The Czech economy continues on its road to recovery, as economic activity responds to the lifting of the lockdown. Several recent transactions show that the investment sentiment is improving significantly in the Czech Republic. Czech investors are gradually returning to the market, looking for opportunities to allocate their capital. However, the mood on the market is still cautious and the return to the previous levels of activity could easily take two more years.
Industrial
The closure of borders at the end of March complicated international logistics processes. Trucks were delayed and supply chains, often operating in just-in-time mode, had to face challenges similar to those during pre-Schengen era. Many factories had to be closed for several weeks as a consequence, including Škoda and other automotive companies. This has been confirmed by published statistics: industrial production fell by 32.8% y/y in April. Although European logistics worked smoothly again at the end of June, the intercontinental freight has been still exposed to the vulnerability of global supply chains. Many companies started to look for closer suppliers and production opportunities. This could in the long run help the European industrial market, especially in the Czech Republic, which was recently ranked the highest in Europe by the Cushman & Wakefield Manufacturing Risk Index.
Office
At the end of the first wave of the pandemic in the Czech Republic in May, most of the office employees could return to their offices, but many companies became more flexible in offering an option of working from home. Nevertheless, the share of pre-leases recorded was high, which means new occupiers have still been entering the market or relocating their offices. Despite a stronger demand for office space in Q2 in comparison to the previous quarter, the absorption of the market reached its limit and vacancy rate started to grow faster. This trend is likely to continue until the end of the year. While new office supply remained strong both in its volume and number of projects delivered in Q2, construction activity started to slow down. On the other hand, existing pipeline projects should still be completed on time as developers do not report any significant delays.
Retail
All stores except groceries, pharmacies, drugstores, and few others had to be closed from 14 March as part of the measures against the spread of the Covid-19 pandemic. Although a partial release began as early as the end of April, shopping centers could not reopen until May 11, and restaurants even two weeks later. While regional retail has been recovering relatively quickly, footfalls and sales in larger cities, especially Prague with a high share of international tourism, have remained below their usual levels in this period of year. Overall, GDP growth is expected to contract by 11.8% y/y in Q2 and according to current assumptions, the Czech economy should start recovering next year.
Investment
Commercial real estate sector reacted to the pandemic already in March when many transactions slowed down or were put on hold. Few significant were still closed since then: the acquisition of the former iconic department store Kotva in Prague by real estate fund Generali or purchase of the shopping center Čestlice near Prague by the Czech investment company HSTN. The sentiment on the market is currently improving. Especially local investors have been returning to the market, looking for opportunities to allocate their capital. However, investors are still cautious and a full recovery of the market can take another two years.
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