Contents. 2 Market Overview Q Prague, CZECH REPUBLIC

Transcription

1 Czech Republic MARKET OVERVIEW Q2 2016

2 Contents Economy... 3 Summary Q Investment...4 Summary H Prognosis...4 Office... 5 Summary Q Prognosis... 6 Industrial... 7 Summary Q Prognosis Market Overview Q Prague, CZECH REPUBLIC

3 F 2017F 2018F 2019F 2020F Economy Summary Q > The preliminary data for the GDP development in the second quarter of 2016 indicate year on year growth of 2.5%. However, in quarterly comparison the economy grew by only 0.9%, which was in line with expectations: the stimulus which the economy was getting from EU funding and consequently investment has slowed down. However, household consumption as of late has been one of the main drivers of the economy. > Another mainstay has been exports, driven mainly by the manufacturing sector and automotive industry in particular. A steady increase in demand for new vehicles in Western Europe is of course helping this sector. > Despite economic growth being slower than in previous years, it is now growing at a more sustainable pace and growth is apparent across all economic sectors. > With its new governor, the Czech National Bank announced that it is likely to keep its regulatory measures limiting the exchange rate (above the level of 27 CZK/EUR) in place for an extended period of time, up to 2017-year end. > In spite of the regulatory measures, the inflation rate stayed very low, not exceeding 0.6% (April) and returning to almost zero growth (0.1%) in May and June. Despite some recovery in prices of oil and slight increase in prices of services, lower food prices has kept overall inflation down. > Record low unemployment rate (4.0% in Q2, Eurostat) continued affecting the labour market. In July there was a first minor hike in unemployment rate as a result of recent university graduates coming to the labour market, however the unemployment rate was still the second lowest in the EU. The lack of skilled workforce is fuelling salary growth and this has a risk of putting of new companies entering the market. > The country s average salary reached CZK 26,480 per month ( 939) in Q1 2016, up 4.4% y-o-y. > The government is considering increasing the minimum salary from CZK 9,900 ( 366) to CZK 11,000 ( 406), which would be the largest increase ever recorded in the Czech Republic. The proposal has not yet been approved and there are ongoing negotiations between government, unions and the employer associations. At its current level, the minimum salary was the fifth lowest in the EU. GDP Growth & Forecast, Unemployment rate Source: Focus Economics Economic Growth (GDP, annual var. in %) Unemployment (% of active population, aop) > Focus economics forecasts Czech GDP growth to reach 2.6% and inflation not to exceed 0.5% for Market Overview Q Prague, CZECH REPUBLIC

4 > Investment Summary H > In the first half of 2016 the real estate market saw the total volume of real estate investment exceed 877 million. On a year on year (y-o-y) comparison this showed a 25% decrease. The total transactional volume in reality was however actually higher due to the fact the sales price of some transactions (especially hotels) remained confidential. > In Q2, the investment volume was relatively subdued with 391 million. This is a quarterly decrease by 20%; however y-o-y investment volume was 8% higher. > Retail properties were dominant in H with a 50% share. Office properties attracted 19% while industrial properties were target of 10% of investment volumes. Share on Investment per Sector H % 21% 50% 19% Source: Colliers International Office Retail Industrial Other (including hotels) > In terms of transaction numbers, in H office properties recorded 10 transactions, followed by retail with 9 transactions and 7 in hotels. Industrial only accounted for two transactions. Overall the number of transactions is significantly higher than in the previous year: 32 transactions in 2016 compared to 21 transactions in Labem for 82.6 million by NEPI, followed by the acquisition of Forum Liberec by the same buyer for 80 million. The third largest transaction was a set of three buildings on the prime high street on Na Prikope street in Prague by LaSalle Investment Management (LIM). > Yields experienced a mild compression compared to 2015 year-end. For specific CBD office properties benefiting from long term lease contracts, investors were ready to pay sub 5% yields. Prime Yields (%) in the Czech Republic Q Office Shopping Centres High Street Industrial Warehouses Prime Yield 5.00% 5.25% 4.00% 6.75% Source: Colliers International Prognosis > Despite the Brexit referendum result, we have yet to notice any negative (or positive) impact on investor appetite for the Czech Republic. For the time being, capital shying away from the UK market is more likely to be targeting other core western markets rather than CEE. > Provided that the expected large transactions such as Florentinum (office and retail, Prague 1), The Park (office, Prague 4), Olympia Shopping Centre (Brno) or Letnany Shopping Centre (Prague) close in 2016, the overall transaction volume could exceed > The share of deals closed by German institutional investors as of late has been increasing and for 2016 we expect this investor group to play a significant role once again. > The largest transaction of the second quarter was the purchase of Forum Usti shopping centre in Usti nad 4 Market Overview Q Prague, CZECH REPUBLIC

5 Prague 1 Prague 2 Prague 3 Prague 4 Prague 5 Prague 6 Prague 7 Prague 8 Prague 9 Prague 10 Office Summary Q SUPPLY > By the end of Q2 2016, total office stock in Prague grew marginally to 3.23 million sq m. Two new properties were delivered during Q2: Classic 7 Phase III (5,600 sq m) in Prague 7 and Kotelna Park (6,500 sq m) in Prague 5. VACANCY/AVAILABILITY > The two newly completed office buildings were fully let by the time of completion. In combination with a healthy level of demand, the vacancy decreased by 160 basis points quarter on quarter (q-o-q) to 12.3% by the end of Q2. > The total volume of available space by the end of Q2 reached 397,700 sq m, which was a q-o-q decrease of some 49,600 sq m. > The largest amount of available office space was in Prague 4, which was the largest submarket in the city. The overall vacancy in Prague 4 decreased significantly to 11.4%, which was a q-o-q decrease by 20,000 sq m. Available office space in Prague 4 fell to 100,800 sq m however still accounted for one quarter of all available space in Prague. > The second highest amount of available office space remained in Prague 1 with 75,100 sq m, which was 19% of all available offices in Prague. Translated into district vacancy, Prague 1 had vacancy rate of 14.6%. > The highest vacancy rate was in Prague 7 with 20.5%. As Prague 7 is relatively small office market, the 40,800 sq m of vacant space represented only 10.3% of all vacant space. > Although Prague 7 had the highest vacancy rate of all Prague districts, during Q2 it saw the best improvement, with q-o-q vacancy rate decrease by 830 basis points. In terms of square metres, 14,800 sq m of previously available space was leased up. Other significant improvement was in Prague 4 where the above mentioned available space decrease by 20,000 sq m led to q-o-q vacancy rate decrease by 230 basis points. Modern Office Stock in Prague Districts 1,000, , , , ,000 Source: Colliers International, Prague Research Forum PIPELINE 0 Occupied Stock (sq m) Vacant Stock (sq m) > During the second half of 2016 we expect the completion of another 18,200 sq m of office space in four new properties. Contrary to previous completions from 2016, these soon to be completed properties are largely vacant, which could have a negative impact on the vacancy rate. > The largest completion of 2016 will be Futurama Business Park Phase III in Prague 8 with 9,147 sq m, followed by South Point with 7,450 sq m in Prague 4. Previously expected completion of Palac Narodni (7,655 sq m) in Prague 1 was postponed to > The pipeline for 2017 grew to 230,000 sq m of which 175,800 sq m is already under construction. This indicates developers confidence that the market will continue absorbing the vacant space prior to completion of their projects. 5 Market Overview Q Prague, CZECH REPUBLIC

6 Q1'13 Q3'13 Q1'14 Q3'14 Q1'15 Q3'15 Q1'16 Q3'16 Q1'17 Q3'17 '000 sq m DEMAND > Total gross take-up in Q reached 122,590 sq m, which on a q-o-q comparison was a 22% increase while on a y-o-y comparison showed a 9% decrease. > Cumulatively in the first half of 2016 gross take-up reached 205,141 sq m. In y-o-y comparison the H1 takeup is 4% higher than in previous year. > Net take-up (excluding renegotiations, subleases and relocations) in Q2 reached 67,112 sq m 48% up q-o-q and 10% y-o-y. > Renegotiations remained relatively subdued with 27,400 sq m, which was 24% of the total gross take-up. Cumulatively in H1 renegotiations were 27% of the gross take-up. > Mainly due to limited completions, the net absorption was positive for five consecutive quarters. RENTS > Prime office headline rents remained stable in Q2 and ranged between and 19.50/sq m/month. > The range of inner city rents remained at /sq m/month, while the outer city range remained between /sq m/month. > The city wide average rent remained unchanged at 13.20/sq m/month. > Net effective rents were generally 12-15% lower than headline rents; the level of incentives provided however remains property specific and influenced by multiple factors such as location, new office supply and the prevailing level of vacancy etc. Take-Up 500 > The largest transaction of the quarter was a new lease by CSC Computer Sciences at Enterprise Office Center in Prague 4 (9,400 sq m). Other significant transactions included the renegotiation of NN Pojistovna at Zlaty Andel (8,300 sq m) in Prague 5, Livesport at Aspira Business Centre (5,900 sq m) in Prague 5, expansion of Ceska Sporitelna at Trianon Office Building (5,600 sq m) in Prague 4 and the renegotiation of Cetelem at Andel City (5,200 sq m) in Prague H > The highest letting activity was recorded in Prague 5 with 34,000 sq m, followed by Prague 4 with 24,400 sq m and Prague 1 with 18,500 sq m. Relatively high activity was recorded also in Prague 8 (14,700 sq m) and Prague 7 (10,800 sq m). Activity in the other five districts of Prague remained relatively quiet and the districts were not the most sought after office districts, given also by the limited stock of modern offices in these districts. > During Q2, the most active business sectors were IT and Finance, each with an 18% share on gross take-up. Professional services was third with a 10% share, followed by Manufacturing companies with 9%. Vacancy Rate Development & Forecast 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% Forecast Net Take-Up Source: Colliers International, Prague Research Forum Prognosis Renegotiations & Relocations > First six months of 2016 have shown robust level of occupier demand which we expect to continue throughout the second half of this year. > Due to continued limited completions, we will see further vacancy decrease in H With new office space completed in larger amounts in 2017 the trend of decreasing vacancy is then likely to reverse. > Large new pipeline projects, both in the city centre and in the inner city will come to the market earliest in > Some of the new completions in the city centre are due to set a new benchmark in terms of quality of specification. Current asking rents in these projects under construction indicate a potential increase in the prime rent over short term. Vacancy Rate Realistic Case Source: Colliers International, Prague Research Forum 6 Market Overview Q Prague, CZECH REPUBLIC

7 Industrial Summary Q SUPPLY > By the end of Q2 2016, total industrial warehouse stock in the Czech Republic reached 5.96 million sq m. > During Q2, 182,400 sq m of new space was completed in some 12 buildings across the Czech Republic. > Upon completion, some 36.3% of the newly delivered warehouse space was vacant. Eight of the new warehouses were fully occupied. > Larger space (>5,000 sq m) availability increased q-o-q to 16 properties, three of these being new completions. > The largest amount of available stock was located in the Pilsen region. With 79,200 sq m available it represented 28% of all available stock in the country. More than 50% of the available space was however located in a single property (Mountpark Pilsen), larger space availability was limited to two other properties only. The vacancy rate in the region reached 8.5%. > Prague warehousing market offered 74,000 sq m of space, which was 26% of all space in the Czech Republic with a 3.2% vacancy rate for this region. Industrial Take-Up & Vacancy > Karlovy Vary region received its first commercially let warehouse space during Q2: 30,500 sq m of new space in two properties. 500, ,000 10% 8% > The largest property completed in Q2 was the first building in Mountpark Pilsen with almost 44,000 sq m. It was one of the few speculatively built properties of this size. > The largest share (25%) of newly completed space was in the Pilsen region (46,300 sq m), followed by the Greater Prague Area (43,400 sq m or 24%), Karlovy Vary (30,500 sq m or 17%) and the Vysocina region (25,900 sq m or 14%). > The Greater Prague Area (Prague) remains the largest warehousing region in the country with 2.4 million sq m of warehouse, which is 39% of all manufacturing and logistics space in the Czech Republic. VACANCY/AVAILABILITY > By the end of Q2, the vacancy level increased to 4.7%, up 57 basis points q-o-q. > The total industrial vacancy was 282,900 sq m, which is was q-o-q increase of 42,000 sq m. 300, , ,000 0 Q Q Q Q Net Take-up (sq m) Q Source: Colliers International, Prague Research Forum Q Renegotiations & Renewals (sq m) Vacancy (%) PIPELINE > By midyear, around 213,900 sq m of new industrial space was under construction; 89% of the space was scheduled for completion in > The largest portion of the space under construction was in Prague and represented 52.0% of the development pipeline. The remaining space was evenly split between 6% 4% 2% 0% 7 Market Overview Q Prague, CZECH REPUBLIC

8 the Pardubice, Pilsen, South Bohemia and the South Moravia regions. > In addition to the active pipeline there was 51,000 sq m of warehouse space where construction was temporarily on hold. These were typically buildings finished to shell&core and waiting for an occupier before being completed. DEMAND > Gross take-up in Q was 349,300 sq m, up 11% q- o-q but 3% down y-o-y. Net take-up accounted for 263,700, 21% up q-o-q and 4% up y-o-y. > Prague dominated take-up figures with 154,200 sq m, which was 44% of the quarterly take-up. The second most active region was Usti nad Labem with 38,800 sq m or 11% share. > Cumulatively, the gross take-up in H reached 662,800 sq m, up 10% y-o-y. Cumulative net take-up reached 481,000 sq m, up 7% y-o-y. > The largest deal of the quarter was the pre-lease of Sportisimo (34,800 sq m) at ProLogis Park Prague Rudna. > The second largest deal was the renegotiation and expansion of DB Schenker in P3 Park D1. > The largest share of net take-up came from third party logistic companies (3PL), with a 51% share. Manufacturing/production companies took 26% of net take-up (with the automotive industry producers leading the group), the remaining 23% are distribution warehouses. Among the distribution warehouses, retailers were the strongest occupier, with e-commerce in second place. > Pre-lease activity on the market was strong in Q2 and accounted for 36% of all deals. Renegotiated leases made up 26% of gross take-up, followed by new leases with 24%. Expansions on existing leases formed 15% of the gross take-up. RENTS > Headline rents in the regions, for a five-year lease term, ranged between /sq m/month in Prague; /sq m/month in Pilsen; /sq m/month in Ostrava and /sq m/month in Brno. > Office space (within the industrial buildings) leased at /sq m/month. > Service charges within modern industrial parks are typically around /sq m/month. > Incentives were largely unchanged, with typical offer on one month of rent free period per year of lease signed. The full incentive package depends on the strength of the occupier and mainly on the lease length the occupier is willing to commit to. In some cases, the landlord can even offer to take part of the relocation cost. Gross Take-Up in Czech Regions in H % 1%1% 3% 4% 4% 5% 5% Source: Colliers International, Industrial Research Forum Prognosis 5% 6% Greater Prague Plzeň region Liberec region Pardubice region South Bohemia region Vysočina region Hradec Králové region 8% 43% 14% Karlovy Vary region Ústí nad Labem region Central Bohemia Moravia-Silesia region South Moravia region Olomouc region > Demand figures are pointing out to another strong year for occupier demand across the Czech Republic > Following the pre-lease deals signed during Q2 2016, developers should shortly be commencing the construction of approximately 99,800 sq m of new warehouse space. > Vacancy rate is not likely to experience any major hikes in short the term. New space under construction in Q2 was already 57% let. We can thus expect increased interest in speculative development. > The signs on the market indicate demand from e- retailers is set to continue. For example, German retailers that are looking for operational savings, benefiting mainly from the cheaper labour force in the Czech Republic. Another advantage being the easy connection to their German distribution network via the main highway routes 8 Market Overview Q Prague, CZECH REPUBLIC

9 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. 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. TOTAL COMPETITIVE STOCK: Office Market: Includes the gross leasable floor space in all Grade A and Grade B buildings, including owner-occupied 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). FOR MORE INFORMATION: Ondřej Vlk Head of Research Czech Republic Ondrej.Vlk@colliers.com Omar Sattar Managing Director Czech Republic Omar.Sattar@colliers.com CONTRIBUTORS: 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 Copyright 2016 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 9 Market Overview Q Prague, CZECH REPUBLIC 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.

10 554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 MARKET CONTACT: Ondřej Vlk Head of Research Czech Republic Ondrej.Vlk@colliers.com Colliers International Czech Republic Slovanký dům, Building B/C Na Příkopě 859/ Prague billion in annual revenue 185 million square meters under management 16,000 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 16,000 professionals operating from 554 offices in 66 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 w consult their professional advisors prior to acting on any of the material contained in this report. 10 Market Overview Q Prague, CZECH REPUBLIC