Prague office market expands with new developments, rising vacancy, and increasing rents

Prague’s office market is experiencing significant growth, marked by the completion of four new buildings in the second quarter of 2024, which added nearly 44,000 square meters of modern class A office space. Despite many of these properties securing tenants before completion, the overall vacancy rate has risen slightly to 7.9%. Both demand and rental prices have also seen an upward trend, reflecting the dynamic nature of the market.

According to a quarterly survey by Colliers, the volume of office space under construction in Prague has surged to 166,300 square meters, with an additional 14,700 square meters expected to be added by the end of 2024 through four new projects. This expansion highlights a relatively active quarter in terms of both completions and new project starts.

“While the situation regarding new office construction is not ideal, the activity we’ve seen this quarter suggests positive momentum,” commented Josef Stanko, Director of Market Research at Colliers.

The vacancy rate has risen due to new completions, with the total market volume reaching 3.95 million square meters by the end of Q2 2024, representing a steady 2% year-on-year growth. The vacancy rate increased by 40 basis points from the previous quarter, now standing at 7.9%, with the highest vacancy rates found in Holešovice and the city center.

Net absorption, measuring the difference in occupied space from one period to the next, was positive at approximately 20,300 square meters across the entire market. This expansion of new space is closely linked to strong demand, with gross demand reaching 220,600 square meters and net demand at 130,700 square meters.

Rental prices in Prague’s prime office locations have also risen, with rents in the city center reaching around EUR 29.00 per square meter per month. In areas such as Karlín, Brumlovka, and Smíchov, rents remained stable at EUR 19.00 per square meter per month, while rents on the city’s outskirts, including Nové Butovice and Chodov, saw a slight increase to approximately EUR 16.50 per square meter per month. The average asking rent for upcoming projects has risen to EUR 20.3 per square meter, reflecting an 11% increase over the past two years.

Looking ahead, the future of Prague’s office market may depend on the adaptation and renovation of older buildings. With many properties aging and new project developments constrained by lengthy permitting processes and economic challenges, there is a growing need to upgrade existing class A, B, and C buildings to meet modern standards. This includes improvements in HVAC systems, user comfort, connectivity, and sustainability, driven by new ESG requirements.

“Refurbishing older buildings to meet modern standards will be crucial for maintaining the Czech market’s competitiveness within the region,” Stanko concluded, emphasizing the importance of thoughtful and thorough renovation efforts by landlords.