Roughly 30% of the Prague office market today is represented by buildings older than twenty years. Given that the market for modern office space in Prague amounted to approximately 3.91 million m² at the end of the 1st quarter of 2024, this is a non-negligible area. Although some of these properties underwent a certain degree of transformation, they were often purely visual modifications that did not advance the buildings in question technologically.
Although domestic legislation does not yet require specific solutions regarding energy efficiency, sustainable building operation or applications of modern technologies, these aspects already play an important role for many clients. More and more companies take into account the sustainability of operations and the fulfillment of ESG goals in their activities, and therefore take them into account when renting a building. It is only a matter of time before even property owners in the domestic metropolis can do without an active solution.
The reconstruction must not be cosmetic
In the future, the service offer, facility equipment and fulfillment of ESG criteria will be absolutely essential when assessing the competition of office buildings. "It is clear that those who take the appropriate steps in time will gain a significant competitive advantage. A suitable solution consisting of vrefitech is known," points out Josef Stanko, senior analyst from Colliers, and adds: "However, in the case of the Prague office market, complex renovations are hindered by the very low vacancy rate on the office market. As a result, tenants have little chance of finding temporary replacement premises. They usually need 12-15 months, which is the average length of the renovation of a standard building."
However, it is not only the low vacancy rate of offices in Prague, but also the financial side and concerns about the loss of long-term clients are aspects that make the decision on reconstruction so complex. Owners should therefore consider their exit strategy, specify the target tenants and assess the current state of the building well. An analysis of operating costs is also important so that the renovation has a long-term impact and is not just a cosmetic change.
Older buildings can be attractive
Despite everything, it is true that the reconstruction of old buildings can be less demanding than the construction of new ones, as long as their structure is not significantly affected. A properly planned and executed strategic renewal can yield long-term benefits. Refurbished buildings often offer more efficient operation and modern services, which can then be reflected in the rent. Of course, the costs of reconstruction always depend on the location and the current market situation.
“Older retrofitted buildings often try to compete with a lower price, but if they are well maintained, the difference compared to new buildings may not be significant. If we add the offer of an established location and stable operating standards, they can be highly attractive for tenants," comments Josef Stanko and adds: "The disadvantages of renovating older buildings include the technical limitations of the building and the need to cope with regulations, for example from the heritage office. Even so, reconstruction can be faster and cheaper than new construction."
Refit pays off, but it takes strategy
Investing in the renovation of older buildings seems to be an effective way also because the permitting process and the construction of a new building are often expensive and very time-consuming. According to experts from Colliers, they can be effectively implemented despite all the difficulties they entail, but the whole process requires strategic planning and courage. There are a number of successful examples, not only from countries to the west of us, where the renovation of outdated buildings has led to their return to the modern market with higher rents. "A good example can be, for example, building B in Prague's Brumlovka, where the refit took place about 10 years ago and the rent level increased by about 25% thanks to it. Now the building at náměstí Republiky 7 is being renovated, which will become a modern and high-quality building with a rent of around EUR 30/m2/month, which can even be twice the rent charged before the renovation," Jana Vlková, director of the Office Agency and Workplace Advisory department, enumerates at Colliers. According to her, the comparison with other European cities is not always informative, because the office markets in Central and Eastern Europe developed later. "In Western Europe, renovation of old buildings is common practice due to established legislation and high competition. But it is precisely the development that other cities have gone through that shows the necessity of renovating old buildings in Prague in order to maintain their competitiveness," concludes Jana Vlková.
