"In Q2 2023, there were only a few transactions on the Czech investment market that involved premium or core assets. The market continues to search for new, acceptable price levels and the gap between the offers and sale price is still evident. Encouragingly, we have seen some groups of investors closing transactions at lower price ranges or acquiring various high-potential opportunities. This means that transaction activity continues, albeit at a much lower level than in previous years," explains Josefina Kurfürstová, Colliers' analyst for the Czech Republic and CEE.

Investment flows by sector

In terms of individual sectors, Q1 and Q2 were similar in many respects. Characteristic for both quarters was not only the decline in the volume of investment in office space and the growth in interest in retail real estate but also the absolute dominance of domestic buyers. The largest Czech transaction worth approximately €124 million (42% of the total volume) was the sale of the Palác Pardubice shopping centre. The second largest transaction was a "preparatory" transaction where the Israeli group G City consolidated its full ownership of the Arkády Pankrác shopping centre in Prague 4 by acquiring the last 25% ownership share. This stake was worth €60.5 million, which roughly corresponds to the announced sale price of the entire shopping centre. The transaction is reportedly being negotiated via an established Czech investment fund. The office sector saw a long-awaited transaction when REICO sold its Rohan office building in Prague 8 for approximately € 33 million. The building was purchased by FIO Bank's investment fund, making it the first acquisition for the new fund.

In the CEE region, the volume of investment in office space accounted for only 29.5% of the total investment volume, while the volume of investment in retail real estate accounted for 35%.

Investment flows based on buyer origin

In 2023, domestic capital was by far the most active in the CEE-6 region, accounting for an impressive 59% of total regional volumes. Czech capital (40%) secured the highest volume overall and almost 17% through just 2 transactions (both retail). Other capital from the CEE region picked up a further 19%, followed by capital from Europea (14%), APAC (7%), the US (5.4%) and the Middle East (5%).

How are revenues developing?

"For industrial and shopping centre properties, we have increased the main benchmark yields by 25 basis points to 5.00% and 6.00% respectively. The shopping centre yield benchmark is likely to be tested by the expected sale of Arkády Pankrác. For offices, we have left the prime yield unchanged at 5.25%, given that we have adjusted it by 125 basis points from Q2 2022 and believe it is currently at a level in line with the market," comments Josefina Kurfürstova, adding that asset revaluation is still ongoing and there is limited information available regarding transactions in individual sectors to help compare the primary and secondary yield rates (yields). Therefore, the view on yield indicators is also partly based on transactions currently taking place and general market sentiment.

What can we expect in the coming months in the real estate investment sector?

"We are already seeing some optimism and momentum in Q3, even though the European holiday season is in full swing. Domestic investors will again play a significant role and we expect to see further transactions across key property sectors. Our overall volume estimate 2023 remains unchanged at €1.5 billion," concludes Josefina Kurfürstová.

In the last few months, she says, the market has seen growing concerns about the large number of real estate bonds set to reach maturity in coming quarters. Issuers that have historically estimated exit values above current market levels and assumed lower debt costs could find that their business plans are no longer financially viable under current market conditions. We may therefore see some of these investors being forced to liquidate their positions by selling their underlying assets.