Czech Republic Construction, vacancy, demand and prices on the rise

Demand and rental prices have also grown. Although the volume of office space under construction has increased significantly to 166,300 sqm, 14,700 sqm more will be added through four new projects by the end of 2024.

In terms of completions and starts, the Prague office market recorded a relatively active quarter. The modern office market grew by a total of four buildings and construction has finally begun on several more. Although the situation in new office construction is far from ideal, we can definitely talk about positive signs.
Josef Stanko, director of Market Research at Colliers

Thanks to new completions, market volume at the end of Q2 2024 increased to 3.95 mln sqm, representing steady year-on-year growth of 2 pct. The vacancy rate increased by 40 basis points quarter-on-quarter and currently stands at 7.9 pct. The vacancy rate within existing buildings has thus reached 311,200 sqm and is distributed very unevenly across Prague. Of the established office centres, Holešovice has the highest vacancy rate (approx. 44,600 sqm) with a vacancy rate of 16.7 pct, followed by the city centre with 34,200 sqm and a vacancy rate of almost 6 pct. Well-established locations such as Karlín, Nové Butovice, Chodov or Smíchov offer between 10,000 and 15,000 sqm each and Brumlovka has the lowest vacancy rate with only 8,200 sqm immediately available.

Net absorption, which we calculate as the difference in the volume of occupied space between two different periods (Q2 2024 vs. Q1 2024), ended up positive with approx. 20,300 sqm for the entire market. Expansion of the supply of new space is then linked to the enormous demand. Gross demand volume amounted to 220,600 sqm and net demand volume reached 130,700 sqm.

Prime rent benchmarks on the Prague market increased slightly in Q2, with rents in prime locations in the city centre reaching approx. EUR 29.00 per sqm/month. Rents in the wider city centre (e.g., Karlín, Brumlovka, Smíchov) remained at EUR 19.00 per sqm/month and rents on the outskirts of the city (e.g., Nové Butovice, Chodov, Stodůlky) increased slightly to approx. EUR 16.50 per sqm/month.

It is interesting to observe price development in new construction. The average asking rent for upcoming projects, regardless of whether they have already started or not, was approx. EUR 20.3, ranging from EUR 15 to EUR 30 per sqm. 12 months ago, it was approx. EUR 18.75 per sqm; 24 months ago, it was only EUR 18.30 per sqm. That's an 11 pct increase in just two years. The average offer price for existing B-class properties has risen by 4.1 pct in 24 months and by a staggering 7.1 pct for A-class properties over the same period. Asking prices for rents in Class AAA buildings, the crème de la crème of the market, have increased by 7.6 pct compared to two years ago.
Josef Stanko

As the volume of available planned projects is severely limited by lengthy permitting processes and a complicated economy, it will be crucial for the market to think about how to adapt some of its current buildings to modern standards in the future. Much of the modern office market is ageing and many buildings are 15 to 25 years old; with some having undergone little or no refurbishment.

Modern standards in HVAC, user comfort, connectivity or sustainability have already evolved considerably and have been enhanced by new ESG requirements. Some office centres have not been built with such complexity in mind. If refurbishment is to be an option, it needs to be approached very thoroughly. The more landlords commit to such an approach, the more it will help the Czech market remain competitive within the region.
Josef Stanko