The Czech office property market, in particular the Prague market, has recorded an intensive construction of modern office buildings in past years. During a single year 2015, the Prague market absorbed approximately 190,000 square meters of new office space, and also for this and the next year there is expectation of new development. Due to this situation, older office objects are becoming slowly uncompetitive.
With thriving Czech economy, the companies have been growing and this is supporting new office projects. The requirements for standard of office space have been rising along with the new view of the workplace coming from the sphere of international companies as well as from modern-oriented small Czech firms. Despite all the new development that has hit the Czech office property market in past years, it is not expected there will a difficulty to make these properties fully occupied. Older office objects are the ones which will be propably more often facing the problem with a high vacancy rate. Already today, we can see an increasing number of properties, it is mainly about the tenement houses in Prague, which were historically converted to the office projects and now the tenants are moving from there to the modern office buildings. The reason is simple. Modern office projects offer a high standard of premises, excellent transport accessibility, lower operating costs and also opportunity to make a workplace according to current trends. Time of closed separted office rooms is over and the new concepts are appearing - more „open“, more flexible ones. These concepts support a better mobility of the employees at workplace, their cooperation, motivation or an opportunity to take a rest in innovative relaxing zones and common rooms. In the end, all these can positively influence a performance of the whole company.
Under these conditions, the rents in older office objects tend to decline and thus also an investing into their revitalization is not worth that anymore. On the contrary, investing into a conversion to their original use, ie. to residential housing, seems to be profitable. The apartments in Prague districts such as Vinohrady, Žižkov and Smíchov have been lately seen to be most converted back to residential housing, and the main reason for that is a rising rent of the residential properties there. In the Czech Republic, some companies specializing in these conversions have lately started more of their business then, the talk is about the Czech and also about the Austrian or German firms. It is common practice to convert older office objects back to residential housing abroad, and the conversions are often seen in Germany for example. We can say that the Prague market has been still forming in this area, and a growing activity of the developers and property owners will probably appear there.
Author: Jan Hospodář, Partner 108 Investment Advisory