Record volume of gross realized demand
The first quarter of this year was very successful, especially in terms of gross realized demand. With a total area of 135,600 m2, this was the highest volume ever recorded in the first quarter. "The year-on-year increase of 44% shows that we have returned to pre-pandemic levels and the demand for offices does not seem to be affected in the long run," says Josef Stanko, an analyst at Colliers. Almost 40% of the net realized demand, which amounted to 75,700 m2, went to Prague 8, which confirms that Karlín and its surroundings are still the most sought-after locations. The next most sought-after districts were Prague 1, 4 and 5.
Rising vacancy and low interest in subleases
Despite the growth in demand, there was a further increase in vacancy in the first quarter of this year, which increased by 60 basis points to 8.4% and represents a total of 315,300 m2. Vacancy has increased throughout the city in recent quarters, but the largest is located in Prague 4 with a share of about 24% of total vacancy. "The sub-market of the inner city is slightly above average overall, but this area represents up to 56% of the total market and most Class A properties are located here. The current level of vacancy can therefore still be considered healthy, "says Josef Stanko. At the same time, according to him, the sublease market has shrunk, which currently offers approximately 59,800 m2, which represents approximately 1.6% of the so-called gray vacancy. "In line with the general market trend, there is no such interest in subleases. Many units offered for sublease have been withdrawn from the market and their total supply has decreased by 24% compared to the previous quarter, ”explains Josef Stanko.
Rents continue to rise
The highest achievable rent in Prague followed the development of the previous quarter and increased by another 50 cents. Now it ranges from 24.00 to 24.50 euros. The increase in prices throughout the city is still felt especially in construction projects, mainly due to rising costs for materials and construction work. The best office locations in the inner city are offered for 16.00 to 18.00 euros and the best locations on the outskirts of the city range in price from 13.50 to 15.00 euros. However, the price difference between the inner and outer city will soon be blurred with some upcoming projects in border localities, such as Hagibor, Radlice and Roztyly. Net effective rents are still significantly lower and with rising vacancy, some landlords and developers have had to significantly increase their bids. As a result, net effective rents will result in up to 25% lower than the original face value.
The list of projects for the coming years is expanding
The offer of modern office space in Prague is limited and no development boom can be expected in the foreseeable future, on the contrary. This is mainly due to the war in Ukraine, rising prices, unavailability of building materials and construction workers and rising interest rates. However, despite all the uncertainties and complications, existing projects are shifting and the list of projects for the next five years is growing. The market is living in demand for rent and activity intensifies with the end of the first half of the year. "Due to weak construction, the market will remain balanced between landlords and tenants, respectively. will be more inclined to landlords. Tenants will not have enough choice of new buildings in popular locations and will extend their leases in existing buildings, "says Petr Žalský, head of office at Colliers, adding:" We do not expect a significant increase in vacancy, on the contrary, the situation could encourage developers to build quality products in the desired locations, for which tenants are increasingly interested in the quality and sustainability of buildings. ”