Research & Forecast Report. Czech Republic H H Review

Transcription

1 Research & Forecast Report Czech Republic H H Review

2 Contents Investment... 3 Summary H Prognosis... 4 Office... 5 Summary H Prognosis... 7 Industrial... 8 Summary H Prognosis Key Definitions Mid-Year Review H Czech Republic Colliers International

3 Investment Summary H > The first half of 2015 saw a total 1.17 billion of real estate investment transactions close across the Czech Republic. This was a 73% increase on the same period in 2014 and 214% above the level seen in H The Q2 transaction volume of 431 million was however, below the 760 million seen during Q1. > This makes H the most successful first half of the year since the financial crisis, and second only to H in terms of investment volumes during the first six months of the year. largest transactions formed part of Lonestar s purchase of Aviva Investors CEE portfolio. In the Czech Republic this included two office properties, the Oasis Florenc building in Prague 8 and Buildings A, B & C at Avenir Business Park, Prague 5. We estimate the total consideration for both buildings to be approximately 99 million. > Most other transactions were in the region of 20 million individual lot size, the most significant of which was the completion of Invesco s purchase of the Riverview office building which was developed by Skanska in the popular inner city Prague 5 district. The building is fully leased, with MSD basing their global IT innovation centre in the premises. Investment volumes f ( Million) > To date, transactions volumes have been dominated by deals in the retail sector, the largest of which was the purchase of Palladium in central Prague by Union Investment. Incidentally the previous time this asset traded was in H > The second largest transaction completed in H also involved a Prague based shopping centre, with Atrium European Real Estate (AERE) purchasing Unibail-Rodamco s 75% stake in the Arkády Pankrác shopping centre in Prague 4 during Q2. ECE retain their 25% stake and will continue to asset manage the centre. > Further shopping centres transactions were closed in Brno and Kolín with CBRE Global Investors and CPI Property Group purchasing Campus Square and Futurum Kolín respectively. These deals along with Peakside s purchase of Atrium s regional portfolio lead to investment in the retail sector reach 875 million, which represented 75% of the total investment volumes. > The second most popular sector was the office sector which accounted for 15% of all transaction volumes. The Source: Colliers International > Compared to the second half of 2014, investment turnover in the logistics sector was rather muted, with only 69.5 million of transactions closing. Following the Penny Market Distribution centre deal as mentioned in our Q1 report, the second largest transaction was the 23.5 million purchase of Westgate Park Rudná by ProLogis. This property comprises a single 28,000 m 2 warehouse property along with 14ha of development land, and will form an expansion of the adjacent ProLogis Park Prague Rudná. 3 Mid-Year Review H Czech Republic Colliers International

4 > Some 50% of all transactions closed in H1 involved German based purchasers, far outweighing other nationalities. The second most active groups were Israeli based (14%), by virtue of AERE s shopping centre purchase, followed by US based groups such as Lonestar and ProLogis (11%). Investment transactions in H by sector Prognosis > We continue to forecast that 2015 will be a record year in terms of investment volumes in the Czech Republic as the current level of investor interest shows no sign of abating. A similar trend is being witnessed across Europe as this bull market has attracted large flows of capital into real estate investment. > We are registering demand across the sectors and interestingly also along the risk curve. Whilst demand in previous years has been concentrated on core sectors and locations, increasingly investors are looking to coreplus and opportunistic properties. Source: Colliers International H Investment transactions by country of origin > The second half of the year will see benchmark yields set across the asset classes as we see further evidence of yield compression. Office yields are set to breach the 6.00% mark, regional shopping centres are beginning to trade in the low 6% range and prime high street retail in Prague should trade below 5% for the first time. Source: Colliers International Prime investment yields Source: Colliers International 4 Mid-Year Review H Czech Republic Colliers International

5 Office Summary H SUPPLY > Total office stock in Prague stood at 3.13 million m 2 by the end of H There were four new office buildings completed during Q totalling 68,590 m 2. > Key office projects completed in Q2 included both BB Centrum DELTA (40,600 m 2 ) and Green Line (13,700 m 2 ) in Prague 4 and Crystal Prague (12,800 m 2 ) in Prague 3. > Of the new office space delivered in Q2, just over 50% was leased prior to completion, which is a significantly higher amount of pre-leasing than seen in previous quarters. VACANCY/AVAILABILITY > Despite a fairly strong delivery pipeline in Q2, Prague vacancy rates actually dropped slightly from 17.1% in Q1 to 16.8% in Q2. This marginal fall was of course helped by the strong pre-leasing activity. > Prague s highest vacancy rate was recorded in Prague 7 (35.6%) while the district with the lowest vacancy rate was Prague 4 (10.4%). These rankings did not change compared with Q1. PIPELINE > The second half of 2015 is expected to deliver a further 90,100 m 2 of new office space to the market, giving a total annual supply of some 190,000 m 2. > The bulk of new office construction in 2015 is focussed on Prague 4 and Prague 5. > The three largest projects out of the five scheduled for the second half of 2015 are Enterprise (29,000 m 2 ) in Prague 4, Aviatica (27,000 m 2 ) in Prague 5 and Corso Court (17,300 m 2 ) in Prague 8. All of these buildings are new build constructions. > Overall some 39% of the additional 2015 office supply has been pre-leased to date. The highest volumes of pre-leasing were registered at Corso Court (93%) followed by Enterprise (51%). Stock and new supply > Total vacant space in Prague amounted to 526,000 m 2, an almost identical number to Q1, however one-fifth higher on a year-on-year (y-o-y) comparison. > Prague 1 continued to offer the largest amount of available office space (93,200 m 2 ), although this amount has decreased by 10% compared with the corresponding Q1 figure. > Other districts with larger amounts of available office space were Prague 5 (87,500 m 2 ) and Prague 4 (87,400 m 2 ). The least amount of vacant space was in Prague 3 (21,500 m 2 ) - although this figure has nearly doubled compared to Q1. Source: Colliers International / Prague Research Forum 5 Mid-Year Review H Czech Republic Colliers International

6 > Based on our knowledge of the on-going leasing negotiations taking place at the new projects earmarked for H2 2015, we expect the share of pre-leasing to have increased by year end. Take-up and Vacancy > New office supply in 2016 is not expected to keep pace with the development activity of 2015 or Office construction levels look set to be dramatically scaled back with around only 50,000 m 2 coming on line in DEMAND > Q2 total gross take-up at 129,600 m 2 has more than doubled y-o-y and on a positive note was the highest quarterly gross take-up figure recorded to date. > Net take-up at 42,900 m 2 accounted for a 33% share of Q2 office demand. This figure was double the Q1 figure and three times more on a y-o-y comparison. > Lease renegotiations registered 63,800 m 2, making up a 49% share of Q2 demand. This was an increase of 53% y-o-y. > Tenant relocations i.e. occupiers simply moving from within the existing office stock represented 22,900 m 2 or 18% of Q2 gross take-up. Source: Colliers International / Prague Research Forum Q Gross take-up in Prague districts > The largest transaction in Q2 was O 2 's renegotiation (29,600 m 2 ) at BB Centrum in Prague 4. This lease renegotiation also represented the largest office transaction in H by a considerable margin. > The second largest transaction was CompAp's pre-lease (5,900 m 2 ) of Classic 7-Phase III in Prague 7. This office project is currently under construction. > Prague 4 (40%) was again the top district in terms of total leasing activity in Q2 followed by Prague 8 (19%) and thereafter Prague 5 (16%). Source: Colliers International / Prague Research Forum > The most active business sectors in Q2 were Telecommunications (24%), followed by Professional Services (16%) and then Manufacturing (7%). 6 Mid-Year Review H Czech Republic Colliers International

7 RENTS > Prime rents have been under pressure in recent years; however in Q2 rents were comparable with Q1 and rarely ventured above 19/m 2 /month. Q Vacancy (m 2 ) by district > The upper range of inner city rents remained at /m 2 /month. The outer city range remained at /m 2 /month. Therefore no significant rental adjustments were noted. > The city wide average rent has also kept at stable level of 13.30/m 2 /month. > Rent free periods and contributions towards tenant fit out (i.e. tenant incentive packages) remained a key feature of the office letting market. Prognosis > The recent positive economic performance of the Czech Republic could now be filtering its way into the decision making of corporate organisations that are looking to occupy additional office or set up new operations. Source: Colliers International / Prague Research Forum > Prague experienced a very active leasing market in H with some 204,000 m 2 of gross take-up recorded during the first six months. > Q2 proved to be a particular strong leasing period (129,600 m 2 ) and even if ignoring the large lease renewal of the telecom provider O 2 (29,600 m 2 ) would still have proved to be one of the busiest quarters on record. > On the supply side we are also experiencing above usual levels of new office completions, with 190,000 m 2 forecasted to the hit the market this year. > Given the increased levels of pre-leasing activity being recorded across the office market, we don t expect significant growth in the overall Prague vacancy rate by year end. > With a considerably reduced number of offices completions scheduled for 2016 we therefore expect to see vacancy rates to begin falling again next year. > The outlook for rents is that they will remain flat throughout the rest of this year. Only once the current overhang of vacancy starts to recede will we see landlords lowering the level of tenant incentive packages. 7 Mid-Year Review H Czech Republic Colliers International

8 Industrial Summary H SUPPLY > Q saw the completion of industrial premises totalling nearly 100,000 m 2 of which 93% was pre-let prior to construction. > Together with the Q supply, Czech industrial stock grew by 139,800 m 2 during H (28% less than in H1 2014), reaching 5.26 million m 2. Almost 40% (2.1 million m 2 ) of the total inventory is located in Prague. > Prologis was responsible for delivering the three largest warehouses to the Czech market during H All of them being built in the Prague region, e.g. 31,800 m 2 for Mall.cz at Jirny and a 30,000 m 2 for Červa Export Import along with a similar sized speculative building at Jeneč. > Q2 also saw a few more properties and sites change hands - CTP acquired an existing 20,000 m 2 warehouse in Pilsen (which became part of CTPark Pilsen) and a development site in Kvasiny. Prologis extended its Prague-Rudná park by acquiring the neighbouring Westgate Park Rudná, which also came with vacant land for future construction. > The region housing the second largest volume of vacant premises was still Pilsen with 62,700 m 2. Although we did see vacancy in the Pilsen region decline from 11.2% in Q1 to 8.7% in Q2. South Moravia followed with 55,500 m 2 of empty modern industrial space and this represented a vacancy rate of 6.5%, slightly down from 6.7% in Q1. PIPELINE > Construction activity has jumped with just over 500,000 m 2 of modern warehouse and production premises in development. This represents three times more space under construction than at the same point last year. > Construction activity on the industrial real estate market continues to be mostly driven by pre-lease activity e.g. 86% of the construction pipeline is being built-to-suit for occupiers mainly from the E-commerce/Retail sector (Amazon, Primark and Globus). > The share of speculative development remained stable and only represented a small slice of the total construction volumes. Examples of new speculative development in Q included locations such as Tuchoměřice, Nýřany and Pardubice. Stock and new supply VACANCY/AVAILABILITY > The countrywide vacancy continued its declining trend for the third quarter in a row, reaching 6.9% at the close of Q (down from 7.8% in Q1 2015). This equates to 363,400 m 2 of unoccupied industrial premises ready for immediate occupation across the country. > Prague had the largest portion of vacant premises at the end of Q2 with 144,900 m 2, which translated to a vacancy rate of 6.9%. Source: Colliers International / Industrial Research Forum 8 Mid-Year Review H Czech Republic Colliers International

9 DEMAND > A total of 370,700 m 2 was transacted during Q2 2015, mostly in the form of pre-lets (36%) and lease renewals (30%). The combined gross take-up figure for the entire H came to 614,000 m 2 and again was largely made up by pre-leases (31%) and prolongations of leases signed in the past (26%). Take-up and vacancy > Net take-up, which excludes lease renewals, reached 260,700 m 2 in Q2 alone. Compared to the corresponding period of last year this is almost double in terms of volume and more than double in number of signed deals. The Q1 and Q2 figures combined resulted in the total net take-up of 456,800 m 2, being 65% above the activity during H > German retail chain Globus concluded the two largest deals of H The retailer signed a lease expansion at Prologis Park Prague-Jirny (33,500 m 2 ), in a brand new facility (under construction) and also renewed their existing lease (28,900 m 2 ) at the same location. The third largest transaction of H is the pre-lease signed by Faiveley Transport in Q1 for a production and warehouse premises at VGP Park Pilsen (21,800 m 2 ). > During H1 2015, the net demand for industrial space in the country came mainly from the manufacturing sector (54% / 248,500 m 2 ) with occupiers engaged in the automotive industry being the most active. Source: Colliers International / Industrial Research Forum H Net take-up by occupier type > There were several new entrants to the market in H1 2015; examples included Hisense (electronics), Blika (metal furniture) and SSI Technologies (sensors and control systems). > The regions of Prague and Pilsen were the most desirable markets during H attracting the highest volumes of new demand. RENTS > Rents for Grade A warehouse space did not show any major swings in Q2, however the size of tenant incentive packages did vary depending on the level of competition within the particular regional submarket. Source: Colliers International / Industrial Research Forum > Headline rents in the regions, for a five year lease term, ranged between /m 2 /month in Prague; /m 2 /month in Pilsen; /m 2 /month in Ostrava and /m 2 /month in Brno. 9 Mid-Year Review H Czech Republic Colliers International

10 > Mezzanine office space (within the industrial buildings) is leased for /m 2 /month. Vacancy in regions > Service charges within modern industrial parks are typically around /m 2 /month. > Some industrial developers have decided to upgrade the technical standards of the premises they offer by providing for example LED lights or higher floor loadbearing capacity within their standard base rent. Prognosis > Although this year s H1 supply levels are slightly weaker than those in H1 2014, the strong construction pipeline indicates that 2015 is likely to be the strongest year in terms of new supply since > Current levels of occupier activity / gross take-up may in fact mean that overall demand for the full calendar year could exceed the 1 million m 2 mark. > We are seeing increased interest from retailers / e-tailers who are considering establishing new distribution centres or consolidating / expanding their warehouse footprint in the Czech Republic. Source: Colliers International / Industrial Research Forum > Unlike the facility of Amazon, which will not initially be used to service the Czech market, other retailers are planning to use their premises for distribution to shops across the Czech Republic as well as other CEE countries. > The potential restructuring / sale of developer CTP is still under negotiation. Once concluded this would represent the largest investment transaction in the Czech real estate market to date. However, the transaction is unlikely to have much impact on the occupiers within CTP s portfolio, since the current management is likely to remain in charge. 10 Mid-Year Review H Czech Republic Colliers International

11 Key Definitions > PRIME NET INITIAL YIELD: The yield an investor is prepared to pay to buy a Grade A building, fully-let to high quality tenants at an open market rental value in a prime location. Lease terms should be commensurate with the market. As a calculation Net initial yield = First years net income/purchase price (prior to deducting fees and taxes). > PRIME HEADLINE RENT: Represents the top open-market tier of rent that could be expected for a unit of standard size commensurate with demand, of the highest quality and specification in the best location in the market at the survey date. This should reflect the level at which relevant transactions are being completed at the time but need not be exactly identical to any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period, the quoted figure will be more hypothetical, based on expert opinion of market conditions. The figure excludes service charges, taxes, and tenant incentives. > TOTAL OCCUPATIONAL MARKET ACTIVITY (GROSS TAKE-UP): Total Occupational Market Activity is the total floor space known to have been let or sold as one of the following activity types during the survey period: Pre-let, New Occupation / Lease, Renewal / Renegotiation, Expansion, Sub-lease and Sale & Leaseback. > NET TAKE-UP: Office Market: Net Take-up represents the sum of all Total Occupational Market Activity categories which represent a net increase in demand for space, i.e. excluding renegotiations & renewals and relocations within existing office stock. > TOTAL COMPETITIVE STOCK: Office Market: Includes the gross leasable floor space in all Grade A and Grade B buildings, including owneroccupied buildings and government owned properties. Ancillary office space is only included if it can be reasonably used independently of the primary use of the building in which it is located. Industrial Market: Includes the gross leasable floor space in all Grade A buildings, including speculative and built to let stock, however, excluding owner occupied buildings. Other reference points include that the building must be heated and have a clear usable height minimum of 6 metres. > SPACE UNDER ACTIVE CONSTRUCTION: Represents the total amount of gross leasable floor space of properties where construction has commenced on a new development or where a major refurbishment / renovation is ongoing at the survey date. > VACANT SPACE: Office Market: The total gross leasable floor space in existing properties that meet the Competitive Stock definition, which is physically vacant and being actively marketed at the survey date. Space should be available for immediate occupation. Industrial Market: The total net leasable floor space in existing properties that meet the Competitive Stock definition, which is physically vacant at the survey date. Any office/mezzanine, sanitary and technical areas as well as custom-built corridors/tunnels and canopies are included in the final figures (as of Q1 2015). Industrial Market: Net Take-up represents the sum of all Total Occupational Market Activity categories which represent a net increase in demand for space, i.e. excluding renegotiations & renewals. 11 Mid-Year Review H Czech Republic Colliers International

12 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Primary Author: Lenka Oleksiaková Senior Associate Industrial Agency Czech Republic Lenka.Oleksiakova@colliers.com Contributors: Jana Beeby - Associate Office Agency Lenka Oleksiaková - Senior Associate Industrial Agency Tomáš Berka - Senior Associate Investment Services Chris Sheils - Director CEE Investment Services Omar Sattar - Managing Director Czech Republic Asia Pacific: 199 EMEA: billion in annual revenue Colliers International Czech Republic Slovanský dům, Na Příkopě 859 / Prague 1, Czech Republic million square meters under management 16,300 professionals and staff 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 16,300 professionals operating from 502 offices in 67 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 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2015 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.