The Prague office market has experienced a decline in the construction of new office buildings over the last three quarters which has also been reflected in a decline in speculative construction. Whereas a year ago almost 80% of offices under construction did not have a secure tenant, this share has now fallen to 52%. Tenants were looking for office space in established office locations in the vicinity of Karlín in Prague 8 and Pankrác in Prague 4 in the first quarter. A quarterly analysis by international consultancy JLL shows that 7.5% of modern office space in Prague is currently vacant, which corresponds to 289,100 sqm of space. However, the supply of so-called subleases, which are not included in the official vacancy register, is also growing. According to JLL's latest analysis, there could be around 80,000 sqm of sublease space.
According to the latest office market survey in Prague, the total size of modern office stock is approximately 3.85 million sqm at the end of Q1 2023. Two office projects were completed in the quarter. Developer Skanska successfully completed the PORT7 office project near Nádraží Holešovice in Prague 7, with a total lettable area of 30,900 sqm. The complex consists of three office buildings and demonstrates the project's high level of sustainability, striving for the highest LEED and WELL certifications. The second completed project was the Red Court office building (7,100 sqm) in Prague 8, which already boasts a pre-certification of quality at the LEED GOLD level. Before completion, the building was chosen by the Czechoslovak Group as its future headquarters.
Due to the ongoing economic uncertainty, rising rental costs and the development of office vacancy rates in neighbouring countries, the first quarter vacancy results in Prague were eagerly awaited. However, vacancy growth has not yet occurred, with the Prague office market even recording a year-on-year and quarter-on-quarter decline in vacancy to 7.5% (7.7% vacancy was recorded at the end of 2022). Where tenants have reduced their space, office building owners have managed to fill it almost immediately.
The largest transaction of the first quarter was the extension of Amazon's lease agreement in the Rustonka office building (11,800 sqm) in Prague 8. In Q1, net take-up (excluding renegotiations) was 76,200 sqm, of which 1,300 sqm were subleases.
The rent levels remained almost unchanged, despite the fact that the office market in Prague is becoming a tenant's market from a landlord's market. When concessions do occur, they tend to relate to allowances for relocation, adaptation of premises or technological equipment, or take the form of rent holidays.
"We feel that landlords are under more pressure to retain tenants, even at the cost of various concessions or benefits. The indexed rents of the last year are also forcing tenants to go to the market and try to get new deals with more benefits. This puts even more pressure on landlords. In addition, vacant space is more difficult to occupy, especially if it is not in a good transport location or has no sustainability certification. Tenants in particular are dealing with the sensitive issue of rising operating costs and shrinking margins, and this is pushing them to be more cost-effective." Milan Kilík, Head of Office Leasing at JLL, describes the situation in the landlord market.
