2, which is 65% above the activity during H1 2014. German retail chain Globus concluded the two largest deals of H1 2015. The retailer signed a lease expansion at Prologis Park Prague-Jirny (33,500 m2), in a brand new facility (under construction) and also renewed their existing lease (28,900 m2) at the same location.
Headline rents in the regions, for a five year lease term, ranged between €3.60-3.90/m2/month in Prague; €3.70-4.00/m2/month in Pilsen; €3.70-3.85/m2/month in Ostrava and €3.85-4.25/m2/month in Brno.
“Although this year’s H1 supply levels are slightly weaker than those in H1 2014, the strong construction pipeline indicates that 2015 is likely to be the strongest year in terms of new supply since 2008. Current levels of occupier activity/gross take-up may in fact mean that overall demand for the full calendar year could exceed the 1 million m2 mark. We are seeing increased interest from retailers/e-tailers who are considering establishing new distribution centres or consolidating/expanding their warehouse footprint in the Czech Republic,” closed Omar Sattar.
Key Q2 Industrial Figures
Total Stock: 5.26 million m2
Gross Take-up: 370,700 m2
Vacancy: 6.9%
Prime Headline Rent: €3.60-3.90/m2/month