The amount of office space currently under development in Prague is higher than ever. 136,000 sqm was completed in 2017 and an additional 165,000 sqm of modern office space should be delivered to the market in 2018. This is the highest development rate since 2008. Despite that, the vacancy rate has dropped to a record low of 6.2 per cent. This is a year-on-year decrease of more than 3 percentage points. This should change, however, with seven new office buildings due to be completed this year, according to Cushman & Wakefield.
The office space volume has grown year-on-year by just under 4% to 3,357,500 sqm. Almost 39,000 sqm of office space was completed in the first quarter of 2018, the highest figure for the first quarter in history. As much as 41% of the new office space had already been pre-leased before completion.
The development activity has been the strongest in Prague 4, 5 and 8, the municipal districts that have been at the top of the statistics for a long time, offering the best opportunities for developers. This is also confirmed by the fact that 90% of the stock in these districts is attributable to Class A buildings. By contrast, up to 50% of buildings in Prague 1, where space for new development is limited, are Class B. The completed projects include the Visionary (20,500 sqm) in Prague-Holešovice, the City West A1 (9,300 sqm) in Stodůlky, the Nekázanka 11 (5,600 sqm), and the Mango Building (3,300 sqm) in Prague 1. At the end of Q1, Prague offers 2.6 million sqm of new office space, including 790,000 sqm of Class A office space in Prague 4.
Seven major office schemes to be completed in Prague this year
Out of the total 334,000 sqm of office space in the pipeline, a half of the projects now under construction should open this year, including the ČSOB headquarters in Radlická and the Trimaran in Michle. The Dynamica on the premises of the former Walter factory opened in June.
Record-breaking low vacancy rate at 6.2%
Despite the high volume of office space delivered in 2017 and Q1 2018, the office vacancy rate is at a record-breaking low of 6.2%. The positive absorption is continuing into the third year. Vacancy has decreased in almost all parts of Prague, with Prague 2 in the lead (3.6%). Conversely, Prague 3 has traditionally been a municipal district with some of the highest vacancy rates in the office sector (11.1%).
“Considering the continued strong take-up, we do not expect the vacancy rate to grow significantly in 2018 despite the attractive additions of new buildings,” says Radka Novak, Head of the Office Agency Team at Cushman & Wakefield.
Five new development projects have started since the beginning of the year
Over the same period, the development of five office schemes has begun: the VN47 (14,100 sqm) in Prague 1 and the Rustonka R3 (11,300 sqm), Rustonka R4 (13,200 sqm), Praga Studios (10,600 sqm) and Praga Office&Garden (2,100 sqm) in Prague 8.
“The office market in Prague remains very active overall, with new leases including expansions and pre-leases accounting for up to three-quarters of all deals. The market activity is also illustrated by the occupancy of the projects that are still in development. The biggest current fear for companies and developers alike is the low unemployment rate. The fight for employees increases the costs in all sectors, which must be logically reflected in increasing prices including rents. As a result, we can expect the growth to slow down over the coming quarters, but nothing drastic for the time being, so the outlook remains positive,” says Radka Novak.
Rent value
The prime rent value has remained around €21/sqm/month and can be expected to grow during the year. Rents are already being corrected upwards in the other popular office locations, and developers are increasing the rents for schemes in the pipeline in response to a radical hike in suppliers’ prices. The rent value is subject to many variables, most notably the location, the services offered and the quality of the office space. The current market situation and the record low unemployment rate pressures developers and landlords to offer offices with the best amenities possible, preferably at transport nodes with good access.
Take-up
Take-up more or less copies Prague’s municipal districts with newly developed office space – the highest rate of take-up has been seen in Prague 1, 4 and 8.
For major deals of Q1 we can mention HubHub’s pre-lease in the Ara Palace (2,700 sqm) and at Na Příkopě 14 (2,000 sqm), Amundi’s pre-lease in the Rustonka 2 (2,100 sqm) and Adecco’s newly leased premises in the Enterprise building (2,200 sqm).
Most active sectors
The most vacant office space is available in Prague 4 and 5 where the most buildings have been completed recently, and in very high standard with modern equipment. The highest demand comes from in the sector of professional services (legal and consulting firms), followed by the IT sector and financial services.
In addition to these sectors, co-working centres are developing too, with 43 of them open in Prague now.
“We expect the area of co-working space, which currently totals more than 25,000 sqm across the Czech Republic, to double by 2020,” Radka Novak adds.
For example, a HubHub facility should open at Na Příkopě this summer and HubHub plans on opening another shared office centre in the Ara building by the end of the year. BusinessLink will soon open the biggest centre to date, while WeWork, the biggest player in the global co-working field, is entering into lease agreements for the first of several centres planned for the heart of Prague.
