After years of uncertainty and investor caution, the Czech commercial real estate market is starting to recover. Although the supply of premium investment opportunities remains limited and yields are stable, data for 2024 suggests a positive turnaround. This appears to be happening as evidenced by the results of the first quarter of this year. Total investment volume in 2024 increased by 57% year-on-year to €1.8 billion, confirming the market’s gradual recovery after the previous turbulent period. In the first quarter of 2025, also thanks to several significant transactions, the market saw investments worth €1.48 billion and further significant transactions have been announced. 2025 will be a year of increasing investor activity and will include opportunities in sectors with long-term growth potential. Which ones will be of particular interest?

Economic turbulence and price corrections in other European markets led to an outflow of foreign capital from the Czech Republic. This has opened up unique opportunities for Czech investors, who will remain dominant players in 2025. "The timing of market entry for Czech investors depends on individual investors and the specific situation they find themselves in along with their planned investment scenario. Besides yields, other indicators such as ROI, IRR or CAGR are also important," says Josef Stanko, Director of Market Research at Colliers.

Retail led the way in 2024 and should continue to attract new investors this year

The retail sector led investment in 2024, attracting 41% of total capital. Office properties maintained a solid 25% market share, and the rental housing sector saw strong growth to a share level of 14%. Industrial properties accounted for just 9% of volume, which was only slightly higher than the hotel segment at 8%. This year, however, may be different - interest rate developments, growing demand for flexible workspaces and the development of the country’s highway network may bring new investment opportunities and challenges.

Retail

The retail sector will continue to offer attractive investment opportunities in 2025. While large shopping centres continue to face pressure from e-commerce and changing consumer shopping habits, smaller retail parks in regional cities and specialist and luxury stores in premium locations, as well as trophy properties, are showing greater resilience and investor interest is not waning.

The highest quality retail parks in the best locations can yield 6.25-6.75% from rental income. The most interesting shopping centres can yield 6.00-6.50%. Properties in the so-called shopping classes can generate yields of 4.50-5.00%. However, it must always be the absolute top of the market.

Rental housing

The rental housing segment will also offer very attractive investment opportunities during this year. This sector benefits from the long-term shortage of apartments in large cities and the fact that fewer people can afford their own homes. Although interest rates are falling, property prices remain high and financing remains expensive. Rental housing thus represents an investment strategy with almost certain long-term growth potential. The key will be to focus on the right location, effective property management and adapting supply to current market requirements.

Rental housing is currently a nascent market and project economics are still fragile and sensitive to rent levels or construction costs. Quality Prague rental projects are now at levels of 4.50% and above.

Offices

In the office market, investment in refurbishments of older buildings to raise their quality standards and attractiveness for tenants is a particular consideration. Older buildings are those considered to be as old as 15 years; for example, in Prague alone they represent a full 56% of all offices. Renovations may also involve considerations on changing the purpose of the building: most likely for residential usage if the nature of the building allows for it.

Premium office buildings in Prague can yield up to 5.50% in profits from rental income. However, most recent transactions are relatively far from this value and only exceptional properties could approach this threshold.

Logistics and industry

Although the Czech industrial real estate sector is going through a turbulent period and competition from neighbouring foreign markets is changing the supply and demand dynamics in some regions, the market mood is gradually improving. Investment opportunities could be significantly helped by the continued construction and build-out of the national motorway network, which will fundamentally change the country's transport corridors over the next five years and allow them to be more efficiently connected to the European road transport corridors (TEN-T). This expansion of the motorway network is not just a matter of national mobility but is a strategic step towards strengthening the Czech Republic's position as a key transport and logistics hub in the heart of Europe.

The best industrial and logistics properties must meet a number of criteria to aspire to the current prime yield of 5.25%. In addition to quality long-term tenants and modern technology, location and sufficient infrastructure also play a role. However, as with offices, the range of transactions is wide.

Other opportunities

Specific property types such as hotels, data centres, senior citizen (retiree) housing complexes or healthcare facilities also present interesting investment opportunities. These segments can offer suitable diversification opportunities but often require specific know-how in order to operate successfully over the long term.

Detailed due diligence is essential

Every investment carries with it risks that need to be properly considered. "Of course, it depends on what type of property the investor is targeting. The risks will be different for a small retail park in a regional city compared to those for a shopping centre in Prague. However, what is uniform for all investments and what every investor must focus on is the building’s location and technical condition. The quality of the lease agreements, the overall occupancy of the property, the length of the remaining leases (the so-called WAULT), the rental income or even environmental aspects are also important. It is certainly wise to seek counsel from commercial advisors operating on the market in this respect," recommends Josef Stanko. According to him, commercial due diligence should be really thorough. When analysing a location, for example, it is necessary to examine not only the city or region itself, but also the micro-location, transport accessibility, visibility, movement of people, planned development in the vicinity and competition.

Legal due diligence, in turn, should focus on a detailed analysis of contractual relationships, including identifying any non-standard provisions, monitoring lease options and reviewing all liens. Technical reviews should include not only a comprehensive assessment of the structural and technical condition of the property, but also identification of any problems and needs for future capital expenditure. "Tenants today may require the owner to invest in the building and generally agree a plan for how the owner will, for example, bring the building up to a higher energy performance class. Therefore, it is advisable to include a strategy for improving the building's energy efficiency in the investment plan," says Josef Stanko, adding that building control systems, boiler and HVAC controls, as well as new smart systems such as parking sensors or automatic light regulation and heat control, should also be assessed.

Environmental due diligence has also become increasingly important in recent years. Investors need to assess buildings’ eco-friendliness, the potential for obtaining certifications such as LEED or BREEAM, and plans for investments in green technologies that can significantly increase a property’s overall value. Buildings with low energy consumption and sustainability certifications will have a competitive advantage in the future, retain their value better and be easier and more profitable to lease, sell, finance and insure.

Other risks

Even thorough due diligence will not expose all risks. Every investor should also consider other factors in their decision making, such as:

• Market risk, where changes in the economy affect tenant demand and rent price levels,
• vacancy risk associated with the possibility that the premises may remain vacant for a period of time,
• interest rate risk, where rising interest rates make financing more expensive,
• legislative risk, i.e., possible changes in tax or building regulations, and
• low liquidity, which may mean longer time periods for selling properties.

The topic is very complex and often requires professional support. If you need advice, do not hesitate to contact the experts at Colliers.