The Prague office market has already surpassed the volume of transactions from the 2020 and 2021 covid years after three quarters this year. The year-on-year increase in gross and net realised demand, i.e. new contracts and contract renewals, amounted to 38 percent. Office vacancy declined 0.3 percentage points year-to-date to 8.1 percent and demand for flexible space is increasing. Prices will increase in the coming year, which will be affected by inflation clauses in contracts and energy prices, according to representatives of construction and real estate companies.
According to Colliers, gross realised demand for the first three quarters was approximately 395,000 sqm. “Although we have seen a significant share of renegotiations, there is an unceasing demand for new offices, which has not been negatively affected by the discussed reduction in the number of offices and optimisation of space, as the Czech environment is traditionally more conservative in following global trends,” said Josef Stanko, senior analyst at Colliers.
Lenka Preslová, sales manager at Passerinvest Group, said that after two years affected by the coronavirus, the offices filled up with new clients and existing tenants who addressed the need for expansion. The low vacancy rate is also due to a small number of new spaces, according to Century 21 Rudy director Roman Čakurda. “At the moment, it’s a problem to get to empty offices because there aren’t any,” he said. Prague’s office market will reach 3.8 million sqm this year.
Demand for flexible offices is still growing, said Adam Zvada, owner of Scott.Weber. The company, which is a Czech provider of flexible offices and has newly acquired space in the Rustonka complex in Prague’s Karlín district, has seen demand grow by more than 200 percent year-on-year this year, according to Zvada. “The post-pandemic era has accelerated development and our prediction is that flexi offices will be the solution for more and more companies in the future, large, medium-sized, as well as small and start-ups,” he said.
But all offices, flexible and conventional, are set to see rents rise next year, according to company representatives. Currently, prices in the capital range from EUR 15 (CZK 366) per square metre in the outer parts of the city to EUR 26.5 (CZK 647) per square metre in the most modern offices in the city centre.
The companies contacted said that prices will increase due to inflation clauses in contracts. At a time of low inflation, Radek Prochazka of Prochazka & Partners said most tenants did not pay much attention to these clauses. “Now, after about ten years of stability, the first big price increase is coming,” he said. He expects rents to rise in line with European inflation by around 10 percent. On top of that, Procházka said, it is necessary to take into account up to a 50 percent increase in service charges compared to 2021 and a similar increase in energy consumption costs.
Preslová from Passerinvest Group said that it will be necessary to make building operations more efficient and introduce cost-saving measures. She said this will be particularly challenging for existing buildings with older technology. “However, looking for savings and increasing efficiency is possible in any case and strategic energy purchases with a pre-fixed favourable price are an integral part of this,” she added.
Even next year, according to Wood & Company’s portfolio manager Jiří Hrbáček, we cannot expect a significant increase in office vacancy in Prague and Central Europe, mainly due to the low supply of new projects. It is likely that the lack of new space will be another impetus for rental growth not only in Prague, but also in Warsaw and Bratislava, he estimated.
Source: CTK
