Prague Office Market in Q3 2017
22.11.2017Company: Amcham
The office property market in Q3 2017: Demand slightly decreased, Prague 8 the most attractive, Prague 4 leads in new construction, the vacancy is only 7.7 % and share of speculative construction decreased.
The third quarter of 2017 was a very good quarter for the office real estate market in Prague, which brought several interesting numbers to the market.
New office supply for Q1-Q3 2017 reached 65,600 m2. At the end of Q3, the total modern office stock in the capital city of Prague increased to 3,280,000 m2. In Q3 2017, three new office buildings were completed in Prague. New supply included Drn (7,700 m2) situated in Prague 1 and Mechanica 01 (15,100 m2) and Mechanica 02 (11,400 m2) in Prague 5. The share of A class office space stands at 71%, with top quality projects, i.e. AAA class buildings, representing ca. 18% of the total stock. The largest office district remains to be Prague 4 (26% of the total stock), followed by Prague 5 (17%) and
Prague 1 (16%).
Currently, there is over 333,000 m2 of office space under construction with scheduled completion between 2017-2019. New supply will mainly be delivered in Prague 4 (29%), followed by Prague 5 (21% in four projects) and Prague 8 (16% in three projects). The share of speculative construction currently stands at 59% whilst a year ago it represented 86%. Total new supply for 2017 is estimated to reach the level of ca. 154,000 m2. For 2018 we expect another ca. 193,000 m2 of office space to be delivered to the market.
„If the economy is going to rise in the years to come and demand will increase further than in previous years, some of the Prague's locations will not be able to offer quality office space. Companies are aware of the fact that office space is also a significant benefit for the newly emerging generation of employees in the currently highly competitive labor market environment. In addition to standard expansions associated with growth, the company also places emphasis on creativity, design and variability when changing offices. The need for quality space and the growth of the economy are factors that increase the demand for office space. In some Prague locations demand is predominant, for example in Karlín, as a result of which there is pressure to reduce rental holidays and contribution for tenants. The market ceases to be the tenant market after many years,” commented Štěpán Šatoplet, Head of JLL Office Agency Department.
During Q3 2017, two new projects commenced construction. It includes Letná OC in Prague 7, with ca. 5,500 m2 of office space, and Harfa Office Park – Beethoven, with ca. 28,300 m2 of office space, in Prague 9.
Largest planned projects for Q4 2017
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Property
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District
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Completion
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Size (m2)
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Main Point Pankrác
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Prague 4
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Q4 2017
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22,000
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Butterfly
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Prague 8
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Q4 2017
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17,900
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Aspira BC
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Prague 5
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Q4 2017
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16,400
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Zdroj: JLL, PRF, Q3 2017
Demand
Demand for office space in Prague remains strong, yet we have registered a quarterly decrease both in gross and net take-up. In Q3 2017, gross take-up reached ca. 105,500 m2 (-31% q-o-q and -5% y-o-y). Net take-up which excludes renewals amounted to 78,300 m2 (-28% q-o-q and -12% y-o-y). For the first three quarters, gross take-up reached 364,200 m2 exceeding last years‘ Q1-Q3 results by 15%.
In Q3 2017, the highest level of leasing activity was recorded in Prague 8 (31% of the total demand) where the largest transaction of the quarter (12,500 m2) was concluded on Rustonka R1. The leading sector of the quarter were IT services that accounted for 24% of gross and 27% of net take-up.
Vacancy
As a result of strong leasing activity, vacancy rate further declined in Q3 2017 to its current level of 7.7% which shows a q-o-q decrease of 84 bps. The lowest vacancy rate was recorded in Prague 8 (4.9%), Prague 6 (6.7%) and Prague 4 (6.7%).
"The strong demand we have seen in the market for two years and a small supply of new offices in the last few quarters have contributed to a significant fall in vacancy to 7.7%. This is the lowest vacancy rate recorded in Prague since the second quarter of 2008. As the offer of new offices will rise in the next two years, it is expected that the fall in vacancy will be halted. On the other hand, the volume of construction is far from the 2006-2008 dimension, so we expect the new construction to be gradually absorbed by the persisting strong demand and the evolution of vacancy will not be dramatically affected," said Blanka Vačkova, Head of JLL Research Department.
Rental Levels
In Q3 2017, prime headline rents in the city centre remained stable, oscillating at the level of €19.0 – 20.0 m2/month. Inner city rents varied between €14.5 – 16.0 m2/month in Pankrác (Prague 4) and at €14.5 – 15.5 m2/month in Smíchov (Prague 5) and Florenc (Prague 8). Rents in the outer city markets remained at €13.0 – 14.5 m²/month.
All of these values refer to prime levels achieved in a limited number of prime properties. These prime projects are usually brand new, of above standard quality and/or very well located. Second hand products stand at approximately €1.5 below the afore-mentioned ranges.
Net Absorption
In Q3 2017, Prague’s net absorption reached ca. 51,900 m2, the highest quarterly level since Q4 2015. Compared to the same period last year, net absorption rose by 59%. Quarterly it registered an increase of more than 9%. In the first three quarters of 2017, net absorption amounted 142,300 m2 which shows a significant increase of nearly 48% compared to Q1-Q3 2016 results.
Tags: Real Estate | Business Development |
