Market comment

The views on this page are ours and must not be relied upon when making investment decisions.

Residential

Buy to let in the UK has enjoyed exponential growth in the past 10 years. However yields have now fallen to such levels to encourage investors to look elsewhere. Recent UK growth has directly come from decreasing and stable interest rates (which are now unlikely to decrease further) and increased affordability has manifested itself in higher prices. It is difficult to see where growth in the medium term will come from except from increased incomes and lack of supply.

Investors several years ago bought up prime property in major cities such as Prague in the hope for fast capital growth. The consideration as to whom were going to let such properties was secondary and often yields were poor, if let at all. With the economies of CEE countries (Czech Republic, Slovakia, Hungary and Poland) now enjoying a period of strong growth, this increased wealth [especially at young professional middle classes who desire a consumption orientated western lifestyle], is manifesting itself in the form of house price growth, particularly in good locations. The position of major population centres in these countries combined with growing economies and projected continued shortage of housing stock and supply of cheap money will, in our opinion make residential property an attractive investment for some time.

This is despite that a significant amount of development is currently under way. Whilst current and planned development is likely to go a long way to satisfying short term demand, projected shortages in housing in the future from increased demand (number of units per member of population) and dilapidation of current housing stock may result in demand exceeding available stock for the foreseeable future. Further convergence of incomes and prices throughout the EU will continue.

Commercial

Both Czech Republic and Slovak Republics have strong industrial bases. Czech is known for being a European force in the electronics industry; Slovakia has been transformed by the arrival of automotive and associated industries in the past few years.

•

Despite investment to date, a weight of capital is looking for product in the region. Private fund and syndicate monies are flowing into the region particularly from the UK (investment from the UK being slow to develop). In addition, investment from the developing Chinese economy or from increased oil prices also has yet to be felt and pension fund sourced monies to date represents only a small proportion of investment activity. The region is seen to have value compared to rest of Europe, despite the compressed yield with prospect for further capital growth.

•	Developers are now increasingly holding a stake in their product.

•	The tax system is investor friendly justifying higher rents than in other ‘western' markets.

•	Sector comment:

•	Secondary markets are seen as attractive in the commercial market with improved infrastructure and mobility of labour.
•	Office: Strong yield compression over the past several years has resulted in deals now being done at the 6% mark for office development. Funding for speculative development is becoming more popular rather than for pre-leased product. The focus now is on higher quality buildings which conform to latest standards of heat retention and air conditioning.
•	Retail: Overcapacity may be developing in major cities and some centres are understood to be struggling currently. However, quality locations which are not entirely reliant on public or private transport continue to do well, especially those with convenience shopping aspect. More shopping centres are being built and the focus is now in smaller centres locations where catchment is as low as 100,000.
•	Logistics: A high growth area over the past 2 years - new logistics developments being created both on the back of developing industries but also by companies wishing to establish a presence in the Republics on the back of improved communication links. Some are even being built speculatively.

Back

Members of

Czech before you buy s.r.o. – Converting requirements into reality