Q1 2025: Czech Economy Rebounds but Faces Growing Challenges
The Czech economy saw a notable acceleration in 2024 after a prolonged slowdown, but this momentum is not expected to last. The recovery, though the strongest in over two years, will likely lose pace in 2025 due to global trade weakness and rising policy uncertainty. As a highly trade-dependent country, Czechia remains vulnerable to shifts in international trade and supply chain fragmentation. While household consumption is set to rebound thanks to improved disposable incomes and reduced inflation pressure, external challenges will continue to weigh on the country’s export-driven growth.
Despite its structural strengths, the Czech Republic faces deeper and longer-term economic obstacles. These include slow productivity growth, labour shortages and an energy-intensive industrial base. Even with a moderate GDP growth forecast for 2025 and 2026, quarterly performance may remain stable.
Investment
In Q1 2025, real estate investment in Czechia reached €1.48 billion, marking the strongest quarter in five years and doubling the volume from the previous quarter. The market was driven by several large transactions, including the acquisition of the industrial Contera portfolio. Office properties attracted the highest share of investment, followed by the industrial and hotel sectors. Domestic investors played a dominant role, accounting for 70% of the total volume. Prime office yields declined slightly to 5.50%, while other asset classes remained stable, reflecting strong but selective investor interest.
- Q1 2025 real estate investment in Czechia reached €1.48 billion, the highest in five years and double the previous quarter’s volume.
- Key deals included the Contera portfolio, with major transactions in office, industrial, and hotel sectors.
- Domestic investors led the market, contributing 70% of the total investment volume.
- Prime office yields dropped to 5.50%, while yields in other asset classes remained unchanged
Office
At the end of Q1 2025, Prague’s modern office market remained relatively stable, with limited new supply and subdued leasing activity. Only 8,700 sq m has been added to the market, while construction of more than 173,000 sq m of office space continues. Leasing volumes dropped by 14% year-on-year, driven by a lack of large transactions, though the vacancy rate still declined slightly to 7.0%. Despite the slowdown, prime rents in the inner city rose by 10%, reflecting steady demand in key submarkets.
- Modern office stock reached 3.96 million sq m, with only 8,700 sq m of new space added and over 173,000 sq m under construction for delivery by 2027.
- Leasing activity dropped by 14% year-on-year, with net take-up at 47,900 sq m and renegotiations making up 40% of total deals.
- Vacancy rate declined slightly to 7.0%, despite weaker demand, suggesting stable overall occupancy.
- Prime rents rose 10% in the inner city, reaching €21.00 per sq m/month while remaining flat in the city centre and outer city.
Industrial
In Q1 2025, the Czech industrial market showed strong momentum, with 155,900 sq m delivered across seven parks, pushing the total stock to 12.44 million sq m. Construction activity expanded, with over 1 million sq m underway, with 72% already pre-leased. Occupier demand surged year-on-year, driven largely by logistics and transport firms, although net take-up declined slightly from the previous quarter. The vacancy rate remained low at 3.1% (7% when including unleased Shell & Core projects). Prime rents held steady, with Prague at €7.50/sq m, Brno at €6.50, and Pilsen at up to €6.00.
- Approximately 155,900 sq m of new space was delivered, bringing total modern industrial stock to 12.44 million sq m.
- Demand from occupiers rose 152% y-o-y, led by logistics and transport companies, although net take-up fell slightly quarter-on-quarter.
- Vacancy rate remained low at 3.1% but could rise to nearly 7% when including Shell & Core projects awaiting tenants.
- Prime rents stayed stable, with €7.50/sq m in Prague, €6.50 in Brno, and up to €6.00 in Pilsen.
Retail
By the end of Q1 2025, total retail space in Czechia reached 4 million sq m, with 26,900 sq m added exclusively in retail parks, including major completions in Kozomín and Terezín. Retail parks continued to expand, driven by strong demand. Around 140,100 sq m is under construction or renovation, with key projects like Forum Pardubice and the former Kotva department store underway. Prime retail rents increased for the first time since Q2 2022, reaching €235/sq m for high street units, €145/sq m for shopping centres, and €15/sq m for retail parks.
- Total retail space in Czechia reached 4 million sq m by Q1 2025, with 26,900 sq m added, all within retail parks.
- Key additions were the Kozomín (14,700 sqm) and Terezín (5,300 sqm) retail parks, underlining the continued growth and attractiveness of retail parks.
- About 140,100 sq m of retail space is under construction or renovation, led by Forum Pardubice (24,000 sq m) and the former Kotva department store (15,000 sq m).
- Prime retail rents increased for the first time since Q2 2022, reaching €235/sq m for high street units, €145/sq m for shopping centres, and €15/sq m for retail parks.
Hospitality
The hospitality market in the Czech Republic expanded significantly in 2024, driven by a surge in both leisure and business travel. By year-end, the total number of hotel rooms reached a new high, with luxury and boutique hotels accounting for a substantial share of the new supply. The market's resilience was further supported by increased passenger traffic from well-established customer segments such as the United States and a notable rise in arrivals, particularly from Asia. A significant increase in domestic tourism, was driven by local events and festivals. The total current supply of accommodation rooms in Prague is standing at over 38,000 keys.
- Prague is No.1 on par with Bucharest in CEE-6 for RevPAR growth (Revenue per Available Room) with a 10.5% increase YTD December 2024 (compared to YTD December 2023), while the average growth for CEE-6 capitals is 8.2%. Both figures are above the European average of 3.0%.
- In 2024, Prague's demand is still 4.1% below 2019 levels, though it shows significant improvement from 2023 with a 5.9% increase. This increase in demand aligns with the rate at which occupancy levels are recovering. Moving forward, the limited growth in supply of 1% will further support the occupancy recovery.
- Transactions in the Czech Republic reached €145.5 mil. in 2024 (incl. 5% contingency, as some deals are revealed with notable delay), which is 21% above 2023 figures and 76% below YTD December 2019 figures. This is primarily due to a lack of investable products and a gap between seller and buyer pricing expectations.
- After reaching a 2.5-year low in early December 2024, financing costs saw a slight increase since then, driven by ECB’s latest communication. The 5-year SWAPs are back to Q4 2023 levels, and a further decline would support market liquidity and boost market activity. Several properties are in various stages of disposition, and this, combined with continued performance growth and rising investor interest is expected to create a positive momentum for transactions.
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