Investment volume in the Czech Republic increased by 233% in the first half of this year to EUR 215 mln from the same period last year, according to a report by adviser DTZ. Despite the strong growth, DTZ zaid activity was still sluggish in comparison with the period between 2005 and 2008 when German funds drove demand.

Investment volume in the Czech Republic increased by 233% in the first half of this year to EUR 215 mln from the same period last year, according to a report by adviser DTZ. Despite the strong growth, DTZ zaid activity was still sluggish in comparison with the period between 2005 and 2008 when German funds drove demand.

Since then, interest from German funds has weakened considerably, with transaction volume currently generated largely by domestic investors. Whereas German investors accounted for more than 40% of the market in 2008 and 2009, in the first half of 2010 their share of the market was less than 5%, the report said.

'More interesting than the numbers is the profile of the investors and purchased properties,' said Ryan Wray of the investment department at DTZ. 'If not for a pair of Austrian investors seconded by an investment group from the US, the Czech Republic would look like a local market driven exclusively by domestic capital.'

He said that the difference in the preferences of domestic and foreign investors warranted closer inspection. The Austrian fund Hypo Real Invest, which has realised two transactions in the Czech Republic this year and is planning more, focuses on high-quality office properties with creditworthy tenants and long-term contracts. The most active representative of domestic investors to date is the company CPI, which is also seeking properties in attractive locations with long-term leasing and a strong tenant base, albeit across various sectors.

According to DTZ, several factors have contributed to the clear dominance of domestic investors in the Czech market. Since the fall of Lehman Brothers in 2008, capital markets have seen numerous international investors shift their attention to well-established, traditional markets, leaving a gap in local capital markets which domestic investors have stepped in to fill. In the wake of the financial crisis, larger institutions have also been forced to examine investment opportunites far more thoroughly. Conversely, investors possessing knowledge of the local environment have been able to respond more rapidly and with a greater degree of flexibility to the changed market conditions.

Given the regulatory changes facing German open-ended funds, Wray said it was highly improbable that they would feature prominently on the Czech investment market in the short term.