Predictions for 2024 are starting to come out, and things aren’t exactly rosy for the Czech property sector. There are a number of potential pain points, but in most case, they’re connected with: the higher cost of both capital and construction; investor caution; and ever-stricter environmental requirements. In its own look ahead at the coming 12 months, Colliers warns about the widening gap between older office buildings and ESG-compliant, newer ones. In combination with a lack of new product coming to the market, the impact on Prague rents.
“With construction costs remaining high and financing still complicated, we do not expect many, if any, new speculative office developments in 2024,” writes Colliers in its latest report. “The lack of new leasing opportunities is pushing prices up, and this has resulted in tenants focusing more often on optimizing and utilizing leased space more efficiently.”
When it comes to the industrial sector, the chronic lack of zoned for development on is driving up rents at the same time as Polish and Hungarian industrial parks have extremely competitive rents to offer. “With contracts from stronger, prior economic periods expiring within two years, responsible occupants should initiate the first round of negotiations to secure necessary rental terms and avoid situations where they are disadvantaged and have no alternatives,” writes Colliers.
Despite easing pressure on interest rates, this year is unlikely to see the hoped-for investment boom. That’s despite the fact that prime equity yields have moved higher by around 125 bps over the past 18 months to between 5% and 5.25%. “We believe they could rise by as much as another 50 basis points to help bridge the price gap and attract more investors to commit capital,” note Colliers. “Still, the outlook for 2024 is rather pessimistic in terms of deal volume and similar to that of 2023. We saw more activity at the value-add and opportunistic end of the market during 2023 as investors chased opportunities that could deliver higher returns. However, as prices stabilize during 2024, we expect to see more instances of transactions in core products.”