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Prague is acutely running out of modern offices: limited construction is driving rents to record highs even above EUR 30/m2

The contrast could not be greater: it has been a long time since so many cranes have been seen on large construction sites above Prague. And yet the market shows a chronic shortage of modern offices. According to real estate consultancy 108 REAL ESTATE, the explanation has several levels. The first is that many of the office developments being built are for a pre-secured tenant and are not getting to market. The second is that even the current frenzied construction will not cover the demand from companies deferred from the covid period. Finally, the third is that the construction in many cases is for residential types rather than office. "Developers and landlords are dictating the conditions, and rent growth is matching this. The EUR 25 per square meter per month threshold is becoming the norm for modern office buildings, not the exception," Lena Popová, Head of Office Lettings at 108 REAL ESTATE, summarizes the current state of the office market in Prague.

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Offices

Prague is running out of modern offices. The popularity of Karlín is growing, where companies compete for older and dilapidated spaces

The most desirable office address in Prague? According to real estate consultancy 108 REAL ESTATE, it is definitely Karlín. Pankrác and, thanks to the capitalized development potential, also Smíchov are close behind. In Karlín and its vicinity, there is such an interest in offices that several companies often compete for less attractive spaces - including former shops or re-leased flats. Almost immediately, and often at higher rents, space in modern class A office buildings is being leased, especially in the case of large-volume space exceeding 1,500 sqm. There is also considerable interest in new construction taking place in the area near Rohanské nábřeží.

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Offices

Demand for new offices in Prague is rising, but limited to selected locations

The area around Masaryk railway station, the area of Smíchov up to Stodůlek or modern office buildings in Karlín and Hagibór. And Prague 4. These are the most common preferences of companies currently looking for new offices in the metropolis. Demand is concentrated on locations where the tradition on the office space market is linked to the construction of modern office buildings. Other city districts or specific locations remain in the background, even in view of the limited supply of modern working space. According to the real estate consultancy 108 REAL ESTATE, it can even be said that sufficient capacity is currently as important as the reputation of the address and availability for employees.

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Offices

Lazy internet and signal outages in the elevator? Downgrade! New WiredScore certification awaits office buildings

What connects companies like Google, Spotify, Meta, Expedia and SalesForce? The need for a stable internet connection with the highest possible speed, high demands on server room security or a flawless telecommunications network. And how do office centres like The Bridge in Warsaw, Canada Water in London or Hammerbrooklyn in Hamburg fit in with these global companies? Simple: they guarantee all the superior IT and telecommunications needs of large technology companies. Tenants with the most demanding requirements for technical facilities are getting used to navigating the office market thanks to the certification - WiredScore. Since this year, the Czech Republic also has its first and so far only "domestic" auditor. He is Ondřej Svoboda, project manager at the real estate consulting company 108 REAL ESTATE.

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Offices

The Prague office market has frozen. The crisis will hit older buildings harder

High construction and relocation costs are behind the marginal movements on the Prague office market in recent months. Even if companies want to change their location, it is currently very difficult to secure a lease of around 5,000 sqm, especially in attractive locations such as Karlín, Anděl, Pankrác or Smíchov. Although buildings are gradually being completed (mostly pre-leased), which started to be realised at a time of cheaper bank financing, there is a noticeable lack of premium office space on the market. In fact, no new office buildings have started construction since spring 2022. These are the main outputs of the analysis of the office market development prepared by the Czech real estate consultancy 108 REAL ESTATE.

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Offices

High office refit costs prove a drag on new lettings

With the cost of fitting out new offices doubling or even tripling, tenants are reluctant to move. Back in 2019, investing in office refits cost in the region of EUR 400–600 per square metre, but since then the price has spiralled to some EUR 1,000, with costs upwards of EUR 1,200 no exception either. These costs, combined with the rising expense of renting and running offices, are among the principal reasons behind the cooling office market in the first half of this year. Many businesses are opting to stay put for the time being. This partly explains why there has been an upswing in the share of older leases being renegotiated, which rose to 45% in the first quarter.

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