Retail expected to drive Czech commercial real estate market in 2025

After a period of uncertainty and stagnation, the Czech commercial real estate market is showing signs of renewed investor interest in 2025. The recovery is supported by improved financing conditions and growing alignment between buyer and seller expectations. According to an analysis by consultancy RSM, retail assets, particularly retail parks and shopping centers, could account for approximately 40% of commercial real estate transactions this year.

While the volume of new office space in Prague remains limited — only 25,000 square meters are expected to be delivered in 2025, a third less than in 2024 — retail properties and successful hotel investments are drawing increased attention. Domestic investors continue to dominate the market, but foreign capital is beginning to return, as seen in Blackstone’s acquisition of ten logistics parks in 2024, valued at CZK 12 billion.

Lower interest rates are a major factor supporting market activity. Following several cuts by the Czech National Bank, the repo rate stood at 3.75% in February 2025, helping to reduce borrowing costs and stimulate investment.

Office market development remains constrained, with no major new projects anticipated before 2027. Investors are showing more caution in this segment, and slight yield growth is mainly observed in category B office buildings, while premium A-class offices remain relatively stable in value.

Retail Parks Attracting Increased Investment

Retail parks are emerging as a preferred asset class due to faster development timelines and steady demand. RSM’s analysis indicates that retail will be a key contributor to transaction volumes this year. The popularity of local shopping centers is extending beyond major cities into smaller towns, driven by continued consumer demand.

Modern shopping centers are increasingly offering a mix of retail, dining, entertainment, and even office space, enhancing their attractiveness to both investors and visitors.

“We are seeing sellers’ and buyers’ expectations becoming more aligned, a trend likely to continue throughout 2025,” said Jiří Skotnica, valuation expert at RSM CZ. He added that retail parks remain a stable long-term investment, supported by the stabilization of retail sales.

New retail space deliveries in 2025 are expected to match last year’s figure, exceeding 70,000 square meters. Development projects in Prague are also planning new retail units on ground floors, and there is significant market interest in larger assets such as the Palladium shopping center, which could be involved in one of the year’s major transactions.

Impact of Polish Market Growth

At a regional level, increased foreign investment in Poland is influencing the broader CEE market. While most real estate investments in the Czech Republic continue to come from domestic sources, foreign investors are showing renewed interest, particularly in the logistics sector.

In 2024, Poland recorded over €5.05 billion in real estate investments, with foreign investors accounting for the majority of transactions. In comparison, the Czech Republic maintained a much higher share of domestic investment, reaching up to 86% during certain periods.

“Poland’s growth is positive for the entire region, including the Czech Republic. However, building a competitive and independent investment environment remains essential to ensure long-term attractiveness,” Skotnica noted.

Source: Knight Frank

https://content.knightfrank.com/research/2883/documents/en/investment-market-q4-2024-11849.pdf?utm_source=chatgpt.com