There is renewed interest in offices in Prague after covid. Developers future large-scale projects and the price of rent increases
The relaxation of anti-pandemic measures last year brought with it the recovery of many industries. One of them is the office market in Prague, which has returned to positive development after years of decline or stagnation. The renewed interest of companies in these spaces was also reflected in the mood of developers. According to the Prague Research Forum, almost 185,000 square meters of office space is currently under construction. Most of them are built in Prague 1 and Prague 7.
The favorable outlook is also evidenced by more than 75,000 square meters of office space, which was completed last year in a total of seven different buildings in the capital. While this number represents an increase of roughly 35 percent compared to 2021, it is still 42 percent less than the ten-year average.
In any case, next year, analysts expect a drop back to the level of the previous year. “With the reverberations of covid, the war in Ukraine and the increase in energy prices, there is an increased level of uncertainty in the market. Therefore, developers are rather waiting, have reduced speculative construction and are concentrating on their current projects. In addition, banks are more cautious in times of uncertainty and require that new projects already include a certain number of tenants,” explains Ondřej Vlk, head of the Knight Frank real estate agency’s market research department.
literally a huge increase in demand
The total offer of vacant office space intended for sublease exceeded 71,000 square meters in Prague, which is nine percent less. At the same time, approximately three-quarters are modern class A buildings, while the share of the highest quality premises with the AAA rating reaches more than 17 percent. “These buildings received the best ratings in the assessed categories, such as their technical maturity, user-friendliness, ecological sustainability and location,” adds Vlk.
vacant areas decreased last year, despite the newly opened buildings, mainly due to the higher interest of companies in these spaces. Total demand, including renewed contracts, reached 153 thousand square meters in the fourth quarter of 2022, which represents a 45 percent increase compared to the same period of the previous year.
It recorded the greatest demand Prague Research Forum in the city districts of Prague 4, Prague 8 and Prague 1. They mainly showed interest in new offices technology companies as well as financial institutions. Of the total number of newly concluded contracts, 58 percent were renewals of existing contracts, while the share of newly leased premises made up roughly a third of the total gross demand.
There are big differences between the center and the edge
Office vacancy also decreased slightly in the last quarter of last year, falling slightly to 7.7 percent. The total area of vacant offices reached 293,000 square meters at the end of the year. The most vacant spaces were in Prague 4 and Prague 5. On the contrary, there are the fewest vacant spaces in Prague 10 and Prague 2, but these city districts belong to small markets in terms of total volume.
The renewed interest of companies in offices has also had an impact on rents. At the end of the year, the average price per square meter in the city center was around 630 crowns, in the neighboring districts the rent was around 430 crowns, while on the outskirts of the metropolis it was still another 60 crowns cheaper. In any case, according to Vlk, the rent should not increase next year.
“For now it seems to have stopped and the market is stabilizing. However, it must be said that the gap between state-of-the-art buildings and older properties is widening. These are not in line with the sustainability (ESG) requirements required by large international tenants. So they can compete with a lower price, or invest in the renovation of the building and then reflect these costs in an increase in rent,” he concludes.