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Industrial

Industrial property market shaped by shorter supply chains and lower carbon footprint

Manufacturing companies are commanding a growing share of industrial property leases in the Czech Republic. In doing so, they are steadily displacing demand from logistics companies and tenants engaged in retail, especially e-commerce. In the second quarter of this year, lettings to manufacturers accounted for 60% of the 266,443 sq m newly leased. When lease renewals are factored in, lettings totalling 567,445 sq m were closed in the second quarter, up 50% on the previous quarter. These figures come from a fresh analysis by 108 AGENCY, one of the leading real estate consultancies for industrial property leases and sales.

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Offices

High office refit costs prove a drag on new lettings

With the cost of fitting out new offices doubling or even tripling, tenants are reluctant to move. Back in 2019, investing in office refits cost in the region of EUR 400–600 per square metre, but since then the price has spiralled to some EUR 1,000, with costs upwards of EUR 1,200 no exception either. These costs, combined with the rising expense of renting and running offices, are among the principal reasons behind the cooling office market in the first half of this year. Many businesses are opting to stay put for the time being. This partly explains why there has been an upswing in the share of older leases being renegotiated, which rose to 45% in the first quarter.

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Investment

Owners are disposing of older industrial sites - addressing rising operating costs

Skyrocketing energy and operating costs, improved cash flow, less accessible credit, partially higher efficiency of production or business activities... These are the main reasons why some owners of industrial premises or buildings have decided to sell them to investors. They then stay in the properties as tenants or gradually look for other premises. This is according to data from the real estate consultancy 108 AGENCY, which specialises in this form of sale and subsequent lease, known as Sale & Leaseback. The transactions and enquiries made indicate that isolated cases two years ago have grown to dozens in recent months.

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Investment

The year 2023 will be just as challenging, but will also bring new opportunities to the real estate market

The real estate investment market is impacted by increased inflation expectations, higher interest rates and the inflated cost of financing, and this will continue into 2023. This inevitably leads to increasing yield expectations. In most European markets, across various sectors, yields have increased this year. According to BNP Paribas Real Estate, some price corrections are still expected in some markets and asset types in 2023. The market is expected to stabilise in the second half of the year, when investment activity could also see some revival. Currently, most markets are in the stage of ‘price discovery’. Since the summer, we have been witnessing a ‘dance floor situation’ on the Czech real estate investment market. Buyers are sitting on one side of the dance floor and sellers on the other, and everyone is waiting to see who will dare to enter the dance floor first. CPI inflation could reach 15.8% this year according to forecasts from the Czech National Bank, and inflation could be double digit in the first half of 2023 at the very least.

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