In Q3 2023, the Prague office market grew by more than 60,000 sqm of modern offices. This was the best result since mid-2020. No further similar peak is expected in the next three years at least, as no new construction has started for more than a year. Although investors are placing increasing emphasis on the sustainability of buildings, benchmark rental prices are not changing fundamentally, while landlords are trying to attract more generous allowances or longer lease holidays, Colliers reports.
Sustainability in the lead role
Among the completed projects in Prague, Penta Real Estate's Masaryčka is worth mentioning, which has enriched its offer with 22,100 sqm of office space and several thousand sqm of retail space. In addition, it aspires to be the best certificate in the building sustainability rating system. "LEED Platinum is awarded to buildings that achieve high standards in energy efficiency, environmental friendliness and human health. To achieve certification, several criteria must be met in key areas such as innovation and design, sustainable materials, minimising energy and water consumption, and indoor environmental quality. This is a certification that only a minimum of buildings receive. Thus, Masaryčka surpassed its impressive and unique golden exterior with the platinum rating it received," says Josef Stanko, senior analyst at Colliers, with exaggeration, adding that the emphasis on sustainability by investors is increasing. For them, LEED certification at the Platinum or Gold level is a guarantee that their demands will be met. Two other completed projects, Nová Waltrovka in Prague 5 and Block Karlín, which is the next addition to the modernisation of Rohanský Ostrov in Prague 8, are targeting Gold certification.
Not a single new sqm in 2025
"It looks like we have just experienced the last quarter with a higher volume of new office completions until 2026. Unfortunately, we are not able to break the negative trend of a more than a 15-month pause in new office building starts. Because of this, we expect vacancies to remain low and do not anticipate large tenants moving in. Because of this, there will also be limited space for building renovations and upgrades, which have so far been successful, especially in the historic heart of Prague," predicts Josef Stanko, adding that the size of the space under construction has decreased to just 85,800 sqm, which is expected to be completed by next year. It could easily happen that 2025 will offer no new space.
Red tape, lengthy planning procedures, public opposition and local government fragmentation are the main factors holding back construction. Even the newly amended Building Act will not radically change these aspects, even though these unfavourable factors could discourage investors who might then want to pursue their building plans in other countries.
Vacancy rates will continue to fall
Thanks to the latest completions, the Prague office market exceeded 3.9 million sqm and ended at 3.91 million sqm of office space, while vacancy in Prague continues to remain below ten percent, specifically at 7.4%. Year-on-year occupied space increased by 120,000 sqm, which in a way can be imagined as all the new supply of the last 12 months that the market has been able to absorb.
From the perspective of office tenants, the third quarter was marked by renegotiations, i.e. extensions of existing leases, accompanied by smaller expansions. Examples include Hadovka Office Park in Prague 6 with Unilab Diagnostics (approx. 4,400 sqm), Škoda Transportation in Coral Office Park D (3,700 sqm) or Huawei Technologies in Greenline Kačerov (2,700 sqm). Net take-up was just 41,800 sqm, the lowest volume recorded since Q3 2020.
More generous conditions for landlords
The highest rents are traditionally in the centre of Prague on the east bank of the Vltava River, where sqm of office space is offered for up to €27.00 per month. Although some projects are presenting slightly higher prices, we believe that the opportunities to increase the benchmark top rent are currently exhausted.
The cheaper and at the same time the most numerous category (56% of the total volume) consists of inner-city locations such as Karlín, Pankrác and Smíchov, where prime office space can be rented for up to €18.50/sqm/month. The third group, which includes the outer ring of Prague, catches up with the middle category (€16/sqm/month). This continues the trend where the scissors between the rent prices in the inner and outer city are closing due to the expansion of the office market.
"In order to attract new tenants, we are seeing landlords often reaching deeper into their pockets and providing more generous allowances or longer rent holidays. This can partially offset the rising costs of office equipment," concludes Josef Stanko.
