In Q1 2009 there have only been two major real estate transactions in the Czech Republic the purchase of Jungmannova Plaza office centre by DEKA and Hotel Atom in Ostrava by CPI with a total investment volume of €45.9 million. According to the latest survey of global property adviser DTZ, this is a record low showing a 65% y-o-y decrease from Q1 2008 and a 63% q-o-q decrease from Q4 2008.
"Despite these numbers we forecast this year's total investment volume to be around 500 million. We can see some investors monitoring opportunities and it's only a matter of time until vendors' and purchasers' pricing expectations align," states Martijn Kanters, Head of Consulting & Research at DTZ Prague.
The study clearly indicates the reasons playing a distinct role in slowing down investment activity. First are restricted financing conditions with loan-to-value ratios now in the range of 40-60% and interest rates at 250-400 b.p. above Pribor. Secondly prospective purchasers are playing a waiting game. The direct consequence of the first mentioned factor is that lenders prefer smaller stakes of 20-40 million resulting in syndicated loan structures necessary for larger transactions.
International investors are focusing on prime institutional product in Central Prague, of which there is limited stock, while domestic funds are assessing secondary product where yields are quickly becoming very attractive. Q1 2009 prime yields stand at above 9% for industrial/logistics and around 7% for offices and retail. This means a shift up to 200 b.p. comparable to levels seen in 2004 / 2005!
"This evidently leads to increase in the activity of equity-rich, often Czech, investors who take advantage of a lack of competition from debt-driven buyers. Traditional investors will position themselves to acquire strong assets at long-term sustainable price levels with anticipated yield compression," concludes Martijn Kanters.