Development of the Real Estate Market in the Czech Republic

Despite record investment activity, the market recorded the lowest annual volume of new construction in its history. These factors are driving higher demand for existing properties, creating favorable conditions for investors in commercial real estate and real estate funds.

Record-High Investment and Record-Low Construction Activity

Domestic commercial real estate once again became an attractive asset class for Czech companies and investors last year. According to CBRE analysis, Czech capital accounted for 87% of the total investment volume. The largest share of investment was directed into mixed-use properties, driven by the sale of major complexes such as Palladium and Atrium Flora. Despite the record level of investment, the market saw the lowest annual volume of new construction on record, with only 26,600 sqm of office space completed. This was caused, among other factors, by high interest rates, rising construction costs, and lengthy permitting processes. These conditions have also affected the overall vacancy rate, which declined to 5.9%.

“Low vacancy rates in commercial properties combined with record investment volumes highlight the strong potential of the Czech real estate market. A key indicator for us is the share of office buildings in total transaction volumes. This figure confirms strong demand for high-quality office space, which is very positive news for our investors,” adds Josef Eim, Vice-Chairman of the Board of Directors of Českomoravská Nemovitostní.

According to Knight Frank analysis, investments in office buildings accounted for just under a quarter of all transactions. The limited supply of newly completed buildings and low vacancy rates are increasing demand for existing office space. Financing new projects has become significantly more expensive due to high interest rates, and no substantial reduction is expected in the near term. Combined with high costs of construction materials, labor, and energy, the development of new commercial buildings is more expensive than ever before. This strengthens the position of investment groups with high-quality properties, which—thanks to strong demand and limited supply—can lease their space to creditworthy tenants and create a stable environment for their investors.

Prime yields on properties located on Prague’s main high streets declined by 25 basis points, while yields across other market segments remained unchanged. No major fluctuations are expected in 2026. Following the exceptionally strong investment year of 2025, transaction volumes in 2026 are expected to be somewhat lower, with office properties likely to play a dominant role.

The Czech National Bank continues to signal a cautious and restrictive approach to monetary policy, with no significant interest rate cuts expected in the near term. The European Central Bank has also kept its rates unchanged, and available forecasts suggest rate stability throughout 2026 as well.