Czech Republic Regional markets struggle with vacancy

Other Czech regional markets, however, now offer opportunities for developers, investors and serviced office providers, thanks to the potential of the ‘hub & spoke’ concept, a strategy centres on companies reducing the size of their main offices and then supplementing them with smaller premises in different locations.

The highest achievable rent in Prague in Q4 2022 was app. EUR 27 per sqm per month. In Brno, it was a full EUR 10 less, i.e., EUR 16.50, and in Ostrava only EUR 14.50. Despite significantly lower prices, both these regional markets are struggling with rising office vacancies. In Brno, the current vacancy rate is 13.4 pct – almost double that of Prague. With 69,600 sqm under construction, the number of empty offices is expected to continue to rise. In fact, only 6.5 pct of all space is currently pre-leased in new projects under construction.

For this market, it will be crucial to find the right pricing policy and a way to attract more tenants in the current period of space reduction, cost and operating expenditure cuts, and right-sizing. The time needed to find tenants may grow much longer; especially, if new spaces become available without pre-secured tenants.
Josef Stanko, a senior analyst at Colliers

According to Colliers, Ostrava also faces problems. Despite the stalled market, no construction has been completed here since 2019 and the market is stuck at 217,000 sqm. The reason for the growth in vacancy in Ostrava is mainly due to long-term, low activity on the market. The annual volume of transactions decreased by 50 pct year-on-year. Although the vacancy rate currently stands at 7.1 pct, it is expected to grow. This is due to the relocation of one of the city’s largest tenants, Tietoevry, and the optimisation of office space by other tenants.

Other regional cities have a relatively decent supply of future projects, even if the current economic climate has, in many cases, delayed their delivery or postponed implementation. The modern office space market in regional cities is in the order of 30 to 100,000 sqm per city; with Olomouc, Hradec Králové, and Plzeň leading in terms of volume.

In all of these cities, thanks to the growth of the ‘hub & spoke’ concept and co-working, new opportunities are emerging for developers, investors and established serviced office providers. A growing number of companies are looking for space in various regions to accommodate the needs of employees who are not interested in moving to big cities, but who do not wish to use home office set-ups.

We have identified a number of office properties, both old and new, across the Czech Republic, which are suitable for such use. However, the question remains whether current owners will pioneer new trends that support flexible workspaces. In most regional cities this solution is lacking and could put wind back in the sails of local office estate markets.
Josef Stanko