Q1 2025: Czech Economy Rebounds but Faces Growing Challenges
The Czech economy saw a notable acceleration in 2024 after a prolonged slowdown, but this momentum is not expected to last. The recovery, though the strongest in over two years, will likely lose pace in 2025 due to global trade weakness and rising policy uncertainty. As a highly trade-dependent country, Czechia remains vulnerable to shifts in international trade and supply chain fragmentation. While household consumption is set to rebound thanks to improved disposable incomes and reduced inflation pressure, external challenges will continue to weigh on the country’s export-driven growth.
Despite its structural strengths, the Czech Republic faces deeper and longer-term economic obstacles. These include slow productivity growth, labour shortages and an energy-intensive industrial base. Even with a moderate GDP growth forecast for 2025 and 2026, quarterly performance may remain stable.
Investment
In the first half of 2025, the Czech real estate investment market experienced a significant recovery, with Q1 recording the highest investment volume in the past five years. Overall, €2.1 billion was invested in commercial real estate during H1 2025, driven by major transactions, including the acquisition of the Contera industrial portfolio. Activity was further supported by deals in the office and hospitality sectors, with hotel transactions alone exceeding €470 million, already surpassing the full year 2024 volume by approximately 280%.
In Q2 2025:
- Transaction volume reached approximately €600 million, bringing year-to-date total to €2.1 billion, a 187% year-on-year increase.
- Industrial assets led activity with 35% of transaction volume, followed by hospitality (25%) and office (23%) sectors.
- Key deals included PPF Real Estate's acquisition of the Four Seasons Hotel Prague and the sale of the Visionary office building to Conseq Realitní. Czech investors accounted for 90% of transaction activity.
- Prime yields for office and industrial assets compressed by 25 basis points quarter-on-quarter, while retail parks also saw moderated compression of 10 basis points. Yields for all other asset classes remained stable.
Office
At the end of Q1 2025, Prague’s modern office market remained relatively stable, with limited new supply and subdued leasing activity. Only 8,700 sq m has been added to the market, while construction of more than 173,000 sq m of office space continues. Leasing volumes dropped by 14% year-on-year, driven by a lack of large transactions, though the vacancy rate still declined slightly to 7.0%. Despite the slowdown, prime rents in the inner city rose by 10%, reflecting steady demand in key submarkets.
- Modern office stock reached 3.96 million sq m, with only 8,700 sq m of new space added and over 173,000 sq m under construction for delivery by 2027.
- Leasing activity dropped by 14% year-on-year, with net take-up at 47,900 sq m and renegotiations making up 40% of total deals.
- Vacancy rate declined slightly to 7.0%, despite weaker demand, suggesting stable overall occupancy.
- Prime rents rose 10% in the inner city, reaching €21.00 per sq m/month while remaining flat in the city centre and outer city.
Industrial
In Q1 2025, the Czech industrial market showed strong momentum, with 155,900 sq m delivered across seven parks, pushing the total stock to 12.44 million sq m. Construction activity expanded, with over 1 million sq m underway, with 72% already pre-leased. Occupier demand surged year-on-year, driven largely by logistics and transport firms, although net take-up declined slightly from the previous quarter. The vacancy rate remained low at 3.1% (7% when including unleased Shell & Core projects). Prime rents held steady, with Prague at €7.50/sq m, Brno at €6.50, and Pilsen at up to €6.00.
- Approximately 155,900 sq m of new space was delivered, bringing total modern industrial stock to 12.44 million sq m.
- Demand from occupiers rose 152% y-o-y, led by logistics and transport companies, although net take-up fell slightly quarter-on-quarter.
- Vacancy rate remained low at 3.1% but could rise to nearly 7% when including Shell & Core projects awaiting tenants.
- Prime rents stayed stable, with €7.50/sq m in Prague, €6.50 in Brno, and up to €6.00 in Pilsen.
Retail
By the end of Q1 2025, total retail space in Czechia reached 4 million sq m, with 26,900 sq m added exclusively in retail parks, including major completions in Kozomín and Terezín. Retail parks continued to expand, driven by strong demand. Around 140,100 sq m is under construction or renovation, with key projects like Forum Pardubice and the former Kotva department store underway. Prime retail rents increased for the first time since Q2 2022, reaching €235/sq m for high street units, €145/sq m for shopping centres, and €15/sq m for retail parks.
- Total retail space in Czechia reached 4 million sq m by Q1 2025, with 26,900 sq m added, all within retail parks.
- Key additions were the Kozomín (14,700 sqm) and Terezín (5,300 sqm) retail parks, underlining the continued growth and attractiveness of retail parks.
- About 140,100 sq m of retail space is under construction or renovation, led by Forum Pardubice (24,000 sq m) and the former Kotva department store (15,000 sq m).
- Prime retail rents increased for the first time since Q2 2022, reaching €235/sq m for high street units, €145/sq m for shopping centres, and €15/sq m for retail parks.
Hospitality
As of Q1 2025, the hospitality market in the Czech Republic remained relatively stable. Overall occupancy declined slightly by 0.8%, while the ADR (Average Daily Rate) increased by 0.6%. As a result, RevPAR (Revenue Per Available Room) decreased marginally by 0.2% compared to the same period last year.
However, it is important to note that the total number of rooms sold in the Czech Republic increased by 3.3% year-on-year, indicating underlying strength and growth in market performance despite the minor RevPAR decline.
In the capital city, there was a modest increase in room supply, approximately 230 rooms, driven by the opening of new hotels such as City Pop Prague and the Sir Hotel. The room supply is further expected to expand with the opening on the Fairmont Golden Prague, scheduled for mid-April 2025.
- Demand in Prague remains 4.7% below 2019 levels and 1.3% below Q1 2024. This continued softness in demand is primarily driven by a slower recovery of long-haul international travel, especially from Asia and North America, as well as reduced corporate and MICE (Meetings, Incentives, Conferences, and Exhibitions) activity, which has yet to return to pre-pandemic levels.
- On the investment side, hotel transactions in the Czech Republic reached €326.5 million in Q1 2025, already exceeding the full-year 2024 volume by c. 125%. This figure is only 0.4% below Q1 2019 levels, placing high hopes on 2025 as the potential year of full transaction recovery after five years of subdued activity.
- This flourishing transactional activity highlights the attractiveness of the Czech hospitality market, which continues to show signs of growth. Notably, most capital invested comes from domestic sources. Transaction volumes are expected to rise further following the anticipated signing of the Four Seasons deal and the closing of additional transactions currently in the pipeline.
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