Czechia’s economy is on its way to recovery from the pandemic-induced recession. After a record-breaking contraction which continued into the spring because of a strong third wave of COVID-19, the economy is set to recover to its pre-pandemic levels by the end of this year. However, infection rates are on the rise again and vaccine coverage still lags the EU average across age groups, while industry continues to be hampered by supply chain disruptions and high energy prices. This leads to a revised GDP growth forecast of 2.6% for 2021 and 5.4% for 2022 according to Moody’s Analytics. Domestic recovery and global supply-chain problems pushed inflation above 3%, which prompted the central bank to raise its policy rates several times, and more hikes are coming this year.
Industrial
High demand for industrial space leading to the lowest vacancy rate in history drives unprecedented rental growth and warehouse development. Developers are most active in the Olomouc, Moravian-Silesian, and South Moravian regions. Rental rates growth continues in all regions, but it is the most striking around Prague, where available warehouses and development opportunities remain scarce.
Office
The drop in GDP growth caused by the supply chain and the consequent automotive industry crisis may further affect the market. Only about 53 thousand sq of new office area were delivered to the market year-to-date, leading to the lowest annual supply in 2021 since 2016. On the other hand, the leasing activity in Q3 increased by 17% q-o-q, although the annual demand will probably not reach the 10-year average.
Retail
The positive sales trend in shopping centres continued throughout the summer, while footfalls on average kept below their pre-pandemic levels. It is evident that existing anti-pandemic measures, such as obligatory FFP2 face masks, prevent people from frequent visits to shopping centres, although the average basket increased significantly. The situation differs by location and type of the shopping centre: turnover growth is faster in the regional schemes, especially those at peripheries of larger towns.
Investment
On the Czech real estate market, hotels and prime retail in Prague are still suffering from the slump in travel and lower employee mobility. Other sectors have performed admirably, despite Covid – retail, in particular. As there is a shortage of adequate product on the market, insufficient to cover the excess of capital available, for this year investment activity of around EUR 1 billion is anticipated, with office transactions having an approx. 50% share. In the coming year, significant changes from the current trends of low activity and high pricing are not expected, despite a probable increase in industrial and retail deals next year.
Hospitality
Continued restrictions led to constrained hotel performance in H1 2021, which recorded an occupancy of 6% and ADR of €55. Nonetheless, performance has been picking up even with a partial lifting of restrictions, with RevPAR in June reaching 41% above the same month last year, generating optimism for a healthy post-COVID market recovery once restrictions are fully lifted. Accordingly, investor interest in hotels is returning and the gap in buyer-seller expectations is narrowing, however the number of hotel assets being put on the market in Prague remains limited, partially due to owners’ misconceptions that now is not the right time to sell.
Get the full Czech Republic property market picture with all the market data by downloading the reports.
