New office construction in Prague faces challenges; upgrades to older buildings may offer relief

12 December 2024

Prague’s office market is navigating a period of sluggish construction and rising rents, while developers and landlords focus on upgrading older properties to meet tenant demands. According to a recent survey by Colliers, only one new office building was completed in the city during the third quarter of 2024, contributing to a slight year-on-year vacancy increase to 8.1%. Prime rents in the city center have risen to approximately EUR 29.00 per square meter per month.

The only new office space delivered in Q3 2024 was the refurbished Riveroff Office House, located near the PORT7 project in Prague 7. While its completion marked the culmination of a protracted development process due to ownership changes, its impact on the vacancy rate was negligible, as the building will primarily serve its current owners.

In total, 69,500 m² of new office space across seven projects has been completed in Prague this year. However, the outlook for 2025 is muted, with only 23,400 m² expected to be delivered—one of the weakest performances in the market’s history.

“Despite these challenges, the market shows growth potential, with several projects in the pipeline across established office locations,” said Josef Stanko, Director of Market Research at Colliers. “However, issues such as financing, permitting, and pre-leasing remain significant obstacles for developers.”

The Prague office market now encompasses approximately 3.95 million m², reflecting only a 1% year-on-year growth. Vacancy rates rose by 74 basis points over the past year but are expected to decline as new supply remains limited and market activity increases.

Colliers notes a focus on upgrading older properties, either through ongoing refurbishments or by temporarily withdrawing them from the market for extensive renovations. This trend aims to meet modern tenant requirements, including sustainability and ESG standards.

“The recent rise in vacancy is temporary,” explained Stanko. “Specific factors, such as the reorganization of a large tenant, impacted the rate during Q3. With current leasing activity and limited new supply, we anticipate vacancy to decrease in the near term.”

Tenant activity remains robust, with gross leasing uptake reaching 132,600 m² in Q3 2024. However, 64% of this involved renegotiations and subleases, leaving net demand at 48,200 m².

“While demand exists, the market struggles to meet the needs of large tenants seeking specific combinations of location and timing,” noted Stanko. “As a result, many companies are delaying relocations and remaining in their current premises.”

Rental prices continue to climb, particularly for new office projects incorporating advanced technologies and ESG-friendly features. Prime rents in the city center are now EUR 29.00 per m² per month, while sought-after areas like Karlín, Brumlovka, and Smíchov average EUR 19.50. Outlying districts, such as Nové Butovice and Chodov, remain more affordable at EUR 16.50.

“New office prices are rising the fastest, driven by the cost of technological innovations and growing ESG demand,” concluded Stanko. “Despite higher prices, demand for such spaces is increasing.”

Prague’s office market faces short-term challenges, but ongoing upgrades and a cautious approach to new developments may stabilize vacancy rates and rental growth. As tenants seek modern, sustainable spaces, developers will need to balance innovation with affordability to meet evolving market demands.

If you would like your ad here, please  contact us.
LATEST NEWS