MARKET OVERVIEW Czech Republic Q1 2017

Transcription

1 MARKET OVERVIEW Czech Republic Q Market Overview Q1 217 CZECH REPUBLIC

2 As a reaction to growing inflation, the Czech National Bank released the Czech Koruna / Euro peg that had been in place since 213. Q1 217 saw exceptionally strong investment flows into Czech commercial real estate ( 1.57bn), supported by several large transactions. Vacancy continued dropping and fell under the 1% level for the first time since Q 28. Stong occupier demand continued with 11% year-on-year growth in net take-up. Low levels of speculative development and strong occupier demand continued to keep vacancy levels low at.7%. Lack of vacant stock ready for immediate occupancy is a limiting factor for larger occupiers (requirements > 15, sq m). 2 Market Overview Q1 217 CZECH REPUBLIC

3 Q1 217 OVERVIEW > GDP growth of the Czech economy continued in Q1 217 with year on year (y-o-y) increase of 2.9%, outperforming expectations. > As Czech inflation grew in line with the Czech National Bank s (CNB) target coupled with threats of future inflationary pressures, the CNB decided to release its selfimposed CZK/EUR exchange rate peg of 27 CZK/EUR. The Czech Koruna thereafter only marginally strengthened, only temporary moving below 2.5 CZK/EUR as of mid-may. > Consumer confidence remained high, which was reflected in the country s consumer spending figures. In March 217, retail sales increased by 7.% y-o-y. For non-food growth was even stronger at 11.5% y-o-y, which was the highest figured recorded over the last ten years. For Q1, retail sales were up 5.1% y-o-y. > The employment market showed strong performance with creation of new jobs even prior to the start of the usual uptake in seasonal work. Unemployment by the end of March decreased to 3.% and employers have started to call for the loosening of workforce immigration rules in order to satisfy the demand for new staff. > The ruling political coalition recently faced a crisis, with the Czech Minister of Finance (Mr Babiš) facing allegations of tax evasion among many other claims. The Prime Minister (Mr Sobotka) asked President Zeman to formally remove the Minister from his post. Fortunately, the political situation did not have any impact on the economic performance of the country. OUTLOOK > October parliamentary elections are likely to bring with it a number of populist gestures from all political parties. With the prevailing low unemployment rate, the government is already speaking of a further increases in the minimum wage, despite the recent increase back in January 217. > As Czech CPI as of late has been trending above 2%, it is widely expected that the CNB will increase the base interest rate from its current level of.5 %. > We expect the Czech Koruna to continue along a path of steady appreciation against Euro and will end up at around the 2 CZK/EUR level towards the year end. 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 Q1 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 Q1 217 OVERVIEW > Some 1.57 billion of real estate transacted in Q1 making it an exceptionally strong quarter with almost double the transaction value compared with the same period last year. > Czech based investors have continued to cement their position as active buyers by contributing with a 3% share of deal volume. With German investors lagging slightly behind with a 28% share. > The largest deal of Q1 was the sale by ECE / Rockspring of their Olympia Brno Shopping Centre to Deutsche EuroShop for an undisclosed price. We believe the sale price was slightly above 37 million. > The second largest deal was CBRE Global Investors CEE portfolio, acquired by the CPI Group. From the total portfolio price of around 5 million, some 33 million was made up of Czech office and retail assets. > The above two transactions are the reason why the retail sector ended up as the most popular asset class in Q1 by total investment volume with a 3% share. > Prime yields remained unchanged during Q1: for office yields were.85%, shopping centre yields were 5% and industrial was.25%. PROGNOSIS > Investment activity showed few signs of abating in Q1 even though one could argue the surge in Q1 transactions was largely a result of some larger transactions falling into Q1 from the previous quarter. > We also continue to see new entrants on the Czech market and from geographical locations not normally associated with property investment in Czech Republic e.g. Lebanon, Thailand and Singapore. > Real estate is also proving popular with domestic investors, especially real estate funds backed by high net worth individuals who are often less institutional in their approach towards real estate investment than say traditional fund managers. > With a further transactions already in the deal pipeline we are expecting strong investment volumes to continue in the coming quarters. > Secondary yield compression is now more likely than prime yields, which are at cyclical lows. We expect the prime yields to remain low due to the high levels of demand. INVESTMENT VOLUMES IN THE CZECH REPUBLIC ( MILLIONS), 3,5 3, 2,5 2, 1,5 1, 5 - SHARE ON INVESTMENT PER COUNTRY OF CAPITAL ORIGIN PRIME YIELDS (%) IN THE CZECH REPUBLIC % 1% Q1 217 OFFICE RETAIL INDUSTRIAL OTHER % 7% % 28% PRIME OFFICE YIELD 3% PRIME INDUSTRIAL YIELD PRIME HIGH STREET YIELD PRIME SHOPPING CENTRE YIELD CZECHIA GERMANY USA SWITZERLAND SLOVAKIA THAILAND OTHER Market Overview Q1 217 CZECH REPUBLIC

5 ' sq m Q1'9 Q'9 Q3'1 Q2'11 Q1'12 Q'12 Q3'13 Q2'1 Q1'15 Q'15 Q3'1 Q2'17 Q1'18 Q 18 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 > By the end of Q1 217, total office stock in Prague reached 3.2 million sq m. > During Q1 only one property was completed, namely Dock In Two in Prague 8 with,9 sq m. > Low level of completions again contributed to a drop in vacancy and by the quarter end, the vacancy rate in Prague stood at 9.%, which was a 12 basis points decrease from Q 21. 1, % 15% 13% 11% 9% 7% 5% > 7% of all vacant stock was in Class A with the remaining 3% in Class B offices. At the same time, some 2% of all vacant space was found at offices that were either built or refurbished more than 1 years ago. On y-o-y comparison the share of vacancy in such older buildings grew by basis points. DEMAND > Gross office take-up in Q1 grew significantly y-o-y (+7%) and reached 9, sq m. > Net take-up posted 51,3 sq m in Q1, which an improvement of 11% y-o-y. OCCUPIED STOCK VACANT STOCK VACANCY RATE, Prague Research Forum VACANCY RATE DEVELOPMENT & FORECAST 18% 1% 1% 12% 1% 8% % Forecast > Quarterly net absorption reached 57,3 sq m and has remained positive for eight consecutive quarters. VACANCY RATE OPTIMISTIC SCENARIO REALISTIC SCENARIO PESIMISTIC SCENARIO OUTLOOK > By the end of Q1, some 33, sq m of offices were under construction, of which 2% are planned for completion in 217 and 52% in 218. > With the current level of demand, we expect the vacancy to continue decreasing throughout 217 and only start to increase again sometime in 218 (see vacancy rate forecast chart) > While there remain few signs of a marked trend in office rental growth, landlords are however reporting of having to offer reduced tenant incentive packages to attract occupiers compared to one year ago., Prague Research Forum TAKE-UP Q1 217 RENEGOTIATIONS & RELOCATIONS NET TAKE-UP NET ABSORPTION, Prague Research Forum PRIME RENTS ( /sq m/month) City Centre Inner City Outer City Average Market Overview Q1 217 CZECH REPUBLIC

6 ' sq m SUPPLY & VACANCY CZECH INDUSTRIAL STOCK & VACANCY > By the end of Q1 217, total industrial warehouse stock in the Czech Republic reached.7 million sq m. > 11 new warehouses were completed during Q1, with a total GLA of 11,2 sq m, with only 29, sq m of space being available at completion. > The average vacancy rate stood for Q1 was.7%. Some of the smaller regions by stock, such as Zlín or Karlovy Vary but also regions such as Ústí nad Labem had no vacancy, while vacancy in Pardubice was almost 15%. In terms of total available stock, Prague had the largest offer with 12,5 sq m, representing a.9% vacancy rate. PRAGUE PLZEN SOUTH MORAVIA MORAVIA-SILESIA CENTRAL BOHEMIA USTI NAD LABEM 2, > The Prague region, which is the dominant industrial and logistic hub by size, continued to growth with its stock reaching 2.55 million sq m in Q1. DEMAND > Gross industrial take-up in Q1 was 35, sq m, which was 2.% decrease y-o-y. On the other hand, net take-up was 239, sq m and 3.2% up y-o-y, confirming strong occupier demand. > Quite surprisingly, new leases dominated gross take-up with a 39% share. > Prague dominated take-up: % of gross take-up and 35% of net take-up targeting the area in or around the capital city. > Several larger occupier requirements (>15, sq m) that are seeking premises in the near future are struggling to find a suitable solution in the Czech Republic due to low levels of vacancy. Therefore, there is a distinct chance these companies might be forced to look at options in other neighbouring countries. > Due to low unemployment rates, potential occupiers are becoming selective in terms of their business location in order to limit competition for workforce. Even in cases where there are large employers within the region from a completely different business field, the occupier may choose to avoid such locations in favour of less developed areas. OTHER 8 REGIONS , 1,5 2, 2,5 OCCUPIED STOCK VACANT STOCK, Industrial Research Forum TAKE-UP 1,5 1,25 1, Q1 217 NET TAKE-UP RENEGOTIATIONS & RELOCATIONS, Industrial Research Forum PRIME RENTS ( /sq m/month) Prague Brno Ostrava Plzeň Market Overview Q1 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 more than 1, professionals operating from 55 offices in 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 Q1 217 CZECH REPUBLIC