Abrupt filling of commercial spaces

After the beginning of the year, when one luxury Prague hotel after another changed hands, the commercial real estate market was quiet, interrupted only by the acquisition of individual retail and logistics centers. Since the end of September, the market has begun to come to life, and over the past three weeks we have seen an avalanche of transactions involving office space.

The autumn season opened with the purchase of the Diplomat Hotel by the PPF Group in mid-September. This was soon followed by two acquisitions of shopping centers, with Reico acquiring Palladium and Redstone acquiring Olympia in Olomouc. Over the past 90 days, a total of four hotels with 1,200 rooms, four shopping centers, and seven office complexes have been sold in Czechia.

What caused this surge in transaction activity, the likes of which we haven't seen in many years? If we focus only on office space, its total area in Prague has grown by only 5% to 3.95 million square meters over the past five years. The combination of limited growth and the return of employees from home offices to offices resulted in a 36% increase in monthly rent to EUR 30.5/m2.

Another impulse was the increased demand for offices, which remained at 7.5% for five years and fell to 6.5% this year. All these factors led a number of companies to a similar conclusion at the same time. For the original owners, this opened up the possibility of a profitable sale at the end of the investment horizon, while new investors tried to stay ahead of the market and acquire premium space at current prices.

Efforts to take advantage of the current situation have resulted in the sale of five office complexes over the past three weeks. Specifically, Trinity Banking Group will acquire Riverside Karlín, Conseq has completed the acquisition of Kavčí Hory Office Park, the Office for the Protection of Competition is reviewing the takeover of Česká spořitelna's headquarters by Penta, Israel's AFI is buying Port 7 in Holešovice, and SPM Invest has acquired Campus Science Park in Brno. In total, this represents 280,000 square meters of office space, which is equivalent to the area of four Prague Castles, and in previous years, a similar volume of transactions would have been spread over three half-years.

Given that this represented 7% of all Prague offices, a temporary cooling of the market can be expected. The question remains whether investment appetite will shift to other real estate sectors, or whether we have witnessed a rapid contraction followed by another period of calm.