Prague, Brno or Ostrava?
The Prague office market is 3.73 million m2. Last year, only 57,000 m2 was newly completed, however, 15 projects are currently under construction (a total of 73,000 m2 is to be approved this year, of which 30% of the space is pre-leased). Last year, 208,000 m2 of offices were leased, which represents a year-on-year increase in leasing activity of 23%. The vacancy rate has risen to 7.8% in recent months, leaving less than 300,000 m2 of vacant offices. This year, the growth rate will slow down. "At the same time, the lack of premium projects on the market can be expected to lead to an increase in rents. These currently range from 23.5 to 24 euros per square meter per month. On the other hand, the Prague office market is gradually becoming a tenant market, so property owners are increasingly offering various incentives such as rental holidays or higher equipment contributions in case of extension of existing contracts, "comments Helena Hemrová, CBRE's head of office rentals.
Thanks to the presence of a number of IT companies and shared services centers, the second largest market in Brno has successfully established itself as a sought-after office market between Prague, Vienna and Bratislava. One of the reasons for such a strong presence of technology companies is the universities of Brno, which attract local and foreign students and create a highly qualified but still available workforce. Therefore, the market is developing steadily despite the pandemic. Currently, another 66,600 m2 will be added to the approximately 640,000 m2 under construction. The vacancy rate rose slightly to 11.8% last year. In terms of rents, it has grown over the past two years, due to rising construction costs and a new project in the city center that has set a new frontier. The amount of premium rent currently ranges from 15 to 16 euros per square meter per month. For comparison, the total area of offices in Ostrava reaches 219,100 m2, while a single project with 20,600 m2 of leasable space is currently under construction. Leasing activity was comparable to the previous year last year and the vacancy rate reached 5.9%. There are 13,000 m2 of vacant offices for immediate occupancy. Premium rents in Ostrava last year rose slightly to 12.50 to 13 euros per square meter per month.
Leasing activity in Bratislava keeps pace with new construction. Rents remain stable
Last year, the Bratislava market grew by 63,300 m2 of offices, which represents a year-on-year increase of 3.9%. The vacancy rate has been gradually increasing in recent years (from 6% in 2018 to 11.7% last year), but last year the growth rate began to slow down. The past year, which has become the most successful in terms of leasing activity, played a crucial role in this. A total of 240,000 m2 of leased space represents a year-on-year increase of 34%. Almost a quarter of new tenants were recruited from the IT segment. Surprisingly, the public sector was in second place with 46,300 m2 of leased space: 19.37% is twice as high as in 2020. “The amount of rent in premium office space remains at 17 euros per square meter per month. There are currently 6 new projects under construction with a total of 138,000 m2 of leasable area: 25,000 m2 will be completed this year and 113,000 m2 a year later. There are currently around 233,000 m2 of vacancies on the market, which corresponds to an vacancy rate of 11.70%. Last year was a harbinger of a recovery that will continue this year. We expect demand to remain strong and the vacancy rate to gradually decline to 9% due to the postponement of the completion of some projects until 2023, ”says Simon Orr, head of the tenant representation team at CBRE's office leases.
Warsaw recorded a record number of newly completed offices. Rents will increase
Last year, 324,600 m2 of new offices were completed in the Polish metropolis, the highest since 2016. At the same time, demand has picked up, although leasing activity has still not reached pre-target values. A total of 646,500 m2 was leased, which represents a year-on-year increase of 6%. On the other hand, the large number of newly completed projects (even though 70% of the offices have already been pre-leased) has caused an increase in vacancy. "Altogether, 778,400 m2 of office space remains vacant, which corresponds to a vacancy rate of 12.66% (up 2.8 percentage points year-on-year). However, the pace of new construction will slow significantly in the coming years. This fact, combined with growing demand, will cause vacancy to begin to decline gradually, by as much as 4 percentage points over the next three years. At the same time, there will be pressure on the growth of premium rents, which so far remain at 25.5 euros per square meter per month. In addition, various incentives for tenants will be reduced by property owners who have been on the course so far, ”says Jana Prokopcová, head of research at CBRE.
The Hungarian capital is gradually recovering from the covid crisis. Rents will not increase significantly
Last year, the Budapest market recorded the lowest volume of newly completed offices since 2013: a total of 44,500 m2, a year-on-year decrease of 81%. In essence, these were only two buildings approved during the first half of the year (Evosoft HQ and BudaPart City). On the other hand, it was still a reverberation of the covid crisis. A number of projects have been postponed to this year, so the current forecast envisages the completion of 302,600 m2 of new offices. This would be the second best result since 2009. However, only time will tell the reality, as some projects have a planned completion date in the last quarter of this year, so they may still be delayed. Leasing activity reached 365,800 m2 last year, which represents a year-on-year increase of 9%. The main drivers of demand were companies in the field of technology and telecommunications, as well as production and energy. "The vacancy rate stabilized at 9.2% last year (after a significant increase in 2020). Due to the planned completion of a number of new projects and modest demand from tenants, we expect the vacancy rate to increase further this year - however, not as fast as during the peak of the pandemic. At the end of 2023, it could reach 11 to 12%. Despite the mentioned circumstances, the amount of rent for premium real estate remains stable at 15.9 euros per square meter per month. At the same time, we assume that there will be no significant fluctuations in rents this year either. However, incentives for potential tenants will begin to appear to an increased extent, "says Jana Prokopcová.
What about Vienna? Property owners are pushing for a longer end here. Further rent growth is expected
The Vienna office market recorded the lowest leasing activity in history last year, when "only" 169,000 m2 of offices were leased. The companies were reviewing their existing strategies and leases, which delayed a number of planned decisions. However, the market is waiting for a recovery this year. According to CBRE experts, a number of pre-lease agreements for projects scheduled for completion in 2023 and 2024 can be expected, especially in the second half of the year. However, there is a shortage of them in Vienna. 130,000 m2 of office space is to be completed this year, of which 77% is for newly renovated buildings in the city center. More than three quarters of them are already pre-leased. "In Vienna, it is the property owners who have the upper hand when negotiating contractual obligations. This has in the past led to rising rents and reduced incentives for new tenants. The coronavirus pandemic did not change this. The average amount of rent in premium offices in recent years has risen to 26 euros per square meter per month. And due to the low vacancy rate, which is around 4% and the limited number of new buildings to be completed in the near future, the pressure for further rent growth will continue, "concludes Jana Prokopcová.