Investment in Prague and the Czech Republic – Q1 2023 Analysis
Economy
Despite a period of solid growth following the pandemic-driven downturn, the Czech economy posted two consecutive quarters of mild contraction in the second half of 2022, as weakening private domestic demand — caused by sharp rises in inflation and interest rates — weighed on activity. GDP growth for the full year 2022 was nonetheless recorded at 2.5%. In April 2023, Moody's projected the economy would contract by −0.4% in 2023, before returning to GDP growth of 3.5% in 2024 and 4.0% in 2025.
Inflation appears to have peaked and is projected to decline at a fairly gradual pace as base effects fade and external price shocks ease. However, inflation is still expected to remain well above the 2% target at least through the end of 2023. The Czech National Bank has adopted a wait-and-see approach, holding interest rates at their elevated level in the near term — which is causing a marked slowdown in credit growth, particularly in the mortgage segment. Moody's experts expect interest rates to begin trending downward in the second half of 2023 and to reach a neutral level by end-2024.
Investment overview
In Q1 2023, total secondary investment volume across traditional commercial real estate sectors reached €350 million — down 61% on Q1 2022 but up 6% on the previous quarter (Q4 2022). In addition, approximately €35 million was invested in residential property acquisitions, and two sale transactions were completed in the hotel sector.
The slowdown in investment activity in the Czech Republic mirrors the trend observed in Western Europe and other CEE countries such as Poland and Hungary. Of total investment volume, approximately 49% was attributable to retail property acquisitions, followed by industrial at 26% and offices at 10%. The majority of buyers (83%) in Czech commercial real estate transactions in Q1 2023 were domestic.
Despite the current limited availability of assets for sale, the Czech Republic remains a sought-after destination for both domestic and international investors seeking low vacancy, minimal void risk, and strong rental growth in prime central locations — particularly for industrial and office assets. Given owners' reluctance to sell, investment volumes in 2023 are not expected to grow significantly.
This article was prepared by the Investerra team. We manage 130 apartments in Prague since 2007 – with over 45,000 guest reviews on Airbnb and Booking.com and returns of 5–12% per year for property owners.
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