Only Czechs and Germans invested in Czech real estate this year

7 Dec, 2009,

The investment volume into institutional commercial real estate reached EUR 215 million at the end of November. Czech investors shared almost 30 percent (i.e., EUR 61 million) in this amount. All together, five deals have been made this year, with the transactions involving exclusively prime office buildings. Investors focused on Prague; no institutional investments took place in any of the regions outside Prague.

“There is at least one more institutional transaction expected to complete by the end of the year. If that happens, the total investment volume this year would be in excess of EUR 250 million representing a drop of 70 percent compared with 2008”, according to James Chapman, Partner and Head of Capital Markets Group at the Prague office of Cushman & Wakefield.

A second additional transaction that may close in 2009 would take the volume over EUR 350 million. (N.B. All information concerning the envisaged transactions is strictly confidential, Cushman & Wakefield is not authorised to provide any further details.)

The average size of transactions has been about EUR 43 million in 2009; last year’s average was approximately EUR 60 million. In general, investors lowered their requirements regarding the volume of their individual transactions this year. While they determined the limits applicable to a single transaction at around EUR 100 million last year, they mainly focused on investment opportunities of up to EUR 50 million this year.

“The requirements concerning the upper investment limits for investments represented one of the reasons why all transactions completed so far this year related to office buildings. The dominant shopping malls exceed this ceiling in the majority of cases; however it is of equal relevance that none of the most established shopping malls have been actively offered for sale this year. Performance of centres over Q4 2009 and into 2010 will play a significant role in determining the likelihood of Czech malls trasacting next year“,says James Chapman.

For the first time since the market emerged in 2004, real property was purchased exclusively by Czech and German investors. Investors from the United Kingdom, United States and Austria were unable to secure deals in 2009 despite spending some EUR 3 billion here in the years 2004-2008. The Czech parties involved were private investors.

Investors from those countries which have been the hardest hit by the crisis mainly focused on the management of their existing portfolios. “Therefore, the increasing percentage of the market held by Czech investors was due mainly to the departure of international investors. Czech investors have been able to use the current situation to obtain high quality real estate.

We have indications that some international investors from the familiar markets of the UK, America and Austria will be returning to us in 2010”, James Chapman adds.

Pricing

The development of the yields has stabilised for prime real estate, and even a good improvement can be seen in some sectors. It is possible to expect further yield compression for prime assets next year as investors fight for the best in class properties. We hope to see stabilisation of yields amongst the core-plus and value-add assets provided that occupational demand remains positive and investors prove their willingness to return to the market.

Expectations for 2010

Investors will continue to focus on prime real estate. Opportunity funds may start to lower their return expectations and be prepared to take on more risk. This would improve the ability to structure development deals and kick-start that part of the market – for the best projects available.

The office segment will dominate but transactions are also expected to take place in the other sectors. The overall market volume is likely to be in the range of EUR 350-400 million. However, this figure remains volatile due to the potential of one-off major transaction. An important step forward for 2010 is an improvement in availability of financing for new acquisitions.

INSTITUTIONAL TRANSACTIONS January-November 2009, Czech Rep.

Quarter	Property Address	Size (sqm)	Price EUR (million)	Seller	Purchaser
1	Jungmanova Plaza, Prague 1	10,300	40.00	Immoeast	Deka
3	Budějovická alej, Prague 4	11,600	31.00	ING Real Estate Investment Management	DBK
3	Uniliver Building, Prague 8	6,570	11.92	Invesco	MOF INVEST
3	East Building, Prague 4	7,435	18.00	Sekyra	DBK
4	Gemini, Prague 4	39,000	113.00	Sparkassen Immobilien AG	DEKA

Source: Cushman & Wakefield, December 2009

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