As the severe containment measures take their toll on the Czech economy due to the COVID-19 crisis, impact on the commercial real estate is inevitable. Most investment plans have been delayed rather than lost, but the prevailing uncertainty will exacerbate the output shock in the first half of this year. While office demand continues to decline, companies have adapted to home office and they will now start to try to reduce the negative effects of the lock-down measures which have been gradually released. Social distancing and closure of brick and mortar shops have increased the demand for e-commerce which is good news for logistics. On the other hand, we are recording an increase in online retailers' demand for short-term lease of storage space. Despite the obvious negative repercussions of the current crisis on the retail sector, there have been some positive effects. Grocery stores and their online platforms are growing significantly.
Office
The GDP forecast for 2020 had further declined with a fall of 1.7% as the severe containment measures take their toll on the economy in H1. We still expect a strong recovery towards the end of the year once the lockdown is gradually lifted, with 2021 growth now forecast at 5.3%. However, some permanent output losses seem inevitable – all sectors of the economy are being hit and some may not be able to fully recoup their losses.
Severe containment measures appear to show slow but apparent signs of effectiveness as the curve representing the number of COVID-19 cases in the Czech Republic has started to flatten. Consequently, the government has announced a gradual easing of the lockdown all the way through June. This means that the return to normalcy is unlikely to come soon. Looking forward, early indications from China show that industry can be quick to rebound after lockdown is lifted. On the investment side, we expect most plans to be delayed rather than lost, but the prevailing uncertainty will exacerbate the output shock in the first half of this year.
Retail
he COVID-19 pandemic hit the Czech Republic at the beginning of March, proving a slight delay as compared to the rest of Western Europe. For this reason, January and February still showed positive performance. Most government restrictive measures came in the second half of March. The Czech government managed to stop and prevent further spreading of Covid-19 in a timely matter.
The bill for this success will be issued in the coming quarters when in addition to hospitality, retail will be one of the most affected sectors. The Czech Republic has the advantage of long-term low unemployment and the level of public debt, which gives space to mitigate the negative impact on the economy.
Industrial
Although the industrial market has not been as severely affected by the COVID-19 epidemic as the hospitality or retail market, the struggling of others, together with the launch of quarantines and the closing of borders between European countries, has had an impact. Furthermore, the related logistics and storage sectors are now facing difficulties due to suspended deliveries of goods from the affected areas and employees being quarantined. A significant proportion of employees in industrial parks are foreign workers, and government regulations have restricted their ability to work.
This all has a negative effect on the mood of investors and has led to the postponement of important decisions and transactions. The Czech economy is highly dependent on the automotive industry, which has been completely suspended for several weeks. This will influence not only the sector but the whole economy, for which GDP is currently expected to decline -1.7% y/y in 2020.
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