As part of the "Quo Vadis, Prague?" office sector discussion, Savills analysed the development of the Prague market in terms of construction, economy, investment, tenants' and landlords' requirements, also in comparison with other major European cities. At first sight, it may seem that there are enough office spaces for rent in Prague and that the trend of working from home will reduce their demand. However, the numbers speak clearly - companies do not have enough office buildings to choose from and where to grow. The speakers of the discussion included Pavel Streblov from Penta, Stuart Jordan and Pavel Novák from Savills and Rebecca Webb from the London office of Savills, who provided more insights into European trends.
"Over the last two years, only two new buildings have started construction and construction in 2023 decreased by 51% year-on-year. Moreover, completely contrary to initial expectations and according to available data, companies are demanding more space per workstation than before the pandemic. This is also because offices no longer just represent a desk and a chair along with a meeting room,” says Pavel Novák, Head of Office Agency at Savills.
Pavel Novák further summarizes, "As a result, the share of extended contracts in all closed transactions in the first quarter is 57%, which is significantly above the long-term average. The demand for office space in 2023 was the highest in the last four years, well over 50% of companies have renegotiated. For large companies, this figure was even 73%. The situation there is even more pressing. All the above figures indicate deferred demand and overheating of the market in central areas, which could have an unpleasant impact on the office market in the coming years, including rent prices. All this due to the practical absence of new construction."
Investment outlook for the office sector
Additionally, Stuart Jordan, CEO for Central and Eastern Europe, commented: “It’s very much in vogue to repeat the latest populist opinion about the death of the office but we don’t support that. Personally, and as a CEE house, we are very positive about offices as an investment sector going forward. Clearly it has its challenges and will need to adapt, modernise, become more efficient and some of the vintage stock needs an overhaul. Generally, the sector will have to upgrade in view of ESG, but we’ll take a bet on the accretive returns investment vehicles investing at today’s pricing, will be making on a five-year horizon. Less than five years ago bricks-and-mortar retail was dead, everything was set to be on-line yet canvass investor appetite for that sector today and you will see how quickly RE sentiment can shift.”