OFFICE STOCK & SUPPLY

Two office buildings were completed in Prague during Q3 2019 and one additional property was refurbished and added back to the city’s modern office inventory. As a result of these completions, the total office stock in Prague grew by 33,000 sq m and currently stands at 3.6 million sq m. Grade A office inventory stood at 2.63 million sq m.

The two new deliveries included the Argentinská Office Building (5,800 sq m) in Prague 7 and Dock In Three (16,100 sq m), Crestyl’s third office building out of a total five within their Prague 8-based scheme. VIG carried out the full refurbishment of BB Centrum C Life building in Prague 4, which was initially built by Passerinvest in 1998.

Nearly 113,000 sq m of modern offices were supplied to the Prague market during the first three quarters of the year, which was 12% down y-o-y. However, if all of the premises scheduled for completion during Q4 are completed on time, the total annual supply in 2019 would reach ca. 206,000 sq m, which would be the highest level since 2008.

At the end of Q3 2019, the city’s construction pipeline included 316,800 sq m of mostly new office developments, which should all be completed by the end of 2021. Nearly 40% of all this space was pre-committed.

VACANCY

By Q3 2019 the vacancy rate in Prague had climbed by 54 bps from Q2 to 5.1%, which translates into almost 183,000 sq m of unoccupied modern office space.

This marginal increase in the volume of immediately available office space was partially caused by new speculative space totalling 17,600 sq m that was delivered to the market during Q3, and also by some second-hand space becoming vacant in grade A as well as grade B offices across the city.

Unoccupied office space was evenly distributed across grade A and grade B office buildings. Both of these stock categories closed the third quarter at a 5% vacancy rate.

53% of all unoccupied space was found in Prague’s biggest office districts, Prague 4 and Prague 5. Prague 4 was offering more than 52,000 sq m for immediate occupation and almost 45,300 sq m was available in Prague 5.

Assuming that all six buildings that are scheduled for delivery by year-end complete construction on time, up to 40,000 sq m of speculative office space will be added to the Prague market in the final quarter of 2019. With demand cooling, this speculative development could push up the vacancy rate slightly.

OCCUPIER DEMAND

Demand for office space in Prague continued its downward trend that began in the previous quarter. Gross take-up in Q3 reached 85,200 sq m, which was a further fall of 17% q-o-q and 35% y-o-y. The year-to-date leasing activity totalled 300,000 sq m, representing a 16% decrease compared with the same period last year.

Although the Q3 net take-up figures rose by 9% q-o-q amounting to 53,500 sq m, a comparison with last year’s Q3 results reflect the overall weakening demand. Having fallen by 35% y-o-y, the decline in quarterly new demand showed a direct link with the y-o-y drop seen in the total office leasing activity.

Total net take-up for the first three quarters of 2019 came to 190,200 sq m, which was 19% down y-o-y. In this period, new demand for modern office space in Prague was driven by the IT sector (21% of YTD net take-up), Professional Services (18%) and Banking & Financial Services (18%). Coworking & Flexible offices operators did not sign any new lease commitments during Q3 2019.

The largest transaction signed in Q3 2019 was the 15,400 sq m lease renewal and expansion of ExxonMobil’s space at CPI’s Luxembourg Plaza in Prague 3.

RENT LEVELS

Headline rents remained unchanged from the previous quarter. Prague city centre offers buildings of varying quality, ranging from some of the best premium grade buildings in town to older grade B premises. The highest-quality office units on higher floors in the city centre were being offered at €25.00-plus per sq m a month, but there were also modern units available for €16.50 - €20.00 per sq m a month.

Headline rents for modern office space outside the city centre and at more peripheral locations stayed in the range of €13.00 - €16.50 per sq m a month.

Incentives offered by landlords still typically amount to one month rent free for each year of the lease. Fit-out contributions generally reached €80 - €150 per sq m.

Monthly service charges for office space remained at CZK 85 - 135 per sq m in Prague 1, and around CZK 75 - 120 per sq m in other parts of the city.

Rents for parking in Prague 1 (city centre) were mostly charged at €160 – €290 per parking place a month and around €90 – €130 in the Prague district.