The fourth quarter of 2017 was very strong for the office real estate market in Prague and closed the year with significant results.
New office supply reached 136,000 sqm at the end of Q4 and the total modern office stock in Prague increased to 3,342,000 sqm. In Q4 2017, five new office buildings totalling 70,400 sqm were completed in Prague. New supply included Palác Špork (6600 sqm) situated in Prague 1, Main Point Pankrác (22,000 sqm) and Pankrác Prime Office Building (7500 sqm) in Prague 4, Aspira Business Centre (16,400 sqm) in Prague 5 and AFI Karlín (17,900 sqm) in Prague 8. The share of A class office space stands at 72 percent, with top quality projects, i.e. AAA class buildings, representing ca. 19 percent of the total stock. The largest office district remains to be Prague 4 (27 percent of the total stock), followed by Prague 5 (17 percent) and Prague 1 (16 percent).
Currently, there is over 308,600 sqm of office space under construction with scheduled completion between 2018 and 2019. New supply will mainly be delivered in Prague 4 (24 percent in five projects), followed by Prague 5 (19 percent in four projects) and Prague 8 (17 percent in three projects). The share of speculative construction currently stands at 58 percent whilst a year ago it represented 75 percent. For 2018 we expect ca. 209,000 sqm of new office space to be delivered to the market.
During Q4 2017, three new projects commenced construction. These include: DOCK IN THREE in Prague 8, with ca. 16,100 sqm of office space, Churchill I in Prague 3 with ca. 15,200 sqm and Mayhouse with ca. 7400 sqm in Prague 4.
Demand
Demand for office space in Prague was very strong. In Q4 2017, gross take-up reached ca. 169,800 sqm (+60 percent q-o-q and +72 percent y-o-y). Net take-up, which excludes renewals, amounted to 131,000 sqm (+66 percent q-o-q and +89 percent y-o-y). For the entire 2017, gross take-up reached 536,000 sqm, exceeding last years‘ results by 29 percent and representing a new record level registered on the Prague market.
In 2017, the highest level of leasing activity was recorded in Prague 4 (28 percent of the total demand) where the largest transaction of the quarter (21,500 sqm) was concluded on BB Centrum A. The leading source of demand was the IT sector which accounted for 18 percent of both gross and net take-up.
Vacancy
As a result of strong leasing activity, the vacancy rate further declined in Q4 2017 to its current level of 7.5 percent. This reflects a q-o-q decrease of 25 bps and is the lowest level achieved since 2008. The lowest vacancy rates were recorded in Prague 8 (5.2 percent), Prague 2 (5.3 percent) and Prague 6 (5.6 percent).
“For the whole of 2017, demand exceeded supply. The result is the lowest vacancy rate in the Prague office market after almost ten years, which stood at just 7.5 percent at the end of the year. Gross take-up exceeded 100,000 sqm in each quarter of the year for the first time. That is an historical milestone. For 2018, we expect another supply growth with more than 200,000 sqm of new office space, of which almost half is already pre-leased. Depending on current market developments, it can be assumed that there will be no significant increase in vacancy rates,” said Martin Stričko, JLL Senior Research Analyst.
Rental Levels
In Q4 2017, prime headline rents in the city centre increased to their current level of €20.0 – 21.0 sqm/month. Inner city rents varied between €14.5 – 16.0 sqm/month in Pankrác (Prague 4) and at €14.5 – 15.5 sqm/month in Smíchov (Prague 5) and Florenc (Prague 8). Rents in the outer city markets reach €13.5 – 15.0 sqm/month.
All of these values refer to prime levels achieved in a limited number of prime properties. These prime projects are usually brand new, of above standard quality and/or very well located. Second hand products stand at approximately €1.5 below the afore-mentioned ranges.
Net Absorption
In Q4 2017, Prague’s net absorption reached ca. 74,000 sqm, the highest quarterly level since Q4 2015. Compared to the same period last year, net absorption rose by 269 percent. Quarterly it registered an increase of 25 percent. During the entire 2017, net absorption amounted 223,600 sqm which represents a significant increase of 92 percent compared to 2016 results and the highest annual level since 2008.
