Are prime assets sold out?
Commercial real estate investment volumes in the Czech Republic in the first quarter of 2018 were the lowest since Q1 2014 and reached some €313 million. This was €1.3 billion less than at the equivalent point last year (down 81%). Although the total capital value of Q1 transactions was relatively low, market activity actually remained high with the total number of 17 transactions. Ironically this exceeds the long-term average of 13 deals closed per Qtr over the last seven years. The drop in the quarterly investment figure was therefore down to fewer bulkier investment transactions, for example the largest transaction in Q1 was only €64 million i.e. the purchase of Praha City Center by Amundi, while the average size of a deal in this quarter was down to €18 million. Notably the majority of investment deals in Q1 were closed by Czech investor groups and continuing in this vein we saw new entrants debuting with their first direct property investment.
We always view the emergence of new domestic players as a positive trend as it adds to market liquidity rates and further deepens the pool of Czech capital interested in real estate as an investment vehicle. Based upon the investment deals we are tracking, there is a high number (50+) of potential transactions working their way through the pipeline with closings scheduled to occur later/throughout the year and potentially even falling into 2019. Prime yields are close to or at cyclical lows and it’s interesting to see who will blink first with respect to prospects of further price increases. The talk of market correction and increasing interest rate costs is in the thoughts of many buyers and sellers, however, this does not mean the rationale to invest in Czech property is about to disappear as there is still many compelling reasons to deploy capital in Czech real estate.
Andy Thompson, Investment Director, Czech Republic at Colliers International, said: “Czech investors are increasing their prominence not only in their domestic arena but are also now closing deals in neighbouring Visegrad countries (e.g. REICO, CPI etc). Czech capital accounted for €1 in every €3 during 2017 investing in commercial real estate across CEE making them one of the most active investors by origin of capital. Yields have more or less remained stable over the past 3 months. There are several interesting transactions in play and many large international investors are even seeking to enter the development field by partnering up with a locally based development company. This trend is also partly explained by the fact pricing has reached levels where the potential future returns are less interesting for some buyers than they were say 12-18 months ago. “