Research & Forecast Report. Czech Republic Q Q Review

Transcription

1 Research & Forecast Report Czech Republic Q Q Review

2 Contents Investment... 3 Summary Q Prognosis... 4 Office... 6 Summary Q Prognosis... 7 Industrial... 8 Summary Q Prognosis... 9 Key Definitions Quarterly Review Q Czech Republic Colliers International

3 Investment Summary Q > Q has been the strongest quarter yet this year, with 14 deals transacted amounting to 878 million (including P3 s pending acquisition of the VGP Parks portfolio from the Tristan managed CCP III and EPISO funds). > As of the end of Q3, 31 transactions with total volume of 1,557 million closed in the Czech Republic during > On a year-on-year basis, this is a 40% increase in transaction volumes and 55% increase in the number of transactions, demonstrating very high levels of investment activity across all sectors. > The industrial sector has dominated investors capital allocation with 730 million of deals, attributable to the abovementioned VGP deal, along with the purchases of Business Park Rudná by Prologis and Panattoni Park Prague Airport by Blackstone s LogiCor subsidiary, amongst others, accounting for a 47% share of total investment volumes this year. The majority of industrial deals this year occurred in Q3, dwarfing the H1 performance by more than ten times. This is a massive growth of capital inflow into industrial properties if compared to last year s deals as of Q3 which reached 111 million, resp. 16% share. > Following closely behind, the Prague office sector as usual demonstrates its ongoing investor appeal. Transactions worth 476 million, including e.g. City Tower, Palác Křižík and River Garden West were closed, amounting to 31% of this year s total investment volume. Transacted volumes broadly correspond with volumes recorded during the period Q1-Q3 in 2013 while the share of this sector reached 80% of total volumes during that period. This further demonstrates the huge shift in investors preferences from office to the industrial / logistics sector. > As noted in previous reports, a premium price can be achieved for mixed-use assets with a high proportion of retail space, which are situated in prestigious high-street retail locations in Prague such as Václavské náměstí and its close surroundings, Na Příkopě or in Pařížská Street. During Q3, this trend was evidenced again with the purchase of the Diamant building which is located in a prime location on Václavské náměstí close to its junction with Na Příkopě. The transaction amounted to approximately 65 million and whilst the yield was not reported, we believe it was in the region of 5.25%. > To date during 2014, deals including properties of these characteristics have amounted to million, forming an 11% share of total 2014 investment volumes. We see the demand for these assets growing if compared to last year s Q1-Q3 period performance of 32.8 million. This trend should reach its pinnacle if the reported sale of the Palladium shopping centre completes during Q / Q Investment volumes ( Million) Source: Colliers International 3 Quarterly Review Q Czech Republic Colliers International

4 > In terms of location, 75% of all transaction volumes this year took place in Prague, confirming Prague being the most sought-after destination for investors. This is despite the large proportion of deals in the logistics sector which ordinarily might lead to a broader regional spread. Investment transactions in Q1-Q by sector > The largest transaction during Q3 and 2014 so far (distorting the statistics somewhat by its sheer size) was the purchase of the VGP portfolio by P3 Logistics Parks (P3), a US/Canadian-backed group, for 523 million. > As for the purchasers' origin, some 77% of transactions closed (by volume) in the first nine months of 2014 were carried out by international investors, focusing mainly on industrial and office investments. > During this period, the average deal size reached 34.5 million (excluding the P3 deal). > Statistically, out of the 30 transactions closed so far in 2014 (excluding the P3 deal), Czech investors accounted for 10 deals with an average deal size of 36 million, while international groups closed 20 deals with an average deal size of 34 million. Source: Colliers International Prognosis > Due to the new office projects in Prague either under construction or in the pipeline, the supply of office space will grow further, influencing negatively vacancy rates and achievable rents. This affects not only the landlords and tenants but also the investors and their behaviour regarding capital allocation into this sector. We therefore predict that stock selection will continue to be a high priority with limited investment on fringe locations. Q1-Q Investment transactions by country of origin > Apart from the high-street retail and prime-located shopping centres in Prague, we think investors interest will furthermore head towards regional shopping centres that are well established and have proven their performance within the given regional city over the previous years. > As the logistics sector can be seen as a proxy for the retail market, we expect the strong appetite for industrial / logistics properties will continue, with growing industrial production and falling vacancy rates supporting this trend, making this sector an interesting investment opportunity with acceptable risk and returns. However, we forecast that a limited supply of suitable investment product, except for the proposed sale of CTP s standing portfolio, could lead to reduced transaction volumes compared to Source: Colliers International l 4 Quarterly Review Q Czech Republic Colliers International

5 > Another sector where we foresee investors focus will turn to in the next quarters are the secondary (core-plus) offices, still available at higher yields and offering an interesting investment and additional income when combined with asset management. Still there is a significant gap between prime and secondary asset yields, assessing the differences aptly. Prime investment yields > From what we have seen so far this year and taken into account the transactions that are currently underway or in due diligence, with potential to be closed till the end of this year, we anticipate this year s total investment volume would exceed 2 billion. Source: Colliers International 5 Quarterly Review Q Czech Republic Colliers International

6 Office Summary Q SUPPLY > The Q3 level of modern office stock in Prague remained at 2.96 million m 2 with no new office completions in this quarter. > Further analysis of Prague s modern office stock shows that slightly less than 2 million m 2 is categorised as Class A and of this 265,000 m 2 is rated as AAA. > The AAA is the highest categorisation and forms part of a rating methodology adopted by the Prague Research Forum. In total there are six ratings being applied to the Prague office stock and these distinguish largely the level of the technical standard of a building. VACANCY/AVAILABILITY > Overall vacancy rate in Prague was 14.0% in Q3. It dropped by 0.6% in comparison with Q2. This was mainly due to no new office completions and strong net take-up figures in Q3. PIPELINE > The 2014 new office space supply figure should reach 148,000 m 2, 71,100 m 2 of which is still under construction and due to complete in Q4. > This will be the highest volume of annual new office supply experienced since 2009 and significantly above the last five year annual average supply of 93,000 m 2. > The largest projects yet to be completed this year are Quadrio (16,200 m 2 ) in Prague 1, Blox (16,300 m 2 ) in Prague 6 and the two buildings of ArtGen (22,000 m 2 ) in Prague 7. > No new office projects were launched in Q3, however there is close to 285,000 m 2 scheduled to come on-line between Q and the end of Around 33,200 m 2 (12%) of this new office supply has been pre-leased so far. Stock and new supply > Total vacant space available for lease across Prague amounted to 416,100m 2 compared with the 374,780 m 2 y- o-y. > Although visibly reduced in comparison with Q2, Prague 1 continued to represent the largest amount of available office space (79,570 m 2 ) closely followed by Prague 8 (74,680 m 2 ). Source: Colliers International / Prague Research Forum > Prague highest vacancy rates were recorded in Prague 7 (26.6%) and Prague 9 (24.4%) while the districts with the lowest vacancy rates were Prague 4 (6.3%) and Prague 10 (7.2%). 6 Quarterly Review Q Czech Republic Colliers International

7 DEMAND > In Q3 total gross take-up reached 93,100 m 2 representing a 33,000 m 2 uplift on Q The last time gross takeup reached a similar level was back in Q Take-up and Vacancy > Net take-up in Q3 accounted for 33,370 m 2 and encouragingly was the highest quarterly net demand figure recorded in the past three years. The share of lease renegotiations of total gross take-up was 51,472 m 2 (55%) in Q3, being an increase from 26,240 m 2 (43%) in Q2. > Given the above, Prague 4 (41%) was the location with the largest share of leasing activity, followed by Prague 8 (16%) and Prague 1 (14%). > In terms of business sectors, Professional Services lead this quarter with 48,700 m 2 of gross take-up, followed by Manufacturing with 14,700 m 2. > Other significant transactions in Q3 included ExxonMobil s (8,650 m 2 ) lease renegotiation at Atrium Flora in Prague 3 and the new leases of NCR (3,750 m 2 ) at River Garden II in Prague 8. Source: Colliers International / Prague Research Forum Q Take-up in Prague districts RENTS > As of late, rents have come under pressure due to the supply of new offices coming onto the market and net demand, despite the higher result of Q3, not growing at the same pace. > Prime headline rents are clearly now below the /m 2 /month mark with the best office space rarely achieving more than 19.50/m 2 /month in the City Centre. > Rents at Inner City locations are between /m 2 /month and for the Outer City they range between /m 2 /month. While, it would be fair to say the majority of rent transactions are being agreed at the mid-to-lower end of the ranges mentioned. > As landlords have increased their tenant incentive package by offering longer rent free periods, the net effective rents are 8%-13% lower than the headline rent on a 5-year lease term and this is before any fit-out contribution is taken into consideration. Source: Colliers International / Prague Research Forum Q Vacancy rate by district (m 2 ) Prognosis > With vacancy rates currently hovering around the 14.0% mark and likely to rise again due to some new office buildings completing construction, the office leasing market is currently stacked in the favour of occupiers. > The short term prospects of any rental growth are limited and this will continue until we see a tail in the delivery of new office projects and/or a sustained pick-up in net demand. Source: Colliers International / Prague Research Forum 7 Quarterly Review Q Czech Republic Colliers International

8 Industrial Summary Q SUPPLY > Q proved to be another strong quarter in terms of new supply. A total of 103,500 m 2 was added to the Czech industrial stock, which now equals 4.79 million m 2. > Just over one third of the premises completed in Q3 were vacant at completion, while most of this space was in fact speculatively developed. > The largest volume of completions in Q3 took place in Prague (26,600 m 2 ) and the refurbishment of Westgate Park (23,800 m 2 ) at Rudná accounted for almost all of this new supply. Central Bohemia region was the second most active submarket, having grown by a further 26,000 m 2. > Beside the construction activity in the central part of the country, Pilsen region saw its highest supply levels so far this year with nearly 23,000 m 2 being completed in Q3. > The total new supply for the first three quarters of 2014 already exceeded 278,000 m 2, confirming our prediction that 2014 is likely to be the strongest year in terms of new industrial development since Vacancy in Prague therefore dropped to its lowest level since 2009 reaching 6.4% (119,000 m 2 ). > The other key regions on the Czech industrial market reported only marginal changes in their vacancy rates. The regions of Moravia-Silesia and Pilsen showed a slight decline (to 5.8% and 6.7% respectively) while vacancy in the South Moravia region went up slightly to 7.5%. PIPELINE > At the end of Q3 2014, construction was under way on industrial premises totalling 221,000 m 2 across the country. The development pipeline includes the fulfilment centre of e-retailer Amazon, which is being built by Panattoni in Dobrovíz west of Prague. > Majority of the premises under construction at the end of Q3 are scheduled for completion in 2015 and 17% of the total construction pipeline was being built speculatively. > Nearly 80% of the industrial construction pipeline is in Prague and includes the three largest buildings currently under construction i.e. Amazon (95,000 m 2 ), VF Corporation at P3 Prague D8 (39,200 m 2 ) and a speculative industrial unit (29,900 m 2 ) being developed by Prologis at their Park Prague Airport scheme. Stock and new supply VACANCY/AVAILABILITY > Strong take-up levels combined with low volumes of speculative construction pushed the vacancy rate in the country down by 53 bps to 7.5% (361,000 m 2 ), being the lowest vacancy rate since Q > Prague market also witnessed a significant quarterly decrease in the total volume of unoccupied premises. This decrease was largely down to Prologis leasing their recently acquired property in Modletice and Goodman finding an occupier for their Jažlovice Logistics Centre. Source: Colliers International / Industrial Research Forum 8 Quarterly Review Q Czech Republic Colliers International

9 DEMAND > Q was the strongest quarter so far this year in terms of gross take-up. Leasing transactions totalling 357,200 m 2 were completed in Q3, giving a year to date figure of 874,300 m 2. Take-up and vacancy > Net take-up in Q3 reached 219,100 m 2, which was 72% up on Q2 and the highest quarterly figure since Q > The largest share of net take-up was signed in Prague (45% or 91,400 m 2 ), followed by the Central Bohemia region (17% or 34,900 m 2 ). > The pre-lease concluded by Červa Export Import for a new property of 29,500 m 2 at the Prologis Park Prague Airport was the largest leasing deal signed in Q3, followed by the lease renewal by the Lear Corporation at the Panattoni D5 Logistics Park (29,000 m 2 ). > Due to the higher level of net take-up, lease renegotiations accounted for only 39% of the Q3 gross take-up, whilst in m 2 leased, the figure is similar to the previous two quarters. Source: Colliers International / Industrial Research Forum Q1-Q Net take-up by occupier RENTS > Prime headline rents for Grade A warehouse premises in Prague remain stable and ranged between /m 2 /month. Office space continued to lease for /m 2 /month. > Rent levels in the main regional locations have also not experienced any significant changes either. Headline rents in Pilsen stayed at around /m 2 /month, Ostrava was at /m 2 /month and Brno rents still hang around the level of /m 2 /month. Prognosis > We expect the healthy level of occupier demand to continue to the year end, stimulating the need for new supply of industrial premises across the country. Source: Colliers International / Industrial Research Forum Vacancy in regions > Total modern industrial stock in the Czech Republic is set to exceed 5 million m 2 during Speculative construction is likely to remain at low levels and mainly occurring within established industrial and logistic parks in Prague. > Headline rent levels will remain stable across the country, while effective rates continue to be strongly influenced on the level of local competition. Source: Colliers International / Industrial Research Forum 9 Quarterly Review Q Czech Republic Colliers International

10 Key Definitions > PRIME NET INITIAL YIELD: The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality tenants at an open market rental value in a prime location. Lease terms should be commensurate with the market. As a calculation Net initial yield = First years net income/purchase price (prior to deducting fees and taxes). > PRIME HEADLINE RENT: Represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand, of the highest quality and specification in the best location in the market at the survey date. This should reflect the level at which relevant transactions are being completed at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions. The figure excludes service charges, taxes, and tenant incentives. > TOTAL OCCUPATIONAL MARKET ACTIVITY (GROSS TAKE-UP): Total Occupational Market Activity is the total floor space known to have been let or sold as one of the following activity types during the survey period: Pre-let, New Occupation / Lease, Renewal / Renegotiation, Expansion, Sub-lease and Sale & Leaseback. > NET TAKE-UP: Office Market: Net Take-up represents the sum of all Total Occupational Market Activity categories which represent a net increase in demand for space, i.e. excluding renegotiations & renewals and relocations within existing office stock. > TOTAL COMPETITIVE STOCK: Office Market: Includes the gross leasable floor space in all Grade A and Grade B buildings, including owneroccupied buildings and government owned properties. Ancillary office space is only included if it can be reasonably used independently of the primary use of the building in which it is located. Industrial Market: Includes the gross leasable floor space in all Grade A buildings, including speculative and built to let stock, however, excluding owner occupied buildings. Other reference points include that the building must be heated and have a clear usable height minimum of 6 metres. > SPACE UNDER ACTIVE CONSTRUCTION: Represents the total amount of gross leasable floor space of properties where construction has commenced on a new development or where a major refurbishment/renovation is ongoing at the survey date. > VACANT SPACE: Office Market: The total gross leasable floor space in existing properties that meet the Competitive Stock definition, which is physically vacant and being actively marketed at the survey date. Space should be available for immediate occupation. Industrial Market: The total net leasable floor space in existing properties that meet the Competitive Stock definition, which is physically vacant at the survey date. Any office/mezzanine, sanitary and technical areas as well as custom-built corridors/tunnels and canopies are excluded from the final figures. Industrial Market: Net Take-up represents the sum of all Total Occupational Market Activity categories which represent a net increase in demand for space, i.e. excluding renegotiations & renewals. 10 Quarterly Review Q Czech Republic Colliers International

11 485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Primary Author: Lenka Oleksiaková Senior Associate Industrial Agency Czech Republic Lenka.Oleksiakova@colliers.com Contributors: Jana Beeby - Associate Office Agency Lenka Oleksiaková - Senior Associate Industrial Agency Tomáš Berka - Senior Associate Investment Services Chris Sheils - Director CEE Investment Services Omar Sattar - Managing Director Czech Republic Asia Pacific: 186 EMEA: billion in annual revenue Colliers International Czech Republic Slovanský dům, Na Příkopě 859 / Prague 1, Czech Republic million square meters under management 15,800 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of 485 offices in 63 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. colliers.com Copyright 2014 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.