With no office buildings completed in Prague in Q4 last year, 2023 ended with a new construction volume of 98,400 sqm in 7 projects. Nevertheless, this was the highest result in the past three years. Also, no new construction began during the last quarter of last year, extending the period without office construction to a full 18 months. Although the upcoming shortage of new supply will not become fully apparent until 2025, leasing opportunities are already very limited. Vacancy at the end of Q4 2023 was approximately 280,700 sqm, or 7.2 percent, across the capital, but gross take-up has exceeded 500,000 sqm over the past year. The good news is that rental prices remained stable throughout the year, this is according to a survey by Colliers.
The current size of Prague’s modern office market is 3.91 million sqm, of which 18 percent is classified in the highest AAA class. The vacancy rate at the end of Q4 2023 was approximately 280,700 sqm across the capital, or 7.2 percent, representing a year-on-year decrease of 50 basis points. In the most sought-after office locations, such as Pankrác, Karlín or the city centre, we find even lower vacancy rates. In Karlín, for example, only 9,700 sqm of existing Class A vacant space was available at the end of Q4 2023, i.e., just 2 percent.
“Vacancy rates in Prague have long been among the lowest compared to other Central and Eastern European capitals, where they are currently in double digits. However, vacancy hangs over Prague like a double-edged sword in the form of lost opportunities. There is space available but still, the market may not have enough leasing opportunities to satisfy all potential incoming foreign investment or existing growth,” comments Josef Stanko, senior analyst at Colliers.
For 2024, Colliers currently expects 84,000 sqm of new office space, which is essentially all that was under active construction at the end of Q4 2023. Approximately 44 percent of this volume is already pre-leased and the remaining space is expected to be absorbed soon.
Demand still high, renegotiation rate rising
Although gross demand in 2023 fell by 3 percent year-on-year, it once again exceeded 500,000 sqm to reach 525,300 sqm. This volume has been exceeded only four times in the past: in 2017, 2018, 2022 and 2023. It was driven by particularly large renegotiations by corporate office tenants such as Microsoft, DHL IT, Avast and Amazon. “Although some of the aforementioned companies are downsizing their office space following new trends in hybrid working, their current market presence shows that they have confidence in the local market for the coming period,” comments Josef Stanko, adding that these transactions are also the 4 largest transactions of 2023, with a combined area of almost 55,000 sqm.
Net realised demand, on the other hand, reached 238,900 sqm last year, representing only 45 percent of gross annual realised demand and a year-on-year decline of 18 percent. This is due to the increasing share of renegotiations, which have been on the rise since 2020 and reached their highest result to date last year. “The higher share of renegotiations is a logical consequence of the market situation, as there are limited opportunities shortly: both within the existing market and through upcoming office projects,” adds Josef Stanko.
In Q4 2023, the volume of gross take-up was 166,700 sqm with more than 230 transactions reported. The volume increased by 11 percent year-on-year. The share of net demand in the total volume was only 38 percent with a volume of 62,600 sqm and more than 120 transactions. “Net demand can fill smaller vacant units across the market, as the average size of a new transaction is in the hundreds of sqm range,” says Josef Stanko.
Serviced and flexible spaces are an important element of the office market
Serviced and flexible spaces are becoming an important part of the Prague office market. The closure of HubHub and the sale of BASE4Work, Penta Real Estate’s flexible office concept, to Scott.Weber has brought about several changes in the operator market. First and foremost, Scott.Weber expanded during 2023. Local operator WorkLounge is also quite active, taking over one of the centres from HubHub (in the Na Příkopě 14 building), but also acquiring the City Point building in Prague 4. The newest player on the market is Zenwork, which took over HubHub’s second centre in Palác Ara in Prague 1. The new flexible office centre Clubco, which is not directly in Prague but is close enough in Nupaky, was built within CTPark Prague East. The Clubco brand is operated by CTP, and the company has other centres in Brno and Ostrava – all within its real estate and development projects. During the past year, two more centres under the Fleksi brand were also completed and opened. Those are operated as part of Passerinvest’s property portfolio.
Specific prices depend on tenants’ specific requirements, but in general, the best private working spaces in the city centre can start at €370 per individual spot (workspace) per month, while the rest of the market ranges between €200 and €350, depending on the location of the specific centre, requirements, number of employees and so on.
Rental and service prices are stable
At the end of 2023, the highest achievable rent in the city centre area was €27.50/sqm/month. In the so-called inner city, it ran up to €18.25/sqm/month and within the outer city area up to €16.00/sqm/month. These values have been mostly stable throughout the year; however, a slow but steady rise in rents is already evident across the market.
“Service charges have also been monitored in recent months and there have been no across-the-board increases as of yet. It is safe to say that higher quality buildings are not an end in themselves, as the most modern and efficient buildings can offer the lowest service charges to clients; typically in the range of €5-7. Older buildings with significantly lower rents may prove costly in the long run, as these rent savings may be wasted on operating expenses,” comments Josef Stanko.
