PRAGUE, November 24, 2016 – Colliers International today released its Q3 2016 Market Overview for 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
During the first three quarters of 2016, investment volume in commercial real estate exceeded €1.45 billion, which equates to a 37% year on year (y-o-y) decrease. During Q3 alone, investment volume reached €489 million, which is a 4% quarterly increase, however, in y-o-y comparison, it was a significant decrease, as Q3 2015 was the most active quarter in the market’s history.
Retail and office continued to dominate the market with a 37% and 34.5% share on total investment in Q3, respectively. “In terms of capital source, local investors remained the most active, with a 55% share of total investment volume, followed by South Africans with 11% and British investors with 7%,” says Ondřej Vlk, Head of Research at Colliers International in Prague.
The largest transaction in Q3 was the purchase of City Tower in Prague 4 for €163 million by local investment fund, Reico, and a number of transactions are expected to be closed in the final quarter, with several of these deals expected to be in excess of €200 million each.
Despite the lower Q1-Q3 figures, Colliers forecasts 2016 to break all previous annual investment volume records for the Czech Republic with in excess of €3.0 billion in transactions.
Q3 2016 Prague Office Market Highlights
By the end of Q3 2016, total office stock in Prague grew marginally to 3.24 million square metres, with three new properties delivered including Futurama Business Park F (10,155 sq m) in Prague 8, Harrachovský Palác (1,380 sq m) in Prague 1 and Antal Business Centre (2,369 sq m) in Prague 4.
In spite of the available space in these newly delivered office buildings, the vacancy level dropped by 60 basis points quarter on quarter (q-o-q) to 11.7% by the end of Q3, and the total volume of available space reached 378,500 sq m, which represents a q-o-q decrease of some 19,200 sq m.
Vacancy dropped in most office districts of Prague, with few exceptions. In terms of square metres, the highest decline in availability was in Prague 1, where 8,600 square metres was leased, representing a vacancy decrease of 160 basis points.
The space under construction exceeded 247,000 sq m, out of which 14% was pre-let to date. “In 2017, we expect office completions of ca 180,000 sq m due to some projects being pushed into 2018,” says Ondřej Vlk.
Total gross take-up in Q3 2016 reached 109,600 sq m, which is a 3% q-o-q decrease, but a 19% y-o-y increase, while, during the first three quarters of 2016, gross take-up reached 316,000 sq m, a y-o-y 10% increase. Net take-up (excluding renegotiations, subleases and relocations) in Q3 reached 72,700 square metres, a 5% q-o-q increase and 62% y-o-y increase, while the cumulative net take-up reached 141,700 square metres, up 64% from the first three quarters in 2015.
The largest transaction of the quarter was a new lease at Mechanica 1 in Prague 5 by Johnson & Johnson (15,066 sq m), signed before the property’s completion. The IT sector was the most active in Q1-Q3, with a 16% share of gross take-up, while pharmaceuticals ranked second with a 13% share, followed by professional services with a 12% and financial with 11%.
Prime office headline rents remained stable in Q3 and ranged between €18.50 and €19.50 per sq m per month, while the city wide average rent remained unchanged at €13.20 per sq m per month.
The vacancy level is expected to continue to decrease in Q4 2016. In 2017, with the increased level of completions the vacancy is likely to show mild increase, especially in H2 2017 as 62% of pipeline completions are scheduled after the mid-year point.
Q3 2016 Industrial Property Market Highlights
By the end of Q3 2016, the total industrial warehouse stock in the Czech Republic reached 6.08 million sq m, with 51,800 sq m of new space completed in six buildings, mostly in the
Greater Prague Area but also in Pilsen in Q3 alone.
The Greater Prague Area (Prague) remains the largest warehousing region in the country with 2.4 million sq m of warehouse space, which represents 40% of all manufacturing and logistics space in the Czech Republic.
The largest property completed in Q3 was Panattoni Park Prague Airport II L3a totalling 23,300 sq m.
By the end of Q3, the vacancy level decreased to 4.4%, down 30 basis points q-o-q, while the total industrial vacancy was 268,200 sq m, which is q-o-q decrease of 14,700 sq m. Also by the end of Q3, around 560,560 sq m of new warehouse space was under construction, of which almost 70% is already pre-let.
Gross take-up in Q3 2016 was 291,700 sq m, down 17% q-o-q and 15% y-o-y. Net take-up accounted for 100,540 sq m, down 62% q-o-q and 55% y-o-y. Prague was the most active region, with 118,200 sq m (41% of the take-up), followed by Pilsen with 95,500 sq m (33%) and Moravia-Silesia with 33,300 sq m (11%).
The largest deal of the quarter was the renegotiation of MD Logistika at P3 Prague Horni Pocernice (38,500 square metres). The largest new deal of the quarter was Weltbild in CTPark Bor (26,100 square metres).
Headline rents in the regions, for a five-year lease term, ranged between €3.70-€3.90 per sq m per month in Prague; €3.70-€4.00 per sq m per month in Pilsen; €3.75-€3.95 per sq m per month in Ostrava and €3.95-€4.25 per sq m per month Brno.
Ondřej Vlk concludes: “The occupier demand remains strong and the gross annual take-up is expected to exceed 1.2 million sq m, while demand figures are pointing to another strong year for occupier demand across the Czech Republic.”