Developer activity in the Prague office market in Q1 2023 was still below the pre-pandemic level. As a result, only about 145,000 sqm of office space is under construction and no new construction has even started in recent months, according to the latest report by the Prague Research Forum, whose members include CBRE, Colliers, Cushman & Wakefield, JLL, Knight Frank and Savills.
Prague Research Forum office market figures for Q1 2023:
“The Prague office market is experiencing a significant drop in new supply: no project commenced construction during the last nine months. We realistically expect only one to two office developments to start by the end of 2023. The downsizing trend is confirmed by the increase of the sublet space in the market by one-third compared with the same period last year. However, the combination of an active demand and a low supply keeps vacancy down and supports the successful absorption of premises available for sublease. Prime rents are nearing their peak. Despite that, in a couple of transactions in the city centre, currently reported prime rental level was exceeded,” comments Radka Novak, Head of Office Agency CEE, Cushman & Wakefield.
Office stock and new supply
The total size of modern office stock in Prague reached 3.85 million sqm in Q1 2023. Three separate office buildings were completed as part of the PORT7 project by Skanska in Prague 7 – Alexandria (4,200 sqm), Dover (2,800 sqm) and Edinburgh (23,900 sqm). This quarter's second completed office development was Red Court (7,100 sqm) in Prague 8. Another nine office buildings with a total office space of around 90,000 sqm are scheduled for completion by the end of 2023. Around 145,000 sqm of office space was under construction in the first quarter of 2023. Most of the space under construction is in Prague 1 (26%), Prague 10 (20%) and Prague 5 (19%). No new construction or reconstruction commenced in this quarter. Most modern office inventory (74%) consists of Class A buildings, with the highest quality AAA-rated space accounting for 17% of the total office stock.
Total gross take-up (including renegotiations and subleases) reached 137,800 sqm in the first quarter, representing an increase of 3% year-on-year and a decrease of 9% quarter-on-quarter. The highest gross take-up in the first quarter was recorded in Prague 8 (21%), followed by Prague 5 (19%) and Prague 4 (17%). The highest demand for offices was realised by technology (12%), manufacturing (11%) and energy & extractives companies (10%). New leases of existing space and expansions accounted for 40% of the total gross take-up, while pre-leases of new offices under construction accounted for 14%. Renegotiations of existing contracts represented a major share of deals at 45%. The remaining 1% accounted for subleases of already leased space.
Major office leasing transactions
The three largest transactions in the first quarter of 2023 were renegotiations: Amazon (11,800 sqm) in Rustonka R1 in Prague 8, Accenture Services (5,600 sqm) in Visionary in Prague 7 and a renegotiation combined with an expansion of an undisclosed tenant in BesNet Centrum Alpha (4,300 sqm) in Prague 4. The largest new lease was signed by Lego Production in the Aviatica building (4,000 sqm) in Prague 5.
Office vacancy and net absorption
Net absorption reflects the change in occupied office space on the market over a given period. The occupied office space increased by 53,100 sqm compared to the previous quarter. The office vacancy rate decreased from 7.7% in Q4 2022 to 7.5% in Q1 2023. The total vacant office space at the end of the first quarter reached 289,100 sqm. The highest vacancy was registered in Prague 4 (56,400 sqm) and Prague 5 (52,100 sqm). The lowest vacancy was reported in Prague 10 (9,200 sqm) and Prague 2 (9,300 sqm). The highest vacancy rates were recorded in Prague 3 (21.6%) and Prague 9 (14.3%), while the lowest was in Prague 8 (4.2%) and Prague 4 (5.8%).
Prime rents increased slightly in some submarkets in the first quarter of 2023, ranging around €26.50–27.00 per sqm per month in the city centre, €17.75–18.25 in the inner city and €15.00–16.00 in the outer parts of the city. In addition to rents, the growing construction costs are now reflected in the total volume of fit-out contributions or other forms of incentives provided by landlords.
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