The Czech Republic’s real estate market has for some years been dominated by local capital – domestic investors were responsible for 62 per cent of investment volumes in 2018, by far the highest market share of local investors in the CEE region. However, Czech and neighbouring Slovak investors are now becoming serious global players too.

After finding their feet investing in the regional markets of Poland, Hungary and Romania, these domestic investors began spreading their wings in a commercial rather than private sphere and the ever-expanding list of deals executed in western European markets such as Germany and the United Kingdom over the past few years has been impressive.

Around Europe

Perhaps the most adventurous has been the Frankfurt-listed CPI Property Group, which claims a real estate portfolio worth €8.3bn, with 103 assets located outside of the Czech market in countries such as France, Germany, Switzerland and Italy. Its 2016 takeover of the Luxembourg-based real estate developer Orco Property Group made it the largest owner of offices in Berlin.

HB Reavis, founded in 1993 in Bratislava, has turned itself into a major “international workspace provider” with total assets worth £1.6 billion and operations in the UK. In August 2018, HB Reavis added a fifth development to its London portfolio in its pipeline of Central London office developments with the acquisition of the 12,800 square metre Crossrail Over-Site Development at Farringdon West, located in Central London. This followed the £250 million acquisition a few months earlier of the Waterloo site of the brutalist block Elizabeth House in York Road, which HB Reavis intends to knock down and replace with a 30-storey skyscraper with shops and cafes at street level in a £1.5 billion scheme. It says it is now exploring development opportunities on the German market.

Slovak developer and investment group J&T Real Estate also entered the London property market for the first time in the summer of 2018, buying a property at 185 Park Street in the South Bank where it plans to build flats, offices, shops and a cultural space worth £400 million, the company announced. PPF Group has been active in Germany and the Netherlands over recent years, but it was its acquisition in 2018 of 1 Westferry Circus in London that made many people sit up and take notice.

BIG FISH, SMALL POND

The push and pull factors for this outward investment are not hard to discern. Companies like CPI, PPF, Penta Group, J&T, HB Reavis and CTP Invest are very well capitalised, yet their home markets are too small to absorb the kinds of investment volumes these companies are looking to deploy.

A restricted supply of available assets is regarded as the main reason behind the 20 per cent decline in investment volumes in 2018 compared to the previous year. Where product does exist, it comes at high prices: prime yields in the Czech Republic across all asset classes have reached their lowest levels as the market matures to a level close to that of more economically developed countries in Western Europe.

Coming from emerging markets themselves, Czech and Slovak investors are also used to and comfortable with the levels of risk of investing in other emerging markets and markets that have fallen out of favour like Spain. In December 2018, J&T closed a transaction in which they acquired three Spanish shopping centres – Gran Casa (Zaragoza), Max Center (Vizcaya) and Valle Real (Cantabria) – for €485 million through a joint venture with Sonae Sierra. With less baggage in terms of risk mentality, they believe that successfully developing speculative buildings in the Czech Republic and Slovakia means they can transpose this knowledge and experience to other similar markets – plus they have the cash to do so.

With a good track record so far, these new global investors are a welcome addition to the global investment marketplace and a welcome ratification of the sophistication of the property markets in CEE for inbound observers and investors.