The cost of furnishing new office space is one of the factors that companies consider when deciding whether to stay in their existing premises or move to new ones. At their current level – in Prague, it is an average of 1,252 euros per square meter – this is a considerable item, which often contributes to the decision to extend the current lease. Tenants in last year's five largest office transactions in Prague also chose such a solution.
Radka Novak, Head of Office Leasing Team, Cushman & Wakefield: "Our statistics show that tenants are more likely to choose to stay in their existing premises and renegotiate their leases. Most are downsizing their premises now - but it also depends on the company's line of business and its size. Most often, offices are reduced by financial institutions, and especially shared service centers, which affect the remote work model the most. On the contrary, technology companies are often expanding, as are companies providing professional business services to businesses.”
Staying in the existing spaces does not necessarily mean preserving their form. Companies strive for this, their premises were used effectively and complied with current trends. The expansion of remote work often entails a reduction in the number of jobs and their sharing, but on the other hand, it also requires the creation of new zones for video conferences, community spaces for collaboration, or, conversely, those for concentrated individual work. The work environment should also motivate employees to at least partially go to the office.
Glyn Evans, Head of Design + Build EMEA, Cushman & Wakefield: “Employers are looking to create an environment that meets current workplace trends and is an attractive alternative to working from home for employees. It must be sufficiently flexible and offer conditions for various types of work activities, provide quality technical equipment, allow relaxation or socialization. Requirements for sustainability, diversity and inclusion also play a significant role. Today, all of this is reflected in the design of the offices, the quality of the equipment and the choice of the building itself."
Even the owners of office buildings have to motivate the tenants to choose their project - whether the new ones to move to, or the existing ones to stay. One of the incentives is building allowances, which, like new tenants, also receive those who negotiate a contract in existing premises.
Radka Novak, Head of the Office Leasing Team, Cushman & Wakefield: "In the last two years, the amount of building allowances has almost doubled, even in the case of renegotiations. Landlords understand the need to invest in remodeling existing spaces that can keep tenants in older buildings. If a completely new fit-out is being built, the landlord is able to cover up to 40% of the tenant's costs with his contribution. In the case of rebuilding the existing premises, the costs can be even 40% lower, but even so, the landlord's contribution is necessary."
The biggest item is construction costs
In the compared cities of the EMEA region, the largest item of fit-out costs is the construction costs alone – in Prague it is 50%. However, the costs of furniture and technical equipment are also not negligible, which usually make up about a fifth, exactly 20% in Prague. The cost of technical (AV and IT) equipment is an equally high item in our budget, consulting services related to the design and implementation of a new office design account for 10%.
The structure of total office equipment costs
High construction costs are due to an increase in the prices of construction works and materials. According to Eurostat data, the prices of construction works in the entire eurozone and in the Czech Republic increased by roughly 12% year-on-year in 2022, and by another 6% in 2023. The COVID-19 pandemic and the war in Ukraine have caused shortages of many construction materials, and thus also a rapid increase in their prices. According to data from the ÚRS price system, the aggregate price index of materials in the Czech Republic increased by approximately 40% between the beginning of 2021 and the end of 2022. They gradually decline in 2023, but in early 2024 prices are still above pre-pandemic levels.
Prague: the most expensive in CEE, comparable to Paris or Amsterdam
Last year in Prague, the cost of office equipment reached an average of 1,252 euros per square meter. Within the region of Central and Eastern Europe, this was followed by Warsaw (1,250 euros per square meter) and Budapest (1,200 euros per square meter).
Across the EMEA region, London ranked first with an average fit-out cost of €2,629 per square metre. In other cities of Western Europe, these costs are somewhat lower than in London, but in most of them they remain above the level of Prague. They are comparable to it, for example, in Amsterdam (1,200 euros per square meter) or in Paris (1,190 euros per square meter).
Glyn Evans, head of Design + Build for the EMEA region, Cushman & Wakefield: "Prague has achieved fit-out cost levels comparable to some Western European cities thanks to a combination of high inflation, rising prices of building materials, low unemployment and high construction activity in recent years."
Glyn Evans, head of Design + Build for the EMEA region, Cushman & Wakefield: "We do not expect a significant reduction in construction costs in the Czech Republic in the near future, however we are already seeing a leveling of prices and improving availability for materials. Construction labor is also already more available due to the slowdown in construction, which should also help make the industry more competitive.”
About Cushman & Wakefield
Cushman & Wakefield is a leading global provider of real estate services for tenants and property owners. It employs approximately 52,000 people in almost 400 branches in 60 countries around the world. By 2023, the company's revenues will reach $9.5 billion, thanks to activities in the areas of building, property and project management, leasing, investment markets, real estate valuation and other services. It also receives numerous industry and business awards for its world-class company culture and efforts in DEI (Diversity, Equity and Inclusion), sustainability, etc.
Source:// Cushman & Wakefield/Pexels
