According to the experts from Cushman & Wakefield, the interest of international companies to locate their headquarters in Brno has gradually cooled. Decision-making processes have slowed down, attitudes are reserved and willingness to make long-term commitments is low.
The uncertainty is due, among other things, to the geopolitical situation, but purely local reasons also play a role: the decline of the formerly large workforce of Brno students, the rising cost of living, or the weak foreign promotion and business approach of Brno comparted with similar (mainly Polish) cities in the CEE region.
At the same time, new office construction is underway in Brno - 33,000 sqm was completed last year, an increase of 84 pct on the year before. Another 35,000 sqm is currently under construction, of which 26,100 sqm should be completed this year. This will add a significant amount of space to the Brno market in the next three years, which is unlikely to be in demand for the time being. The Brno market’s absorption is facing limits and very uncertain rental conditions. Some projects planned for the future are therefore postponed. An increase in vacancy rates of up to 16 pct can be expected for the next few years, as there will not be enough of those interested in the new space.
Due to the persistently relatively low rent levels and simultaneously rising construction costs, office developers in Brno have to expect much lower profitability of their projects. There are cases when the price of construction costs and expected profit for planned projects reaches the value level of the project and even exceeds it. This makes the market less attractive, especially for institutional developers.
Speculative construction in Brno already required a considerable amount of courage - and this will be even more true for construction in the coming years.
In the next few years, we will see new office projects in Brno which will remain partly vacant for the time being. It will take some time before the market revives again, and vacant space will be filled gradually and slowly. This could be helped by the arrival of new companies - but that requires more active involvement of the city and the state, such as we see in other CEE regions.
Lukáš Netolický, Head of Regional Cities in the Czech Republic, Cushman & Wakefield
