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Commentary by Mark on how the geopolitical situation will influence the commercial real estate market

The geopolitical situation and inflation will bring higher prices for commercial real estate

The current geopolitical situation is slowly but visibly beginning to influence the commercial real estate market. We already see companies' tendency to move from unstable, dangerous zones and look for industrial, warehouse, and office spaces in Central European countries. In the medium term, the economies and real estate markets in Poland, and to a smaller degree also in the Czech Republic, will benefit the most from this trend. However, the commercial real estate markets in these countries are beginning to be affected by rapidly rising inflation and the associated smaller number of local building construction projects.

Stable office market, rising costs

The Czech Republic has traditionally had a stable office market, where historical vacancy rates never exceeded 9-11%. This was the case even during the pandemic when office vacancy rates rose on many Western European markets. Due to the limited number of development projects and offers for new office projects, we expect this trend to remain stable; especially in Prague.

However, high inflation and rising labour and construction costs will make the construction of development projects more expensive. That, in turn, will lead to more cautious developers in speculative construction and they may seek to secure higher rents when agreeing new leases. Plus, the Czech National Bank has raised key interest rates, and thus the cost of credit, much faster than other national banks in Europe, which may result in delays in many projects and the developers' seeking to finance their projects in Euros rather than in Czech crowns. This may subsequently create differences on the Czech real estate market, where investors will value assets denominated in Czech crowns and Euros differently.

Fewer projects and opportunities abroad

A smaller number of development projects in preparation will have a negative impact on liquidity levels on the Czech real estate market and the overall volume of transactions. At a time when many Czech funds are experiencing an influx of capital from investors looking for real estate investments, this will result in Czech investors and funds increasingly seeking cross-border investments in the region of Central and Eastern Europe and throughout Europe in general.

Domestic capital dominates the Czech market, but we still see strong interest in the market from major Western European investors searching for well-located modern offices. Meanwhile, investors from Asia and the US have shown interest in industrial and logistics sites. The latter represents a global investment trend and the most attractive sector for investors.

On the Polish real estate market, we work closely with our local capital markets team in Poland to find suitable investment opportunities for Czech investors. We currently have investment projects with participation from Czech investors operating in Poland. Those projects are worth approximately EUR 180 million, and we expect this value to grow further.

Mark Richardson


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Mark Richardson

Director, Head of Industrial and Investment Services

Prague

Mark has over 22 years’ experience in the real estate industry and in the capacity of senior partner and head of investment services, is responsible for supervision, management and business growth of the Capital markets and Industrial Agency teams in the Czech Republic. His range of responsibilities includes strategic real estate advisory, origination, structuring and execution of property sale and acquisition transactions, overseeing commercial due diligence and underwriting, participation in commercial negotiations of lease and sale & purchase contracts and transaction management.

Mark was previously head of acquisitions at Prime Kapital, an integrated real estate developer, investor and operator in CEE backed by MAS Real Estate, a South African REIT. Prior to joining Prime Kapital, he was he was a Director at Pradera, a specialist retail Investment Manager where he established the Company’s offices and retail asset management platforms in both Poland and the Czech Republic. During his time at Pradera, Mark led the acquisition and due diligence process together with the asset management of 9 shopping centres totalling 148,000 sqm across CEE for and on behalf of the Pradera Central & Eastern Fund (PCEF). Before joining Pradera, Mark was Head of Capital Markets for Cushman and Wakefield in Prague, the Czech Republic where he led the acquisition and sale of over €2 billion of assets.

 

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