The end of 2020 witnessed a sharp surge in infections and the slow start of the vaccination programme in the Czech Republic. Nevertheless, Moody’s 2021 GDP growth forecast remains at 4.1%, as many experts expect the vaccination process to get back on track by summer, steering an economic recovery. Following the overall reduction in demand, the Prague office market finally shifted to a tenant’s market in Q4 2020, as landlords started to offer more aggressive conditions. The lack of a logistics supply persists in the most attractive locations, mainly in Prague, and upward pressure on rents can be anticipated. Despite current challenges, there is no reason to suggest that retail will not work in the longer-term. On the other hand, owners of schemes above 50,000 sq m will have to re-evaluate their plans and adapt them to the post-Covid times.
While supply was going through a more modest Q4 2020, the demand was the highest in the eight-year monitoring history. The volume of short-term (up to 12 months) leases increased significantly, although these are not part of the overall figures. Despite the declining vacancy rate, prime rents remained stable in most regions.
Landlords, especially those with a larger portion of unrented space, have started to offer more attractive conditions and incentives. At the same time, developers are requesting their suppliers to re-tender to lower costs and prepare for further pressure on rents. Tenants expect to be able to achieve “great” deals, particularly for relocations.
Prague shopping centres and almost all big schemes and high street faced another drop in sales and footfall at the end of 2020, which caused an increase in vacancies and further pressure on rental levels. Landlords continue to try to prevent losing their tenants and offer more flexible conditions and competitive rents.
Investors still focus on offices and logistics properties; they remain cautious with high-street and hotel assets. The appetite for retail is limited to opportunities with higher expected returns and investors with a local base. We do not expect transactional activity in 2021 to return to the high levels of 2019, although it should be higher than in 2020.
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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