Despite a slight increase in vacancy, demand for new offices in Prague persists. However, companies still prefer renegotiations. Lease renewals are almost always accompanied by interior modifications leading to more efficient use of space, reports Prague Research Forum in its Office Market Figures for Q3 2024.
By the end of September 2024, the total office space in Prague increased to 3.95 million sqm. During Q3 2024, the reconstruction of Riveroff Office House in Prague 7 was completed, offering 1,400 sqm of office space. An additional 3,500 sqm of office space is expected to be completed by the end of 2024, bringing the total office space added in 2024 to 73,000 sqm.
In Q3 2024, no new construction or refurbishment of existing office projects was initiated. There are seven projects under construction, totalling 166,600 sqm of office space. The largest project under construction is Smíchov City in Prague 5, which will offer 119,200 sqm of office space upon its completion in 2027.
Most of the modern office stock (74%) comprises Class A buildings, while the highest quality AAA-rated space accounts for approximately 21%.
Total gross take-up (including renegotiations of existing contracts and subleases) reached 132,600 sqm, representing a year-on-year increase of 55%, but a quarter-on-quarter decrease of 39%. Since the beginning of 2024, a total of 458,100 sqm has been leased, 27% more than in the same period last year.
The highest gross take-up in the third quarter was recorded in Prague 4 (33%), Prague 8 (20%), and Prague 5 (19%). Demand was primarily driven by technology companies (24%), followed by companies from the financial sector (18%) and manufacturing companies (16%).
New leases and expansions within existing space accounted for 36% of the total gross take-up, while there were only two pre-leases of new offices under construction, contributing just 1% of the quarterly take-up. Renegotiations of existing lease contracts accounted for 61% of total demand. The remaining 2% were subleases of already leased space.
The largest transaction in the third quarter of 2024 was the prolongation of a confidential tenant (18,400 sqm) in Prague 4. Other significant transactions included the renegotiation by a technology company at Rustonka R3 (8,600 sqm) in Prague 8 and the renegotiation of Skanska at Corso Court (5,800 sqm), also in Prague 8.
Net absorption reflects the change in occupied office space on the market over a given period. In this quarter, for the first time since Q3 2021, negative absorption was recorded, meaning that office occupancy in Prague was 1,400 sqm lower in this quarter than in the previous one. The office vacancy rate increased by 15 basis points quarter-on-quarter to 8.1% (318,200 sqm).
Prime headline rents in the city centre remained stable at €28.50-29.00 sqm/month. In the inner city, they increased by 50 cents to €18.50-19.50 sqm/month. Prime rents in the outer city also remained stable at €15.50-16.50 sqm/month.
„Although companies still prefer to renegotiate existing leases rather than relocate to new premises, lease renewals are almost always accompanied by interior modifications that lead to more efficient use of space and create a more attractive working environment for employees. Additionally, in recent months, an increasing number of corporations have instructed employees to return to the office for up to five days a week, and implementing these policies will likely require expansion. The supply of new office space remains limited, particularly in popular locations in the wider city centre, which continues to push up rental prices. It is now more challenging for occupiers to find new space, but with further growth in construction activity and particularly growing secondary supply of fitted-out space, the situation should gradually improve," commented Radka Novak, Head of Office Agency, Central and Eastern Europe at Cushman & Wakefield.
