Prague Research Forum Announces Office Market Figures for Q4 2022
- Almost 184,000 sqm of office space is under construction; most of it in Prague 1 and Prague 7.
- Total completions in 2022 comprise 75,400 sqm, up 35% year-on-year, however, still significantly below the long-term average.
- Volume of space available for sublease reached 71,300 sqm.
- Gross take-up in Q4 reached 151,800 sqm, full-year take-up got to 550,100 sqm.
- Net take-up in Q4 reached 60,600 sqm, bringing full-year net take-up to 297,000 sqm, the highest since 2018.
- Net absorption remained positive at 10,100 sqm in Q4, indicating healthy demand for office space.
- Vacancy rate decreased to 7.7%.
- Prime rent has stabilised at around €26.50/sqm/month.
Office Stock and New Supply
The total size of modern office stock in Prague reached 3.8 mil. sqm at the end of the fourth quarter of 2022. During Q4 2022, one property was completed: Smíchov City Na Knížecí (8,300 sqm) in Prague 5 by Sekyra Group. Total completions in 2022 reached 75,400 sqm in seven properties, up 35% year-on-year, but down 42% on the 10-year average. In 2023 we expect a slight market recovery with the scheduled completion of 130,000 sqm of offices, in 2024 we expect a significant decrease in completions to the level of 2021–2022
In the first half of 2022, the construction of 57,900 sqm of office space commenced construction with completions scheduled mainly in 2024. In the second half of 2022, no new construction of an office building or renovation was started.
Most of the modern office supply (74%) consists of Class A buildings, with the highest quality AAA-rated space accounting for more than 17% of the total office stock.
Total gross take-up (including renegotiations and subleases) reached 151,800 sqm in the fourth quarter, up 11% on the previous quarter and 45% up year on year.
The highest gross take-up in the fourth quarter was recorded in Prague 4 (42%), followed by Prague 8 (22%) and Prague 1 (13%). Technology companies were the main driver of demand (36% share on gross take-up), followed by financial companies (10% share).
New leases of existing space and expansions accounted for 35% of the total gross take-up, while pre-leases of new offices under construction accounted for 5%. Renegotiations of existing contracts represented a major share of deals at 58%. The remaining less than 2% accounted for subleases of already leased space.
Full-year figures show that gross take-up grew by 43% year-on-year to 550,100 sqm. The highest share on annual take-up was in Prague 4 (30%) and Prague 8 (23%). Technology companies were the main drivers of demand (28% share on gross take-up), followed by financial and pharmaceutical companies (10% share each).
Major Office Leasing Transactions
The largest transactions in the fourth quarter of 2022 were the renegotiations of O2 (29,000 sqm) in Gamma, Brumlovka in Prague 4 and Expedia (7,300 sqm) in Corso Court in Prague 8. The largest new deal was a lease of Generali (5,500 sqm) in Beta, Brumlovka 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 10,100 sqm compared to the previous quarter, annual absorption reached 73,200 sqm.
The office vacancy rate in Q4 2022 decreased to 7.7%. The total vacant office space reached 293,600 sqm at the end of the quarter. The largest vacant space was registered in Prague 4 (60,900 sqm) and Prague 5 (54,400 sqm), the least vacant space was in Prague 10 (9,600 sqm) and in Prague 2 (10,700 sqm), which are overall small office submarkets. In terms of the vacancy rate, the highest vacancy rate was in Prague 3 (23.8%) and in Prague 9 (17.6%), the lowest vacancy rate then in Prague 8 (4.8%) and in Prague 7 (5.0%).
Prime rents are stabilising and in the fourth quarter of 2022 stood at around €26.50 per sqm per month in the city centre, €17.50–18.00 per sqm per month in the inner city and €15.00–16.00 per sqm per month in the outer parts of the city.
In addition to rents, the growing construction costs are now also reflected in the total volume of fit-out contributions or in other forms of incentives provided by landlords.