Prague Research Forum Announces Office Market Figures for Q2 2023
- In the last 12 months, no office building construction has commenced.
- No office building was completed in the second quarter.
- Renegotiations again dominated leasing activity
- Vacancy rate decreased to 7.3% quarter on quarter.
- The prime rents stabilised.
Commentary
Radana Williamsova, Associate Director of Office Agency, Colliers, comments:
“Over the past 12 months, the Prague office market has shown signs of stagnation with no new projects initiated. Vacancy rates have been slowly decreasing due to limited new supply compared to the absorption of office space, pointing to a potential shortage of high-quality offices for lease.
Lower office vacancy rates, rising interest rates and rising construction costs have caused rents, which have been relatively stable over the past 10 years, to rise significantly in recent months. We expect that this trend may continue in part of the market.
Some businesses are re-evaluating their office needs, aiming to reduce space while fostering collaboration and face-to-face interactions to encourage employees back to the office.”
Office Stock and New Supply
The total size of modern office stock in Prague remained at 3.85 million sq m in Q2 2023. No office building has been completed and there has been no construction commencement within Prague. However, another seven office projects totalling approximately 66,800 sq m of office space are scheduled for completion by the end of 2023.
Around 143,600 sq m of office space was under construction in the second quarter of 2023. The majority of this space is located in Prague 1 (26%), Prague 10 (20%) and Prague 5 (19%).
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.
Office Take-up
Total gross take-up (including renegotiations and subleases) reached 148,800 sq m in the second quarter, representing an increase of 23% year-on-year and an increase of 10% quarter-on-quarter.
The highest gross take-up in the second quarter was recorded in Prague 4 (41%), followed by Prague 5 (16%) and Prague 1 (14%). The highest demand for offices was realised by technology (42%), financial institutions (9%) and pharmaceutical companies (7%).
New leases of existing space and expansions accounted for 41% of the total gross take-up, while pre-leases of new offices under construction accounted for 4%. Notably, renegotiations of existing contracts represented a significant share of deals at 53%.
The remaining 2% accounted for subleases of already leased space.
Major Office Leasing Transactions
The largest transactions in the second quarter of 2023 were renegotiations of DHL Information Services (18,000 sq m) at The Park in Prague 4 and Microsoft (16,100 sq m) at Delta building in Brumlovka in Prague 4. The largest new lease was signed by Sandoz at the Enterprise building (5,700 sqm) in Prague 4.
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 13,600 sq m compared to the previous quarter.
The office vacancy rate decreased from 7.6% in Q1 2023 to 7.3% in Q2 2023. The total vacant office space at the end of the second quarter reached 279,600 sq m. The highest vacancy was registered in Prague 4 (53,800 sq m) and Prague 5 (50,700 sq m). The lowest vacancy was reported in Prague 10 (7,700 sq m) and Prague 2 (8,700 sq m).
The highest vacancy rates were recorded in Prague 3 (20.4%) and Prague 9 (14.4%), while the lowest was in Prague 8 (3.9%) and Prague 10 (5.0%).
Rents
Prime rents stabilised in the second quarter of 2023, ranging at levels around EUR 26.50–27.00 per sq m per month in the city centre, EUR 17.75–18.25 in the inner city and EUR 15.00–16.00 in the outer parts of the city.
In addition to rents, the increasing construction costs are now reflected in the total volume of fit-out contributions or other forms of incentives provided by landlords.