EUROPE - Czech property deals totalled €800m in the first half - 50% more than the volume for the whole of 2010 - but euro-zone exposure still leaves the market vulnerable to external shocks, according to Colliers International.

Transactions scheduled for closure during the second half will bring total investment volumes to €1.5bn, according to a largely bullish report.

The report attributed the increase in activity to overseas investors - notably pension funds from the UK and Austria - re-entering the market this year after more than a year of domestic investor dominance.

Omar Sattar, managing director at Colliers in the Czech Republic, told IPE Real Estate: "Investors are seeking returns where opportunities have dried up in other markets. The Czech Republic is still considered a fairly safe bet - like Poland or Western Europe."

Two large deals contributed significantly to the overall figure: CA Immo's acquisition of Europolis and the acquisition of an 80% share in VGP Parks by a vehicle managed by AEW/Tristan Capital Partners.

Otherwise, Prague accounted for 58% of the total and continues to dominate the market.

Although there has been no significant change in headline rents for prime office, Colliers reported a steady fall in vacancy rates over the past four quarters to 11.8% at the end of the first half.

The vacancy rate is expected to fall to 10% by the end of the year.
It is regional macroeconomic factors, rather than property market fundamentals, that will concern investors.

At least part of the growth in the Czech property market is a knock-on benefit of recent German growth.

However, the report pointed to uncertainty over the euro-zone debt crisis already affecting market confidence across the region.

It said: "The upshot of all this means business confidence and economic growth remain fragile. Much will now depend on how markets interpret the steps taken by the EU and overall investor sentiment before we can tell whether the European debt contagion has been stemmed."

Sattar acknowledged that earlier GDP forecasts for 2.3% in 2011 have since been revised by some analysts to less than 2%.

"It would be naïve to ignore the euro-zone crisis because it will have a big bearing on market performance," he said. 

"Czech GDP growth is based on manufacturing and exports to euro-zone markets. If there is a slowdown in its export markets, that will have a big impact. The Czech Republic won't be protected from it."