Investors are set to spend up to €700 million on real estate in the Czech Republic in 2011, according to property agents. In Europe the total volume of property acquisitions is expected to climb up to €130 billion.
Michael Yardney, an Australian blogger specializing in real estate investments, wrote that real estate investors will have to be extremely careful to ensure they buy the right properties. They should, in his view, at the same time also consider how they structure their capital to prevent it from going up in smoke in the event of rising interest rates.
“Sitting on the sidelines waiting to see how things pan out may seem safe to some, but it is likely to mean they will miss out on great opportunities. It is easy to do nothing ... as Donald Trump says: ‘Nothing is easy... but who wants nothing?’” Yardney said about the situation on the real estate markets.
This year there will certainly be an increased appetite for real estate spending, according to predictions by real estate agents. The international real estate consultancy Jones Lang LaSalle estimates a 35 percent increase in the volume of commercial real estate investments in Europe for this year, which should reach a combined value of €130 billion. Apparently there will also be plenty to buy and plenty to pay for it with as banks are expected to pursue forced property sales and at the same time also to provide more credit.
Last year already signaled a change for the better. Year-on-year real estate investments rose by 40 percent. Shopping centers attracted the biggest interest in Europe. ‘Investors will widen their geographic search, and we will see increased trading in the Nordic markets, Central and Eastern Europe, and Moscow.’
“The large, liquid and transparent markets in the UK, France and Germany will attract the majority of funds, with their focus being on London and Paris. Nonetheless, investors will widen their geographic search, and we will see increased trading in the Nordic markets, Central and Eastern Europe, and Moscow,” Chris Staveley, director of capital markets at the London branch of Jones Lang LaSalle, said in an outlook statement.
“Our forecast suggests little variation in returns at a sector level, but overall offices and retail will continue to have the attention of most funds,” he added.
Last year already sovereign wealth funds, institutional investors and pension funds have found their way back to the real estate market as they discovered that real estate yields more than keeping cash in the bank or buying government bonds.
In the Czech Republic real estate agents also predicted a pickup for 2011, although here it is not expected to match the upturn in transactions projected for Europe as a whole. Analysts of the international King Sturge real estate company estimate investments into real estate in the Czech Republic to amount up to €600 million–700 million this year. The total volume of acquisitions in 2010 is thought to have been around €600 million.
Last year, like the year before, Czechs were dominant among real estate investors in the Czech Republic. Ranked first is Czech Property Investments (CPI), officially owned by Magda Malá, the mother of businessman Radovan Vítek. Just before Christmas CPI made the largest real estate acquisition of the year 2010. it bought two office buildings from property developer Finep built as part of the City West project in Prague for Kč 1.8 billion (about €71.7 million).
In 2010 foreign investors featured only in 18 percent of property transactions. There are considerably more foreign investors expected this year. “There is – and will be – demand for long-term leases of superb class A office and retail buildings on sought-after locations,” said Jan Kovařínský, investment consultant at King Sturge.
Before the onset of the crisis the most active buyers in the Czech Republic were German and Austrian funds which bought practically everything available on the market. Austria-based Hypo Real Invest, Spain’s Azora Europe and Denmark’s Kirby managed to close transactions in 2010. “Smaller transactions of up to €15 million are characteristic for them. They mainly focus on class A office buildings in Prague,” Kovařínský said.
2011 is not going to start cold. In the course of this month one of the most significant transactions in Central and Eastern Europe will be closed. Austrian company CA Immo is to acquire property development and investment company Europolis for €272 million. Europolis owns a range of development projects in the Czech Republic including Prague’s River City office building complex and several shopping centers. ‘Representatives of opportunistic funds are here ... but there’s nothing for them to buy.’
Real estate agents predicted two years ago that, with the crisis continuing, opportunistic buyers such as Europa Capital or AREA will increasingly appear on the market. Although these companies are monitoring the situation, none have so far signed any specific purchase agreement. “Representatives of opportunistic funds are here in the Czech Republic but there’s nothing for them to buy,” said Zdeňka Klapalová, director of real estate consultancy Knight Frank.
Contrary to predictions there still are no compulsory sales of properties — the kind that opportunistic buyers are interested in. So far, banks in the Czech Republic have been very considerate toward debtors not forcing them to convert their assets into cash in order to repay credits. However, the owners of real estate companies cannot further rely on this anymore.
Investors may be voicing their willingness to come back to property markets, developers on the other hand are still very cautious in their actions. In 2010, according to data gathered by King Sturge, six buildings comprising 56,000 square meters of office space had been completed — three of which are in Prague 1, two in Prague 4 and one in Prague 9. “Compared with the year before this constitutes a 66 percent drop,” said Pavel Skřivánek, head of the office real estate department at King Sturge. He added that this was not only due to weak demand but also to the unwillingness of banks to finance new construction projects.
Office fight looms
2011 brings little prospect of new office space. In most cases projects only involve the finalization of headquarters tenants ordered in advance. Real estate agents expect this situation only to change at the turn of 2011 and ’12 when office developments become available which started to be built in the second half of 2010 on a speculative basis. For example Immorent, Skanska Property, HB Reavis, Karimpol and ECM REI are involved in such construction projects.
Real estate investors are mainly looking for Prague office buildings. In 2009 some 84 percent of the €556 million spent on Czech real estate was used to purchase office buildings. King Sturge estimates that in 2010 office spaces dominated commercial real estate transactions. Some investors have already at this moment staked their bets on the possibility that in two years not a single square meter of office space will be available as there are no new office developments under construction at the moment. “Those who buy now know full well what they’re doing,” said Serge Borenstein, a major Prague developer.