After a surprising upward rise in Q2, the Czech economy slowed in Q3 with a GDP growth rate of 0.3% q/q. The slowdown was due to persistent weakness in investments, which recorded its third consecutive quarterly contraction.
Demand for office space in Prague has slowly decreased since 2017 due to the tight labour market and consolidations in which companies have limited their expansions or re-locations and focused more on their existing properties.
Moreover, the share of large scale transactions also decreased by 25% in 2019. On the other hand, new supply has been growing since 2016, with a yearly average rate of 80%. This is resulting in a growing vacancy rate, which drew closer to 6% in the last quarter.
About 247,000 sq m of office space is currently under construction with an overall pre-lease rate of 46%. The new development activity has been recently expanding to districts of Prague that have previously been deemed less attractive or appealing, such as Prague 9 and 10.
The development of shopping centres in larger Czech cities took place mainly in the first decade of this century. The new supply is currently mainly driven by retail parks in these regions and this trend is expected to continue for at least the next three years.
Centrum Stromovka (15,500 sq m) stands out among the most significant projects completed in Q4 2019, and was also the only shopping centre completed in 2019. The largest opened retail park was Aventin Shopping Znojmo (9,600 sq m).
The most anticipated projects expected in 2020 include the extension of the Avion Shopping Park Brno, the new retail park in Kolín, and the opening of the Flow Building at Wenceslas square in Prague, which will bring attention to the launch of the first Primark store in the Czech Republic.
About 19 new brands entered the Czech market in 2019, a declining number as compared to previous years, but still a positive number. Around the same amount of retailers confirmed their entry into the Czech market in 2020 at the beginnings of this year, thus proving the continuous attractiveness of the Czech market.
Despite higher development activity in Q4, the total new industrial supply in 2019 was the lowest since 2016. The majority of completions took place in the regions of Greater Prague, Moravia-Silesia, Central Bohemia and South Moravia, and the most active developers were both traditional companies such as CTP Invest, Panattoni, and P3 and newcomers like that of Concens Investment. Pipeline for the next year remains strong with about 0.6 million sq m of industrial space currently under construction located mainly in Pilsen and Moravia-Silesia regions. About 59% of the stock under construction is already preleased.
The vacancy rate remains very low since the end of 2015, however in absolute terms there is still about 340,000 sq m of vacant space, about a third of which is around Prague, although single units exceeding 10,000 sq m available for immediate occupation are rare.
Demand for industrial space increased in 2019 with net take-up growth of almost 20%YoY, driven mostly by the production (automotive) sector, which accounted for about 51% of net take-up and was present across the whole country. Distribution and logistics sectors accounted for demand mainly in Prague and South-Moravia regions.
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