Research & Forecast Report. Czech Republic Year-End Review

Transcription

1 Research & Forecast Report Czech Republic 2014 Year-End Review

2 Contents Investment... 3 Summary Prognosis... 4 Office... 5 Summary Prognosis... 7 Industrial... 8 Summary Prognosis Key Definitions Year-End Review 2014 Czech Republic Colliers International

3 Investment Summary 2014 > 2014 was statistically the second most successful year in terms of Commercial Real Estate investment in the Czech Republic since the start of the global financial crisis. Transaction volume grew 77% year-on-year (yo-y), with 1.97 billion trading in comparison with 1.1 billion in This trend was also observed in the number of deals closed, which amounted to 41 in 2014 compared with 28 in the previous year. The second half of the year saw almost double the volume of the transactions close than in the first half of 2014 (H billion vs billion in H2.), making it an exceptionally strong finish to the year. Average deal size also increased from 39 million in 2013 to 48 million in > Due to ongoing consolidation of logistic portfolios carried out by major sector-specific investment groups, the industrial sector dominated 2014 with a 38% share of the total volume, or 744 million in absolute terms. This was more than double the volume recorded in Such a situation is rare for the Czech market, where office and retail typically are the most soughtafter sectors. Major transactions in the industrial sector included the purchase of the VGP logistics portfolio by P3 from Tristan Capital for 523 million and the sale of Business Park Rudná by Heitman to Prologis for 95 million. > Offices were the second most popular assets in 2014 with 516 million in transactions closed, equivalent to 26% of the total year s volume. This compares with 690 million and 62% during The largest office investment deal in H2 was the sale of HB Reavis s River Garden I to the Slovak group IAD for 50 million. > Third place belonged to the retail sector, which saw 324 million transact in 2014, accounting for 17% of total volumes. > Those properties with a high proportion of rental income generated by a retail component, especially in a prime High Street location, have performed strongly. This type of transaction accounted for 15% ( 244 million) of 2014 s total volume with the most notable deal of this category being the purchase of Slovanský dům by FID Group (Russian capital) from Invesco for 90 million. > Almost 60% of investment volumes were accounted for by US and Czech backed investment groups, a slight decrease on 2013 where these two nationalities accounted for 68% of all transactions. This is due to the ongoing expansion of the investor base, with new groups from Russia and Slovakia in particular making significant first investments. Investment volumes f ( Million) Source: Colliers International 3 Year-end Review 2014 Czech Republic Colliers International

4 Prognosis > We predict investment activity in 2015 to be strong with volumes to surpass 2 billion again. Investment transactions in 2014 by sector > Major industrial portfolio sales and shopping centre transactions have the potential to dominate the market in 2015 and we expect that the office sector will continue to account for similar volumes of transactions. > The increased availability of cheap debt finance, which is underpinned by Euro area Quantitative Easing will help to drive investment volumes. We expect yields to continue on their downwards trend across all sectors. > Better value will be offered by secondary properties, although we expect that the margin between prime and secondary will begin to erode over the course of the year as the restricted supply of prime properties coupled with cheap debt will encourage investors to broaden their investment horizons. Source: Colliers International 2014 Investment transactions by country of origin > We also expect the return of certain investor groups who have not been active since the crisis, such as some German investment managers and also the entry of new capital. This is a result of the global appetite for real estate investment, but also an endorsement of the Czech Republic as a mature investment market. Source: Colliers International Prime investment yields Source: Colliers International 4 Year-end Review 2014 Czech Republic Colliers International

5 Office Summary 2014 SUPPLY > New office supply over the course of 2014 meant modern office stock in Prague exceeded the 3 million m 2 mark by the close of the year. Q4 saw several new office buildings completed totalling 71,200 m 2 which made Q4 together with Q2 the most active in construction terms. > For the whole year, 148,800 m 2 of new modern offices were delivered, which was the highest level since 2009, and translated to 16 new / refurbished buildings. > Major projects completed in Q included ArtGen (23,800 m 2 ) in Prague 7, The Blox (16,300 m 2 ) in Prague 6 and Quadrio (16,100 m 2 ) in Prague 1. > Prague 1 had the largest amount of available office space (102,000 m 2 ), followed by Prague 7 (66,600 m 2 ), while the least amount of vacant space was in Prague 10 (9,850 m 2 ). PIPELINE > An active pipeline was evident by year-end and 2015 is likely to see a further 183,300 m 2 of new offices come to the market. This will be 23% more than a busy 2014 and more than double the office space delivered in > The largest buildings scheduled for completion in 2015 are BB Centrum Delta (32,500 m 2 ) in Prague 4, Metronom (29,900 m 2 ) in Prague 5, Enterprise (29,000 m 2 ) in Prague 4 and Aviatica (27,000 m 2 ) in Prague 5. Stock and new supply > Other large projects delivered over the course of the year included City West C1+C2 in Prague 5 (24,070 m 2 ) and River Garden II+III (22,700 m 2 ) in Prague 8. > Of the 2014 completions some 40% (59,800 m 2 ) of the space was already leased by year-end. > Interestingly, no new major office projects were launched in H VACANCY/AVAILABILITY > The vacancy rate increased by 120 basis points (bps) to 15.3% in Q4. This increase can be attributed to the high level of new supply seen in this quarter. > Total vacant space amounted to 463,300 m 2, compared with 389,000 m 2 for the same period in Source: Colliers International / Prague Research Forum 5 Year-end Review 2014 Czech Republic Colliers International

6 DEMAND > 2014 full year gross take-up results were 332,000 m 2, which is the highest figure posted in the past four years. Net take-up reached 110,000 m 2, representing around one third of annual leasing activity and 36.5% more than in Take-up and Vacancy > Q4 gross take-up itself amounted to 111,500 m 2, which represented an increase of 20% q-o-q and 37% y-o-y. Meanwhile, net take-up in Q4 was 41,400 m 2, also an increase of 24% q-o-q, yet almost three times more y-oy. > The top three districts in terms of total leasing activity / gross take-up for the whole year were Prague 4 (33%), Prague 8 (18%) and jointly Prague 1 and Prague 5 (14%). > The three largest transactions in 2014 all occurred in Prague 4, such as Česká Pojišťovna s lease renewal of 24,100 m 2 at Pankrác, an IT company (rumoured to be Hewlett Packard) 18,000 m 2 pre-lease at BB Centrum Delta and the Avast pre-lease of 11,000 m 2 at Enterprise. > Business sector wise, IT was the most active in terms of leasing activity (18% of gross take-up) followed by Professional Services (14%) and Insurance companies (11.5%). Source: Colliers International / Prague Research Forum RENTS > The headline rents have remained relatively stable in all the submarkets in Q Their level is however approximately 1 less y-o-y Gross take-up in Prague districts > Net effective rents remained typically 8-12% below headline rental levels (on a five year term) and if fit-out contributions were factored rose to ca. 25% less. > Prime headline rents remained at /m 2 /month level. The inner city rents slightly decreased to /m 2 /month while the outer city range stayed at /m 2 /month. Source: Colliers International / Prague Research Forum 6 Year-End Review 2014 Czech Republic Colliers International

7 Prognosis > The Czech economy is expected to show modest growth of 2-2.5% in The current wider economic issues such as the Greece and EU stand-off over bail-out conditions can be resolved with no major repercussions, then we forecast gross take-up figures for this coming year in Prague to be around 280, ,000 m 2. Q Vacancy (m 2 ) by district > On the occupational side we are seeing some growth in net take-up and the current levels of leasing / demand are helping to stem headline rents from falling further. > Due to new development in 2015, we expect to see further short-term increases in vacancy as new buildings come to the market. > In terms of rents and incentive packages, landlords have to be competitive in what they offer tenants in order to retain and attract office occupiers. > With vacancy rates sitting above 15% and forecast to increase again, there is limited scope for rental growth over the next 12 months. Source: Colliers International / Prague Research Forum > Prospects for a fall in vacancy rates look better for 2016 as substantially less new development is scheduled (44,000 m 2 ) in that year. 7 Year-End Review 2014 Czech Republic Colliers International

8 Industrial Summary 2014 SUPPLY > As we predicted earlier this year, 2014 has proved the strongest year in terms of development completions since A total of 356,000 m 2 came on-line up 31% y-o-y, with some 75,400 m 2 being finished in Q4. The vast majority of this new industrial space was pre-leased as speculative development remained limited. > The growth in new building completions in 2014 was a knock-on effect of the strong pre-leasing activity seen in 2013 as well as resilient GDP growth (2.5%) in 2014 and the much improved y-o-y industrial production figures (5%). > At the end of 2014, the total stock of modern industrial premises in the country stood at 4.9 million m 2, of which 1.9 million m 2 was situated in the Prague region, followed by 786,200 m 2 in the Brno region. > Prague was the fastest growing submarket in 2014, housing more than a third of the new completions (126,400 m 2 ). > Although the vacancy rate remained stable in Prague, other regions did experience changes in available stock. In Q4 vacancy in Moravia-Silesia jumped by 330 bps to 9.6% (i.e. 36,300 m 2 ); the Pilsen region saw it rise by 100 bps to 11% (i.e. 73,700 m 2 ); while in South Moravia vacancy actually declined by 50 bps to 7% (i.e. 54,900 m 2 ). PIPELINE > At the close of 2014, we registered some 384,000 m 2 of new industrial premises under active construction, most of which was in Prague (63%) and then in Pilsen (27%). > Again, almost all projects in the pipeline are being developed on a built-to-suit basis, where the occupier has already been secured. However, Prologis are one of the few developers who decided to construct speculative space and are building a 29,900 m 2 warehouse at their industrial park in Jeneč just west of Prague. > The largest warehouse construction currently underway is Amazon s new distribution centre at Dobrovíz west of Prague. This new facility will predominantly service Amazon s customers in Western Europe and should create around 2,000 full-time jobs. Once completed the facility will have a total floor area of ca. 133,000 m 2 and cover an area the size of 13 football pitches. Stock and new supply VACANCY/AVAILABILITY > The vacancy rate of the Czech Republic remained close to the 8% mark, which has been more or less the same for the past two years. In space terms this represented 401,200 m 2 of industrial premises available for immediate occupation. > The region with the highest vacancy in absolute terms was Prague with 136,100 m 2, followed by the Pilsen region, which had 73,700 m 2 of vacant industrial premises at year end. Source: Colliers International / Industrial Research Forum 8 Year-End Review 2014 Czech Republic Colliers International

9 DEMAND > Gross take-up in Q4 reached 413,800 m 2, taking annual demand figures to just under 1.3 million m 2. This represents a record leasing year for the Czech industrial market and y-o-y growth of 11%. Take-up and vacancy > Leasing activity in 2014 was driven mainly by occupiers securing new space (net take-up) as opposed to simply renegotiating the lease at their existing premises. For example, we saw particularly high net take-up figures in Q4 of 356,200 m 2, while the annual figure reached 827,500 m 2, which represented a 34% y-o-y increase. > A number of large transactions signed in Q such as pre-leases of Amazon (133,000 m 2 ) and Primark (59,400 m 2 ), helped lift the quarterly / annual industrial leasing figures to these record results. > The origin of net demand demonstrates the growing need of retailers and e-commerce for warehouse space in the Czech Republic. In some cases these premises are not only linked to the occupier s business in the Czech Republic but rather serve as European hubs or distribution centres for the German market. Source: Colliers International / Industrial Research Forum 2014 Net take-up by occupier type RENTS > Rents for Grade A warehouse premises across the Czech Republic have remained stable for some time now. Despite two years of healthy gross take-up, there appears sufficient supply side capacity (existing vacancy / land available for development) to meet demand, thus keeping rents in check. > A similar stable rental trend is also being experienced in neighbouring CEE markets and across most of Western Europe, therefore the Czech Republic is not unique in this regard. > Headline rents in the regions, for a 5-year lease term, typically range between /m 2 /month in Prague; /m 2 /month in Pilsen; /m 2 /month in Ostrava and /m 2 /month in Brno. Source: Colliers International / Industrial Research Forum 2014 Largest Transactions Tenant Area (m 2 ) Amazon 133,000 Park Panattoni Park Prague Airport Deal type Pre-lease Primark 59,400 CTPark Bor Pre-lease VF Corporation ČERVA Export Import Lear Corporation 39,200 29,500 29,000 PointPark Prague D8 Prologis Park Prague- Airport Panattoni D5 Logistics Park Pre-lease Pre-lease Renegotiation Source: Colliers International / Industrial Research Forum 9 Year-End Review 2014 Czech Republic Colliers International

10 Prognosis Vacancy in regions > The unusually large pre-leases signed in 2014 has placed 2015 on track to exceed last year s supply levels and take the stock of modern industrial space to over 5 million m 2. > With positive economic growth (2.5%) forecast and a number of known occupier requirements on the market, demand should be around 1 million m 2 for > With the likes of Amazon, Mall.cz, VF Corporation and Primark all leasing new warehouses in recent times, we are seeing increasing share of demand being generated by the e-retailing and as well as the traditional retailing sectors. We expect a similar story looking forward. > A change to the Czech Republic s existing Investment Incentive Act is currently going through parliament. Once approved this will increase incentives / grants packages available to companies locating businesses in areas suffering from higher unemployment. The timetable for this amended legislation is May 2015 and will help to boost occupier demand. Source: Colliers International / Industrial Research Forum 10 Year-End Review 2014 Czech Republic Colliers International

11 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. 11 Year-End Review 2014 Czech Republic Colliers International

12 485 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 2015 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.