Rising energy prices, construction costs and rents, the crisis of restaurants, pressure for ESG compliance and changes in the Prague high street: these are the main trends that will affect the Czech real estate market in 2023.
Substantial changes will occur both in the field of industrial and office real estate, as well as in the residential housing.
According to Colliers, a leader in the provision of diversified professional services in the field of commercial real estate and investment management, the real estate market in the Czech Republic will be influenced by following 10 main trends this year:
1. Construction and financing costs will remain high
It is unlikely that construction materials prices will decrease dramatically in the short term, and we assume that newly developed projects will have more difficulty proceeding without a business plan or profit revision, partially depending on the sector. A similar situation exists with the cost of financing. This can limit construction activity, especially among smaller developers where financing banks are more cautious and request greater levels of security.
2. Pressure for inflation caps and the savings struggle
As Czech and Eurozone inflation spiked during 2022, many tenants reviewed their contracts and opted to add an inflation cap. Some of them were successful, some were not. The impact of inflation will unfold during the upcoming months and especially those without caps and paying in CZK could face challenges coping with increased OPEX.
The year 2022 represented some sort of a preparation stage. The year 2023 will represent a year where energy providers and consumers, landlords and tenants, companies and customers and all others who produce and consume will try to balance between saving, spending and investing responsibly, through increased productivity and despite higher financing costs.
3. Pressure for ESG compliance
As the EU-wide non-financial reporting directive will be mandatory for more and more companies in the Czech market, we will be seeing increased interest in sustainability, the circular economy and social impact of business. For real estate, this includes energy or waste management, accessibility, impact on neighbourhoods, construction material sourcing and increased pressure to prove and obtain certain minimal certification for the property.
4. Significant developments in Prague, rents will increase citywide
Due to the inflation clauses in existing contracts, rents will increase across all asset types. Such an across-the-board increase could also raise the rest of the asking rents by 10 per cent or more. In the past, rental increases were not primarily driven by inflation but mostly by the market itself. Despite the optimistic net office take-up during 2022, we expect more renegotiations to be seen on the market as the global economic situation is pushing companies to reconsider their moves or expansions.
5. The big box market will approach 12 million m2, more renegotiations are expected
The market will grow rapidly thanks to the record amount of space under construction. The total big box market surpassed the 10 million square meters mark in 2022 and there is no sign of it slowing down. Most of the pipeline is leased before completion and despite the thinning land inventory, industrial developers won’t stop with their expansion plans. Despite the quite immense inflow of new industrial space, we also expect the share of renegotiations to increase.
6. Prague’s new zoning plan will probably be postponed again
The current zoning plan is over 20 years old and is not in line with the current needs of the city. The new zoning plan for Prague, which is in preparation for over a decade and should define clear development rules and ease the permitting process, will probably be postponed again. This follows a recent public hearing where thousands of comments were made by both the public and local authorities.
7. Lights out for F&B, others may experience lower turnovers
As the prices of electricity and gas increase, F&B businesses are likely to be the first ones in danger. When you add this to the two years of pandemic restrictions, you have a deadly mix for part of the market. As a result, we will probably see more units become available or offered for takeover, especially those which relied on tourism.