New office construction in Prague is accompanied by complications, reconstruction can help the market

In the third quarter of this year, only one single office building was completed in Prague. It was a reconstruction called Riveroff Office House, which is located near the PORT7 project in Prague 7, near an important public transport hub. "The reconstruction of the original property was already started in 2019, but as the project changed hands several times, it dragged on for several years. Since the building will be used primarily for the needs of the current owners, this completion had virtually no effect on the vacancy rate," explained Josef Stanko, director of the market research department at Colliers.

In total, over the past three quarters of this year, developers in Prague completed 69,500 m² of new offices in 7 projects. By the end of the year, only about 3,500 m² will be added. For 2025, experts from Colliers expect the market to grow by only 23,400 m² of offices, which will represent one of the weakest results in the history of the market.“Fortunately for the market, the growth potential is promising. In every established office location in Prague, we register several projects in the preparation phase," comments Josef Stanko, adding that ongoing difficulties with financing, planning, permitting and pre-leasing can, however, dramatically affect developers' plans. However, some developers are confident and should soon start construction of their projects on a speculative basis.

The increase in vacancy is only temporary
The total size of the Prague office market at the end of the third quarter of 2024 was approximately the same as in the previous quarter, i.e. 3.95 million m². The year-on-year increase was roughly only 1%. Due to weak construction, the market is also looking to upgrade some older properties, either while they are in operation or by taking them off the market temporarily.

The vacancy rate increased by 74 basis points year-on-year to 8.1%, but according to Colliers experts, this was only temporary. Due to the relatively small size of the market, some specific cases, such as the completion of unleased projects or the reorganization of a large tenant, may have a short-term effect on vacancy."During the third quarter, the last-mentioned situation occurred, i.e. the reorganization of a large tenant. We therefore expect vacancy to begin to decrease due to the current level of market activity, the upcoming limited new supply on the market and optimistic reports from some landlords with vacancies," explains Josef Stanko, adding that there is currently around 318,200 m² available in total.

Active market, tenants often stay in existing spaces
Gross realized demand was 132,600m² in the third quarter of 2024, according to Colliers statistics, with renegotiations and subleases accounting for 64%.Net demand then reached 48,200 m². “This year's figures show that the market can generate demand for around 200,000 m² of new office space. We know from the market that a number of companies were currently looking for new premises on the market, but because they could not find suitable premises, they are staying in their existing premises and postponing the move for several years in order to gain more options," explains Josef Stanko, adding that the market is currently not able to satisfy all requirements of large tenants, especially in terms of combination of location and time.

New offices are more expensive
Rents on the Prague office market have been increasing slightly in the last three quarters. At the end of the third quarter of 2024, the so-called "prime" rents in the city center reached approximately 29.00 euros per square meter per month, in sought-after locations in the wider center (for example Karlín, Brumlovka, Smíchov) they reached 19.50 euros per square meter per month and in peripheral locations (for example Nové Butovice , Hagibor, Chodov) remained at around 16.50 euros per meter square per month."The prices of new projects are growing the fastest. This growth is mainly, but not exclusively, driven by the technological innovations that are often implemented in the projects, and of course these come at a cost. However, due to the increasing focus on ESG, the demand for them is growing despite the higher price," concludes Josef Stanko.