Offices were the most dominant real estate sector in the country in H2 2020 accounting for 41% of the H2 volume. The retail sector followed with a share of 23%, while industrial assets made up 20%. The share of foreign investors in the total investment volume reached 64% in H2, being slightly higher than in H2 2019 (57%).

Lenka Pechová, Senior Research Analyst at Savills CZ&SK, says: “During the second half of 2020, 25 transactions were concluded, while 21 deals were recorded in the first half of the year. As is common on the Czech market, the vast majority of the signed transactions did not exceed the €100 million value mark. This was true for 23 of the 25 deals signed in H2 alone and 42 of the total 46 transactions closed during the full year.“

In spite of the impact of the COVID-19 pandemic on investment activities, commercial real estate in the Czech Republic attracted €2.7 billion of capital in 2020, which was only 11% down on the transactional volume achieved in 2019 and 13% below the 5-year average.

Despite the absence of investors from South Korea and the US, who were very active on the Czech market in 2019, cross-border investment in 2020 rose marginally (by 4% y-o-y) to €2.02 billion. The share of foreign investments reached 75% of the total volume transacted in 2020 (compared to a share of 64% in 2019 and 41% in 2018). Excluding Heimstaden’s large acquisition of the Residomo portfolio, the share of domestic capital transactions increased to 49%. The highest number of transactions were made in the office segment (15), closely followed by the retail sector (14). Czech investors concluded 26 of the 46 transactions, with more than half of these being assets outside of Prague.

Yields on core properties in the best locations continued to prove resilient in 2020. After increasing slightly in the first half of 2020, prime office yields remained stable at 4.10% in the second half of the year. Estimated yields for prime shopping centres remained at 5.75% (up by 75 bps from the beginning of 2020) - however, caution is still recommended when estimating prime retail yields as this is a segment of the market that has been amongst the most affected by the pandemic and the spread in yield can be partly connected to the now perceived overrent across rental tones. Prime yields for industrial assets located in core locations, which are in exceptionally short supply on the Czech market, are estimated at 4.25%, down by 25 bps from 4.50% in the middle of 2020.

Investor appetite and capital availability for acquisitions is high, although debt may become more expensive especially in non-core sectors (although conversely the spread to yield remains healthy).

Vojtěch Wolf, Investment Analyst at Savills CZ&SK, adds: “Investors had a subdued 2020 but are sitting on significant equity ready to be deployed. The first half of 2021 is therefore likely to see a good amount of market activity supported by continued buyer demand and sellers taking comfort from strong benchmark pricing, despite the external continued health crisis. The focus will be more on tenant covenants, cash positions and occupational drivers and this will be the focus of pricing – overall capital value – not necessarily yield.”