MARKET OVERVIEW Czech Republic Q2 2017

Transcription

1 MARKET OVERVIEW Czech Republic Q Market Overview Q2 217 CZECH REPUBLIC

2 Strong Czech economy in Q2 with robust GDP growth of 3.%. With signs of labour shortage across all sectors resulting from low unemployment rates has pushed wage inflation to.5%. The Koruna strengthened following the removal of the CZK/EUR currency peg back in April 217 and some further appreciation is still expected this year. Strong interest in Czech commercial property is reflected in the mid-year investment volume of 2.2 billion. Asian capital continues to find its way into Czech real estate. Yields are at a cyclical low, with the exception of high street retail which experienced further yield compression. Vacancy was further trimmed in Q2 to 8.% in spite of new office projects completions. An active development pipeline for the H2 217 will see ca.125, sq m of additional space being delivered. Even with this amount of office completions, vacancy should not significantly spike due to buoyant occupier demand. To date low levels of speculative development and strong occupier demand have pushed the vacancy level down again, to.1%. Lack of vacant stock ready for immediate occupancy is a limiting factor for larger occupiers (requirements > 15, sq m). 2 Market Overview Q2 217 CZECH REPUBLIC

3 Q2 217 OVERVIEW > Solid GDP growth of the Czech economy continued in Q2 217, on top of Q1 s official GDP data registering a year on year (y-o-y) increase of 3.%, which was above many forecasts. > Rising consumer spending, with retail sales up 5.% y-o-y year to date in 217 and wage growth of around 5-% in a tight labour market were both contributing factors. > The June unemployment rate was.% (Czech Statistical Office), the lowest in Europe, and has had a profound impact on businesses. Companies across the country found hiring new employees challenging despite there still existing some regional unemployment variances, for example.% in the Ústí nad Labem region. > Czech inflation nudged up to 2.3% for June and was significantly above the European Union average of 1.%. Higher food prices and rent costs were the main factors, while a fall in fuel prices actually helped kept inflation from growing even further. > The continuing strength in residential house prices (e.g. up 1.9% y-o-y) is due to limited supply, strong demand and low mortgage interest rates. > We expect GDP growth for 217 to be at least 3.%. Strong consumer spending and demand for Czech exports (from example Germany) will likely help the economy continue expanding at its present rate at a minimum. > Due to rising inflation, our expectation is that the ČNB may raise the base interest rate again after its decision to hike from.5% to.25% on 3 rd August. > Increasing interest rates will of course feed into higher housing mortgage costs. This consequently might help take some of the heat out of the residential market. A recent ČNB ruling that curbed 1% loan to value mortgages in favour of an 8% lending ceiling highlights the intent to slow the pace of house price appreciation. > We expect the Czech Koruna to continue along a path of steady appreciation against the Euro and towards the 25. CZK/EUR level at the year-end. > The latest public opinion polls indicate that the parliamentary elections set for mid-october 217 might deliver a majority government for the relatively marketfriendly ANO Party. This would result in a break in a long succession of different ruling coalitions that have governed the country since the early nineties. CZECH GDP GROWTH & FORECAST (ANNUAL VAR.%) Source: Focus Economics CZECH UNEMPLOYMENT RATE (% OF ACTIVE POPULATION, AVERAGE) Source: Focus Economics CZECH INFLATION RATE & FORECAST (CPI, ANNUAL VARIATION IN %) 8 2 Source: Focus Economics 3 Market Overview Q2 217 CZECH REPUBLIC

4 Q3 21 Q 21 Q1 211 Q2 211 Q3 211 Q 211 Q1 212 Q2 212 Q3 212 Q 212 Q1 213 Q2 213 Q3 213 Q 213 Q1 21 Q2 21 Q3 21 Q 21 Q1 215 Q2 215 Q3 215 Q 215 Q1 21 Q2 21 Q3 21 Q 21 Q1 217 Q2 217 H1 217 OVERVIEW > H1 217 exhibited an exceptionally strong investment market across all sectors, particularly for core and assets in prime locations. Several large transactions, especially in Q1 217, underpinned the optimistic sentiment. > Some. billion of real estate transacted in Q2 217, bringing total mid-year investment volumes to 2.2 billion. > No transaction in excess of 1 million was closed during Q2. We do however believe that two deals were above the million mark i.e. a portfolio of four office properties in Prague acquired by Revetas and the Czech portion of the pan-european Logicor industrial portfolio that totalled 13 million sq m, acquired by CIC from China. > Domestic investors were the most active during the first half of 217, representing a 3% share of deals, as was the case in Q1. > German capital continued with a strong comeback and registered a 23% share, followed by US capital making up 1%. > Prime yields remained unchanged for most property types. Office yields were.85%, shopping centre yields were 5% and industrial was.25%. The exception was high street retail, where prime yields dropped by 25 basis points to 3.75%. > As the local and international investor base continues to deepen, there is increased appetite across a wider spectrum of assets and locations (including diversification to the Czech regions, and in the case of some Czech investors, to the wider CEE). > The Czech Republic benefits from a stable political environment and the investment market will continue to benefit from moderate political instability being experienced elsewhere including the wider CEE. > We expect investor demand for Czech real estate to continue despite a dearth of core and prime located investment product for all sectors. > Restrictive planning/development policies (in Prague) and buoyant occupier markets accent the supply/demand imbalance further. Combined, these elements will continue to keep yields at current cyclical lows. > In this period of robust economic growth and low interest rates, Czech real estate looks a solid bet for many different profiles of investor groups. INVESTMENT VOLUMES IN THE CZECH REPUBLIC ( MILLIONS) INVESTMENT SHARE PER COUNTRY OF CAPITAL ORIGIN (H1 217) PRIME YIELDS (%) IN THE CZECH REPUBLIC % 3% 7% 3% 3% 1% H1 217 OFFICE RETAIL INDUSTRIAL OTHER 2% 7% CZECHIA 23% PRIME OFFICE YIELD 3% PRIME INDUSTRIAL YIELD PRIME HIGH STREET YIELD PRIME SHOPPING CENTRE YIELD GERMANY USA SWITZERLAND UK CHINA THAILAND SLOVAKIA ITALY OTHER Market Overview Q2 217 CZECH REPUBLIC

5 ' sq m Q1'9 Q3'9 Q1'1 Q3'1 Q1'11 Q3'11 Q1'12 Q3'12 Q1'13 Q3'13 Q1'1 Q3'1 Q1'15 Q3'15 Q1'1 Q3'1 Q1'17 Q3'17 Q1'18 Q3'18 Q1'19 Prague 1 Prague 2 Prague 3 Prague Prague 5 Prague Prague 7 Prague 8 Prague 9 Prague 1 SUPPLY & VACANCY MODERN OFFICE STOCK & VACANCY IN PRAGUE DISTRICTS > In Q2 217, total office stock in Prague reached 3.25 million sq m with two new office buildings completed i.e. Five (13, sq m) and Rustonka R1 (11,3 sq m). > Given that 5% of all newly completed space was leased at completion, the city s office vacancy rate was trimmed again. Q2 vacancy stood at 8.% and a level that was last recorded back in Q % 15% 13% 11% 9% 7% 5% > 71% of this vacant stock was housed in Class A space, with the remaining 29% in Class B space. > In H1 217, two older buildings were withdrawn from the market to undergo complete makeovers. One such building is to be demolished, which was of no surprise, given that many offices over 1 years old have struggled to retain or attract occupiers as they lack the specification demanded by today s tenants. DEMAND > Gross office take-up in Q2 reached 15, sq m, making it the second busiest quarter in the market s history. > For the H1 217 period, gross take-up posted strong results y-o-y (27% growth) at 2,5 sqm. > Net take-up for offices in H1 totalled 11,5 sqm, which actually was only a mild improvement of % y-o-y. > Quarterly net absorption reached 7,5 sq m and has remained positive for nine consecutive quarters. > At the close of Q2, some 327,8 sq m of new office space was being constructed in Prague, of which 38% is due to complete this year and 5% in 218. > Despite this new office space (125, sq m) completing in H2 217 being a fair amount higher than what was experienced during the past 18 months, we expect the current levels of occupier demand to keep the vacancy rate below the 1% level. > This tenant demand is evidenced by the fact % of the new space scheduled to complete in H2 is already leased. > The market sentiment (and even evidence) is that tenants have lost some of their previous bargaining power in leasing negotiations. Some deals at the most desirable office addresses / buildings for example are have been agreed at headline rates slightly higher than those highlighted on the table opposite., Prague Research Forum VACANCY RATE DEVELOPMENT & FORECAST 18% 1% 1% 12% 1% 8% %, Prague Research Forum TAKE-UP OCCUPIED STOCK VACANT STOCK VACANCY RATE VACANCY RATE OPTIMISTIC SCENARIO, Prague Research Forum PRIME RENTS ( /sq m/month) REALISTIC SCENARIO PESIMISTIC SCENARIO H1 217 RENEGOTIATIONS, RELOCATIONS & SUBLEASES NET TAKE-UP NET ABSORPTION City Centre Inner City Outer City Average FORECAST 5 Market Overview Q2 217 CZECH REPUBLIC

6 Thousands FORECAST SUPPLY & VACANCY > 17,3 sq m of mostly (99.5%) pre-let space was delivered to the market during Q2 217, increasing modern industrial stock in the Czech Republic to.5 million sq m. > The vacancy rate countrywide fell further, by. percentage points to.1% by the end of Q2. DEMAND > Gross industrial take-up in Q2 reached 38,8 sq m, showing an 8% y-o-y decline. Similarly, net take-up fell 11% y-o-y to 231,2 sq m. > Pre-lets formed the largest share of the total gross take-up (55%) as well as the net take-up (73%) in Q2. This was thanks to three large transactions: Chinese PX Express pre-leased a,2 sq m warehouse for Chinese e-shop Alibaba at VGP Park Jeneč; an undisclosed production company signed for 3,5 sq m at CTPark Cheb and the DHL pre-let of 32, sq m to handle logistics for their client (Estée Lauder) at Panattoni Park Cheb. > Prague dominated both net (5%) and gross take-up (%). Unusually, the second most-in-demand region in H1 217 was Karlovy Vary, accounting for 29% of the total Czech net take-up. > Logistics services providers drove gross (%) and net take-up (52%) in Q2. > Premises totalling 575, sq m were under construction across the country at the end of Q2. Speculative development accounts for % of this figure, which equates to some 11 new large industrial units (ranging from 1, to 25, sq m) coming to the market by Q > The Karlovy Vary region has seen significant demand and with further additional notable deals in process, the region s stock is likely to double by the end of 218 to around 235, sq m. > The lack of permitted industrial land continues to limit the number of opportunities for developers and occupiers. However, we expect soon to learn of new projects earmarked in the Southern Bohemia, Ústí nad Labem and Vysočina regions. > Headline rents have increased by approx. 1% across the country but developers continue to show their flexibility on effective rental rates. Rents are expected to remain at their current levels for the next 12 months. CZECH INDUSTRIAL STOCK & VACANCY (in sq m) PRAGUE SOUTH MORAVIA PARDUBICE MORAVIA- SILESIA OLOMOUC, Industrial Research Forum ANNUAL SUPPLY (in sq m) PLZEŇ, Industrial Research Forum TAKE-UP (in sq m) OCCUPIED STOCK, Industrial Research Forum PRIME RENTS ( /sq m/month) VACANT STOCK Thousands Q1 215 Q2 215 Q3 215 Q 215 NET TAKE-UP Q1 21 Q2 21 Q3 21 GROSS TAKE-UP Q 21 Prague Brno Ostrava Plzeň Q Q2 217 Market Overview Q2 217 CZECH REPUBLIC

7 w 39 offices in 8 countries on continents United States: 153 Canada: 29 Latin America: 2 Asia Pacific: 79 EMEA: billion in annual revenue 17 million square meters under management 15, professionals and staff MARKET CONTACT: Ondřej Vlk Head of Research Czech Republic Ondrej.Vlk@colliers.com Omar Sattar Managing Director Czech Republic Omar.Sattar@colliers.com Iva Caňková Head of Office Agency Andrew Thompson Head of Capital Markets Czech Republic & Slovakia Petr Zaoral Head of Industrial Agency Marcel Kolesár Head of Valuations Colliers International Czech Republic Slovanský dům, Building B/C Na Příkopě 859/22 11 Prague About Colliers International Group Inc. Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with 15, professionals operating from 39 offices in 8 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 1 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 1 consecutive years, more than any other real estate services firm. Copyright 217 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. 7 Market Overview Q2 217 CZECH REPUBLIC