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CBRE: We expect positive development in the real estate market in 2016

The current trends will continue next year, with investment in office space and retail property sectors prevailing

• Expected investment in the real estate market will be around EUR 2 billion in 2016.
• We anticipate that e-commerce will be the main driver of demand in the industrial sector.
• Only 26 thousand sq. m of new office space is expected to be completed in 2016.
• The retail sector will experience expansion by the big chains.
• The shopping centres Aupark in Hradec Králové and Galerie Přerov will be completed in 2016.
• Luxury stores will expand outside Pařížská street. 

CBRE, the world leader in the commercial real estate services sector, has published OUTLOOK 2016 study corresponding to the growth of the Czech economy, which also predicts positive developments in the real estate services market. The study monitors the capital real estate market, alongside the industrial, office and retail property sectors. In 2016, a total investment in the local market exceeding EUR 2 billion is expected, which is crucial for investment in the office and retail markets. 

The Czech economy is currently in very good shape and is one of the fastest growing economies in Europe, thus the forecast for key economic indicators for the coming year are very favourable. This is reflected in the development of the real estate market, among other things. “In 2016 we expect a continuation of positive market sentiment and another great year for the real estate market and our company. However, we believe that there’ll be a decline in comparison with the amount of investment seen this year, which was greatly influenced by two huge exceptional transactions that won’t be repeated. We roughly estimate investment of two billion Euros, with the retail and office sectors making up the largest share,” said Richard Curran, Managing Director of CBRE. 

According to a study by CBRE, the Czech financial market is expected to remain at a very competitive level next year providing excellent opportunity for investors. We expect the total investment volume to decrease to EUR 2 billion in 2016 as the 2015 investment volume was boosted by two large deals (Palladium and RPG byty). However, a few EUR 200+ million transactions are expected to happen in 2016. It is still the case, that only assets in an excellent location with a long-term lease will achieve prime pricing. The fight for prime product on the market has never been stronger. On the prime end of the market, we believe investors will continue to reduce their return requirements and pay market leading prices. 

Graph 1 – The total volume of investments in the Czech Republic.

The Czech industrial market has been experiencing huge success and this trend is expected to continue through 2016. Large demand for XXL schemes (50,000 sq. m plus) is going to influence market figures next year, with e-commerce expected to be the main driver of industrial demand in 2016. However, the Czech Republic is facing issues due to a lack of land ready for immediate construction and a lack of available work force in the most desirable locations. We feel that there is limited space for vacancy to decrease much further. Sustained high demand for industrial space and decreasing vacant space will result in pressure for further rental growth. At present, construction of a number of logistics parks and halls with a total area of more than 1 mil. sq. m are already in the initial preparatory phase, mainly in the north and north-eastern part of the city, Lovosice, Hradec Kralové, Hodonín or Cheb.

Currently, the Prague office market is experiencing the beginning of a recovery which has already been seen in the industrial and retail sectors. After several years of low demand for new office space, we see a change in the market. We see successful companies growing and expanding into larger offices. In 2016, a very limited new supply of 26,000 sq. m is planned to be delivered to the market. And, as a result, overall vacancy rate should decrease slowly. We expect high demand for space in new projects and therefore we believe vacancy rate in these properties will go down rapidly in the coming quarters. The Prague office market recovery will undoubtedly be followed by rental growth. 

Currently, the Czech Republic has been enjoying rising retail sales across the whole country. We expect further tenant consolidation and an expansion of large chain stores. The market is becoming saturated in terms of new development. In 2016, just two new schemes with a total size of circa 34,000 sq. m should be delivered to the market. Construction works of Aupark in Hradec Králové and Galerie Přerov will be completed by the end of 2016. Demand for prime space has been growing and there is a decreasing appetite for secondary and tertiary space. High street supply is becoming increasingly limited and demand is much higher than supply. Luxury brands will have to expand beyond Pařížská street.