Q2 2025: CZECH ECONOMY SUSTAINED DOMESTIC DEMAND, MONETARY EASING, AND STRUCTURAL TRANSFORMATION
The Czech economy began the year with strong growth, primarily driven by increased fixed investment and robust external demand. However, this momentum is expected to moderate in the near term due to the global trade environment and policy uncertainties. As an export-oriented economy, Czechia may experience a slight contraction in one or two quarters, although recovering domestic demand is anticipated to prevent a deeper recession. Private consumption is projected to be a key driver of growth, supported by improvements in real disposable incomes. The labour market remains resilient, with unemployment remaining low. The Czech National Bank is continuing its monetary easing cycle, with policy rates expected to approach a neutral level of 3% in 2025. A notable structural shift is also underway, with the economy transitioning from low-value-added manufacturing towards a higher-value-added, knowledge-based model.
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
The Prague office market in Q2 2025 demonstrated a positive performance, characterised by stable demand and a notable increase in construction activity, particularly for owner-occupied projects. While new supply completions during the quarter were limited to two smaller refurbishment schemes totalling 6,600 sq m, a substantial 212,600 sq m of office space is currently under construction. Gross take-up reached 164,800 sq m, significantly driven by large owner-occupation deals, which contributed to a positive net absorption of 23,800 sq m. This strong demand, combined with limited near-term completions, led to a year-on-year decrease in the vacancy rate of 131 basis points, bringing it to 6.6%. Prime headline rents in the city centre remained stable.
- Total modern office stock reached 3.94 million sq m by the end of Q2 2025. During the quarter, two refurbished office projects were delivered to the market, adding 6,600 sq m of office space.
- As of Q2 2025, 212,600 sq m of office space is under construction, with delivery scheduled between 2025-2028. Notably, 73% of this space is already pre-leased.
- The vacancy rate fell to 6.6%, decreasing by 43 basis points q-o-q. At the end of June, approximately 260,000 sq m of office space was available in Prague.
- Gross take-up reached 164,800 sq m, driven primarily by large owner-occupiers. Compared to the previous quarter, the total demand increased by 87%. Renegotiations accounted for 32% of the total gross take-up.
- Prime rents remained stable across all parts of the city, with the city centre at €30 per sq m per month.
Industrial
In Q2 2025, the Czech industrial market saw stable prime headline rents for the third consecutive quarter, while construction activity peaked with nearly 1.2 million sq m underway, the highest volume since Q3 2023. Despite this, demand softened significantly, with gross take-up dropping by 41% quarter-on-quarter. The vacancy rate rose to 4.0%, though it remained lower in Prague and Central Bohemia. Developers and landlords are increasingly offering incentives, especially in regions with higher vacancies, to attract tenants.
- Approximately 131,600 sq m of new space was delivered, bringing total modern industrial stock to 12.68 million sq m.
- The vacancy rate increased to 4.0% from 2.8% in Q2 2024.
- In Q2 2025, the leasing activity slowed down by 41%q-o-q, totalling 304,900 sq m. The highest leasing activity was recorded in the South Moravian and Usti nad Labem regions.
- Prime rents remained unchanged, with €7.50/sq m in Prague, €6.50 in Brno, and up to €6.00 in Pilsen.
Retail
The retail market in the Czech Republic continued to perform strongly in the first half of 2025, driven by increased household spending and growing investor confidence. During Q2 2025, over 26,700 sq m of new retail space was delivered, with the most notable project being the refurbishment of Forum Pardubice. For the full year, a total of 130,300 sq m of retail space is expected to be completed, with nearly 80,000 sq m concentrated in retail parks. Prime rents remained largely stable, with only modest increase observed in shopping centres. Furthermore, sixteen new international brands entered the market, predominantly in Prague, indicating sustained interest in the Czech retail sector.
- Total retail space in Czechia reached 4 million sq m by Q2 2025, with 26,700 sq m added to the market.
- Key additions were the shopping centre Forum Pardubice (24,000 sqm) and retail park OC Bystřice pod Hostýnem (2,700 sqm).
- About 149,700 sq m of retail space is under construction or renovation, led by Galerie Pernerka (30,000 sq m) and the former Kotva department store (15,000 sq m).
- Prime retail rents remained stable at €235/sq m for high street units, slightly increased to €148/sq m for shopping centres, and stayed unchanged at €15/sq m for retail parks.
Hospitality
In Q2 2025, Prague hotels recorded an accelerating performance growth compared to relatively soft Q1 2025. The Czech capital experienced a 1% increase in occupancy and 3% rise in ADR (Average Daily Rate), resulting in a 4.5% year-on-year growth in RevPAR (Revenue Per Available Room). Overall, the occupancy reached nearly 71% and ADR climbed to EUR 116 in H1 2025.
In terms of new hotel supply, 559 rooms have been added to Prague’s room inventory. Notable hotel openings in Q2 2025 included was the Fairmont Golden Prague, featuring 297 rooms and 23 branded residences, City Pop Prague (109 units) and SIR Prague (76 rooms). Overall, the hotel supply increased by 1.8% in H1 2025. There is no major hotel opening expected during the second half of the year.
- The demand for hotel accommodation during H1 2025 increased by 2.9% (y-o-y) surpassing 4.9 million nights. This is still 1% below the record H1 2019, indicating an opportunity for further growth, especially from international markets. This combined with the limited hotel pipeline should result in continued performance improvement of Prague hotels that still remain behind similar markets such as Berlin, Vienna or Amsterdam.
- When it comes to hotel transaction activity, 5 properties totaling 1,512 rooms changed hands in Prague since the start of 2025. The total volume reached ca. EUR 485 mil., already 500% higher than the full-year volume recorded in 2024. Major transactions in Q2 2025 were Four Seasons Prague (April 2025; 157 rooms) and Penta Prague (May 2025; 227 rooms).
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Despite the rising interest of international investors into Prague hotel market, The hotel acquisitions in 2025 were driven by domestic capital, reflecting strong confidence of local investors in the Prague hotel sector and long-term tourism growth, while leveraging wide-range of repositioning opportunities in hotel assets.
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