More contagious Covid-19 virus mutations began to spread in February, causing another wave of pandemic and an increase in casualties in the Czech Republic. Consequently, the government implemented the strictest version of lockdown, including closed schools, mandatory testing in offices and factories, and a ban on non-essential travel between municipalities and districts. The State of Emergency, which lasted 188 days in the Czech Republic, ended on 12 April. The improving epidemiological situation finally enabled the Czech Government to partially release the anti-pandemic measures that have been in place since Christmas. According to a preliminary estimate of the Czech Statistical Office, GDP decreased by 2.1%, year on year, in Q1 2021, which is a better result than expected. Employment increased by 0.2%, quarter on quarter, and the unemployment rate keeps slightly above 4%, which is one of the lowest rates in the EU.
In Q1 2021, only 68,000 sq m of new space were completed within five buildings in five parks, the lowest quarterly volume since Q3 2016. It is a sign of concerns over speculative construction, leading to weaker construction activity in general. On the other hand, quarterly demand for industrial space measured as gross take up was the highest in history.
Completions of several projects were postponed to 2021. However, the lowest volume of new supply since 2016 is expected to be added to the stock this year in Prague. A healthy level of pre-lease activity will show in Q2, and higher construction activity should renew in 2022, including long-awaited mixed-use projects Masaryčka, Port 7 and Smíchov City.
The closure of brick and mortar stores severely impacted many retailers, especially those who could not fully develop their online distribution channel. On the other hand, a significant proportion of customers still prefer "traditional " shopping in some sectors, especially in fashion, where the retail sales fell by 62% y o y in the first quarter. Experience from other countries reopening all shops recently proved a strong interest in shopping due to deferred consumption, which can be a hope for retailers. However, it seems that omnichannel will be a crucial element to the future success of the retail sector.
Particularly the investors from the West are still waiting to see how the Prague office market will develop and how much the work from home schemes will affect the market. The local and regional players are still keen to invest, but projects with larger lot sizes (above 50 mils. EUR) can be challenging. The pricing of the industrial sector is sharper than ever, considering the current investors' sentiment, especially in prime locations and long WAULTs. Western funds are the main driving force, explicitly focusing on the industrial sector. The attitude towards the retail market improves across all property types, food anchored retail schemes being the favourite market segment. High street retail struggles with the more extended and deep impact of the pandemic, even if occupiers' activity stays solid recently. Local and regional funds remain active, but more value-add Western capital can be expected soon, too.
Hotel transactions were few and far between on the Czech market in 2020. In the climate of uncertainty caused by the COVID-19 outbreak, several deals were postponed, with investors and owners in wait-and-see mode, looking for clear signs of recovery.
Hotel transaction volume in Prague fell to EUR 91 million in 2020, down 83% from the previous year’s record-breaking EUR 538 million. In this respect, 2021 should some revival in activity, with several assets being considered for sale. This is underpinned by the strong supply and demand fundamentals of the Prague market: with limited supply growth and dominant leisure segment driven by travellers from within Europe, the Prague hotel market is expected to see a fast recovery once the pandemic is contained.
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