The Covid-19 global pandemic caused the deepest recession in the Czech Republic since 1991, prompting a GDP contraction of 5.6% in 2020. The second and third waves of the pandemic accompanied by severe restrictions at the beginning of 2021 will have significant implications on the economy throughout this year. However, according to Moody’s Analytics forecasts, we will likely see a recovery with GDP growth expected to reach approximately 4.5% in 2021. The outlook for 2022 is even more optimistic: the GDP could grow by 6.5%.
The record gross take-up from the last quarter was followed by the record net demand (excluding renegotiations) of 386,400 sq m in Q2, and the lowest vacancy in the history of Industrial Research Forum. A significant number of projects is currently under construction, with about 600,000 sq m to be completed by the end of the year, and more than 70% of the planned deliveries already pre-leased. Most of the pipeline area is situated in the Pilsen and Moravia-Silesia regions.
Uncertainties with the future of office jobs, together with the caution of developers, is leading to the lowest annual supply of new office space in Prague since 2016. Leasing activity remains stable, albeit still below a 5-year average. The demand is distinguished by a continually low pre-lease take-up contributing to the delayed start of the construction of several planned projects.
After the full opening of stores in the middle of May, both turnovers and footfall in shopping centres increased immediately above levels in the same period last year. Sales in May and June were even higher than in the pre-pandemic year 2019, while footfall kept relatively low. Hypermarkets and supermarkets performed the best; 30% above their turnovers in 2019 on average. 140,000 sq m of retail area within shopping centres are currently in different stages of preparation in Czechia. These include extensions, reconstructions or redevelopments of older schemes in all cases. The impact of the pandemic on the retail market differs significantly in various locations and according to the type of the project.
Total volume of investments in commercial real estate reached €678 million in the first half of 2021, which is about 20% more than in the same period last year. About the same volume is expected to be transacted by the year end, making the annual figure higher than in 2020, but still far from the levels reached before the pandemic. After a waiting-mode period, investors started to be optimistic again regarding the economic recovery, and they still possess significant amount of capital to be deployed on the market. However, the investment activity remains low particularly due to the lack of product caused by reduced development activity across all real estate sectors.
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.
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