3.5% 2.3% 2.2% Inflation March Purchasing power per capita 2016 Prague

Transcription

1 City Report Q1 2018

2 3.5% 2.3% 2.2% GDP Growth F2018 Inflation March 2018 Unemployment rate March 2018 Prague 1,539 10, % Average Monthly Salary Q Prague Purchasing power per capita 2016 Prague Industrial production y-o-y, F2018 Economy Source: Oxford Economics, Czech Statistical Office The Czech economy continues to enjoy strong growth momentum, with tight labour market, wage hikes and low inflation fuelling consumption, and investment supported by EU transfers and high capacity utilisation. But the sharp slowdown in the Eurozone at the start of this year has had an impact on the Czech economy, with both industrial production and exports slowing significantly. Oxford Economics lowered 2018 GDP growth forecast to 3.5% from 3.7% previously, and nudged up 2019 from 3.1% to 3.2%, largely on base effects. The final release of Q4 national accounts saw growth revised up, from 0.6% to 0.8% q/q (or 5.5% y/y), bringing full-year 2017 growth to 4.6. The revision came primarily from stronger than expected investment (which was revised from 7.9% to 8.4% y/y) and higher government consumption (1.9% y/y versus 1.1% y/y previously), probably reflecting the continued pick-up in absorption of EU funds. Despite still solid PMIs (57.3 in March 2018), industrial production visibly slowed in the first two months of Q1, to only 3% y/y in February from 10% in December, and is now pointing to a flat growth on the quarter. In line with weaker demand in the Eurozone, exports were also down, contracting by 0.3% y/y in February, the first negative reading in 12 months. Despite continued strong consumer spending, inflation has slowed sharply mirroring developments in the region and the euro area to 1.7% y/y in March, slightly below Oxford Economics forecast, but 0.6pp below that of the CNB. A year since the CNB exited its currency intervention mechanism (on 6 April 2017), the CZK is trading at 25.4 to the, and is about 5.3% stronger than a year ago. As such, the CZK has been one of the best-performing currencies. With CPI inflation above the 2% target for over a year, the CNB resumed monetary tightening in August 2017 and has delivered three hikes, taking the policy rate to 0.75%. While stressing the risks of overheating, the CNB also aims to avoid an excessive positive rate differential with the Eurozone in 2018, trying to push back the bulk of tightening to To this end, having returned to explicit exchange rate forecasts it aims to achieve most of the tightening through the currency this year, with only one rate hike now pencilled in for Nevertheless, a very weak inflation print in have now brought the inflation trajectory firmly down, which led Oxford Economics to lower 2018 forecast from 2.3% to 1.8% and from 2% to 1.9% in 2019.

3 Prime Yields 4.85% 4.85% 5.75% Shopping Centre Office Industrial When compared to the exceptional Q investment figures, the total investment volume of million traded in Q looks modest, representing a 66% drop. Despite reflecting this threefold decrease in volume, this was primarily due to the shortage of available product and not the lack of investor appetite, both domestically or internationally. Significant deals in the first quarter have included the sale of Futurum Hradec Králové, acquired by CPI, Praha City Center bought by Amundi Asset Management and Brno Business Park sold by Immofinanz to Infond. Total Investment Volumes (EUR millions) 4,000 3,500 3,000 2,500 2,000 1,500 1, Q Office Retail Industrial Mixed Residential Hotels

4 Office Demand and New Supply 2012 Q sq m 600, , , , , , Q Net Take-up (left axis) Renewals (left axis) New Supply (right axis) 250, , , ,000 50,000 0 Q Demand (sq m) At the end of Q1, the total modern office stock in the capital city of Prague reached 3,357,500 sq m. In Q1 2018, four new office buildings, with a total size of 38,700 sq m, were completed in Prague. 20,000 Net Take-up 65,700 Renewals Development activity remains to be high. Currently, there is ca. 334,200 sq m of office space under construction. For the entire 2018, approximately 204,000 sq m of office space is planned for completion. During Q1 2018, gross take-up remained strong with 85,700 sq m office space leased however compared to the record year of 2017, it shows a decrease both quarterly (51%) and annually (19%). Net take-up which excludes renewals amounted to 65,700 sq m (-52% q-o-q and -11% y-o-y). Prague 1 recorded the highest activity of all Prague districts, accounting for 29% of gross demand. As a result of strong leasing activity, the vacancy rate declined further in Q to its current level of 6.2%. The lowest vacancy rate was recorded in Prague 2 (3.6%). Conversely, the largest share of available space was recorded in Prague 3 (11.1%). In Q1 2018, prime headline rents in the city centre remained stable, oscillating at a level of sq m/month.

5 Office Space Under Construction Q1 Key Leasing Transactions Core Office Locations Prime Headline Rents Property District Size (sq m) Location Headline Rent (EUR/sq m/month) Na Pankráci 30 Prague 4 3,100 Millenium Prague 1 3,000 Palác Ara Prague 1 2,700 Park-View Office Center Motol Prague 5 2,200 City Centre Anděl Pankrác Karlín

6 Retail Stock by Type in the Czech Republic Department Store 2% Factory Outlet 1% Retail Park 27% Shopping Centre 70% Shopping Centre Density in Major Retail Destinations (sq m per 1,000 inhabitants) 1,600 1,400 1,200 1, Country average Liberec Olomouc Plzeň Brno Ostrava Praha At the end of Q1 2018, the shopping centre stock in the Czech Republic stood at 2.72 million sq m. In Prague, the shopping centre stock totals approximately 877,600 sqm. During the quarter, the market witnessed one new opening of the extension of Galerie Butovice shopping centre with ca. 10,200 sq m of GLA (occupied by KIKA). Retail demand remains strong for the best performing shopping centres and high streets. It is driven by the strong economy with low unemployment, rising salaries and increasing purchasing power. On the high street, Prague is benefiting from strong inflows of tourists. Limited new supply and strong demand are reflected in an increased pressure on prime rents which are currently at 125 EUR per sq m per month for a notional unit of 100 sq m in the best shopping centres and 200 EUR per sq m / per month on the high street and is expected to grow further.

7 Retail Sales Growth (% change, y-o-y) 7.0% 6.0% 5.0% 4.0% 3.0% 2% 7% 5% Forecast 2.0% 1.0% 0.0% 6% 6% 2% -1.0% -2.0% 4% Czech Republic Eurozone Source: Oxford Economics, 2018 Major Retail Projects Under Construction with Scheduled Completion in Prime rents in Prague ( /sq m/month) Project City GLA (sqm) Prague The Style Outlet (Phase I) Prague 20,000 OC Letná Prague 14,500 Shopping centres Retail Parks High street Outlet Arena Moravia (Phase I) Ostrava 11,700 Géčko Ostrava (extension) Ostrava 10,600 Retail Stock Under Construction (sq m) to be completed in ,300 14,500

8 Vacancy Rates in the Czech Republic at Q1 2018: 4.2% 0.0% 13.7% 2.8% 0.0% 0% 6.5% 3.3% 0% 10.7% 7.3% 2.0% 9.1% 0% 2.2% Stock & New Supply (000 s sq m) Gross Demand (sq m) in Q ,000 7,000 6,000 5,000 4, ,800 3,000 2, ,500 1, Q Existing Stock ( 000s sq m) New Supply ( 000s sq m) Renewals (sq m) Net take-up (sq m)

9 Net Take-up by Sector in Q Retail, e- commerce and distribution 14% Other 4% 3PL 24% Production 58% Major Completions in Q Industrial Space Under Construction Property Region Size (sq m) CTPark Prague North Greater Prague 53,000 Panattoni Park Cheb Karlovy Vary 31,900 55% CTPark Aš Karlovy Vary 22,200 45% CTPark Žatec Ústí nad Labem 16,300 Non-speculative Speculative

10 Contacts Blanka Vačkova Head of Research Miroslav Barnáš Managing Director Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.