Whilst Prague 4 is the largest market, over the next two years, most of the new supply will be delivered to Prague 8. In perspective, it could overtake Prague 1 by market share and become the third largest office submarket in the capital. In 2018 and 2019, almost 27% of new offices that are currently under construction will be completed in Prague 8. The largest of the planned projects is Palmovka Open Park, thanks to which office space in Prague 8 will expand by almost 25,000 sqm at the end of Q2 2018. Regarding the intensity of construction, Prague 4 is in second place with 22% of the offices under construction. The third place belongs to Prague 5, where 19% of new construction will be completed.
Over the next 2 years, companies will enjoy a wide range of new offices being delivered to the Prague market by developers. Thanks to the completion of the Visionary building (20,500 sqm), the largest proportion of modern office space completed in the first three months of 2018 was in Prague 7. After almost two years, it is the first new office building in Holešovice. The last project to be completed there was phase 3 of the Classic 7 project in 2016.
The second largest project finished in Q1 2018, with a total area of 9,300 sqm, was the City West A1 building situated in Prague 5. Two other projects were completed right in the city centre - Nekázanka 11 and the Mango Building (altogether 8,900 sqm) in Prague 1.
In addition to the above-mentioned completed projects, another 165,000 sqm is under construction with planned completion for this year. Interestingly, the proportion of pre-leased office space for 2018 rose year-on-year and represents almost a half of all projects. Above that, almost a quarter of all offices with planned completion in 2019 have already found their tenants.
„Although this year has the highest volume of new office space planned for delivery in Prague since 2008, due to the continuing positive market situation and the high level of pre-leased premises this year, we do not expect a significant increase in vacancy. Vacancy in almost every district within Prague is around the average Prague vacancy (6.2%), which further reflects the very strong demand for office space on the market,“ said Martin Stričko, JLL Senior Research Analyst.
The first quarter of 2018 was also rich in the number of newly launched projects. For example, construction started on the VN47 project with an area of more than 14,000 sqm in Prague 1. However, the main focus was on Prague 8, where four projects commenced construction. These include Rustonka (R3 - 11,300 sqm and R4 - 13,200 sqm), Praga Studios (10,600 sqm) and Praga Office & Garden with an area of 2,100 sqm.
Although demand has declined by 51% compared to the record-breaking periods of 2017, it remained strong in Q1 2018, coming mainly from IT companies. The strongest leasing activity was in Prague 1, where contracts were signed by HubHub at ARA Palace and Fio banka in the Millennium building. Due to the continued interest in offices, the vacancy rate further declined to 6.2%. It is the lowest in Prague 2, where it reached only 3.6%.
Net absorption amounted to 57,600 sqm during the first three months of 2018 and exceeded the five-year average by more than twice. We can expect that net absorption will reach 180,000 - 200,000 sqm this year. Despite rising occupancy, rental prices remained at the same level in Q1 as at the end of 2017. The highest prime headline rents in the city centre varied between €20.0 – 21.0/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 above-mentioned ranges.
