The Prague office market has experienced a decline in the construction of new office buildings over the past three quarters of the year, which has also been reflected in a decline in speculative construction. Approximately twelve months ago, almost 80 percent of offices under construction did not have a pre-committed tenant, this share has now decreased to 52 percent. In the first quarter, tenants were looking for offices in the established office locations around Karlín in Prague 8 and Pankrác in Prague 4. The quarterly analysis provided by JLL shows that currently 7.5 percent of modern office space in Prague is currently not occupied, equivalent to 289,100 sqm. However, there is also a growing supply of subleases, which do not appear in the official statistics for vacant space. According to the analysis, there is around 80,000 sqm of space available for subletting.
According to the latest office market research in Prague, the total volume of modern office space reached approximately 3.85 million sqm in Q1 2023. Two office projects were completed this quarter. Developer Skanska has successfully completed the PORT7 office project close to the Nádraží Holešovice in Prague 7, with a total leasable area of 30,900 sqm. The complex consists of three office buildings and demonstrates the high degree of sustainability of the project aiming for the highest LEED and WELL certificates. The second completed project was the Red Court office building (7,100 sq m) in Prague 8, which already boasts a quality pre-certificate at the LEED GOLD level. Before completion, the building was fully pre-leased by the company Czechoslovak Group.
Due to the ongoing economic uncertainty, rising rental costs, and considering the development of office vacancies in the neighbouring countries, the results of vacancy in Prague for the first quarter were eagerly awaited. However, the increase in vacancy has not yet occurred, the Prague office market recorded a year-on-year and quarter-on-quarter decrease in vacancy rate to the level of 7.5 percent. (at the end of 2022, the vacancy rate was recorded at 7.7 percent). Where tenants reduced their space, the office building owners managed to fill available space almost immediately.
The largest transaction of this quarter was the renegotiation of Amazon in Rustonka (11,800 sqm) in Prague 8. Also, thanks to this transaction, the total demand kept its level from previous quarters reaching 137,800 sqm. In the first quarter, the net take-up (without renegotiations) amounted to 76,200 sqm, of which 1,300 sqm were subleases.
The rents remained broadly stable, despite the fact that the office market in Prague is turning from a landlord’s market to a tenant’s market. If there are reliefs, they relate more to fit-out contributions, an adaptation of premises or technological equipment, or they take the form of rent-free periods.
“We observe that landlords are under more pressure to keep tenants, even at the cost of various concessions or benefits. The indexed rents from the last year also force tenants to enter the market and try to get new offers with greater benefits. This puts even more pressure on the landlords. In addition, vacated space is more difficult to occupy, especially if it is not in good transport accessibility or has no sustainability certification. In particular, tenants are dealing with the sensitive issue of growing operating costs and decreasing margins, and this is pushing them to be more cost-effective,” comments Milan Kilík, Head of Office Agency at JLL, on the situation of a landlord market.