‘Beds and sheds’ are what the European real estate market will be all about this year. Investors, both domestic and foreign, want to allocate capital in residential, multifamily, hotel and student housing projects, as well as holistic warehouses designed to satisfy the growing e-commerce market.

In the first three quarters of 2019, global investment in ‘alternatives’ made up 37% of total real estate investment, according to the latest Savills research. This figure is lower in the Czech Republic, due in large part to the lack of volume developments in the sector, but is still following the general trend upwards. Total investment in Czech real estate in 2019 reached €2.96 billion, with offices making up the largest share of the investment volume at 46%, but hotels in second place for the first time at 19% and ‘other’ at 4%.

Investment in Czech hotels almost doubled last year to €539 million, as investors looked to take advantage of the rise in room and occupancy rates while diversifying their portfolios. This hotel investment is expected to continue in 2020, with anecdotal evidence suggesting that nine Czech hotels are currently being offered or marketed, including the Smetana Hotel in Prague’s Old Town, the Carlo IV Hotel (whose acquisition by French group Covivio will close in April), Corinthia and the long-awaited re-sale of Hilton, which is rumored to be close.

Residential will also feature strongly in the 2020 total investment figure following the sale in January of the largest privately held residential portfolio in the Czech Republic to Sweden’s Heimstaden Bostad for €1.3 billion. Although this deal will heavily skew the residential share in the 2020 investment total, this segment of the property market is becoming a much more interesting investment target in the Czech Republic. No longer is this part of the real estate market solely about build and sell; it is about building at scale, managing income and potentially selling at a future date.

Looking at industrial, the recently published Savills report, “Real estate investment tips for 2020: EMEA”, notes that the rise of e-commerce is driving demand for logistics space right across Europe. Thus, a Savills ‘core-plus’ tip for 2020 is for logistics assets in strategically located areas with demand and supply imbalances and rising e-commerce penetration, such as the Czech Republic as well as Germany, the Netherlands and Poland.

Depending on where your risk appetite lies, value-add opportunities in Czech industrial certainly look good on paper, but investors will have to roll up their sleeves and take on redevelopment risk and fringe / secondary locations.  

As the traditional trio of real estate assets continue to offer returns that cannot absorb the rising allocations in real estate searching for stable long-term income in a zero interest-rate environment, the demand for alternatives will remain strong – wherever that bed might be found.