Key findings:

• COVID-19 impacts are starting to show in the rapid decrease of net demand and the postponement of several completions of new office projects
• Despite the current conditions, construction activity on the market has not stopped and stays intensive, with the commencement of 3 new constructions and one refurbishment, including the long-awaited brownfield project Smichov City
• Many developers are changing their strategy from speculative construction to construction with pre-leases only, therefore – without such pre-leases – pipeline postponements can be expected
• The share of sublease deals within the total take-up increased from around 1% in previous quarters to 7%
• The prime rent stays at €22.50 per sqm per month.

Office stock and new supply

A volume of 21,200 sqm of modern office space was delivered to the Prague market in the third quarter of 2020, bringing the total modern office stock to 3.73 million sqm. New completions include three properties, all as new developments. AFI City 1 in Prague 9 with 15,900 sqm, Administrative building Českých Přístavů in Prague 7 with 2,800 sqm and Poděbradská Centrum in Prague 9 with 2,400 sqm.

In Q3 2020, three new projects and one refurbishment commenced construction: new construction of Smíchov City Na Knížecí (SM1) in the long-awaited project Smichov City in Prague 5, Florenc Gate in Prague 8, Košířská brána in Prague 5 and refurbishment of Olbrachtova 5 in Prague 4. Approximately 26,200 sqm of offices are expected to be completed by the end of 2020. Further 128,600 sqm of office space is already under construction with scheduled completion in 2021 and 2022.

The Class A office stock has a ca. 71% share on the total office supply, whereas the top-quality AAA-class properties accounted for almost 18%.

The total volume of space immediately available to sublease in Q3 2020 accounted for 47,200 sqm, which is an increase of 9,700 sqm compared to the previous quarter.

Office take-up

Gross take-up (including renegotiations and subleases) in the third quarter of 2020 amounted to 86,200 sqm, representing a 9% increase on the previous quarter and a 7% increase in year-on-year comparison.

The highest demand in Q3 2020 was recorded in the city districts of Prague 4 (45%), followed by Prague 8 (21%) and Prague 5 (11%). The most active companies were from the finance sector (33%) followed by the IT sector (18%) and the professional services sector (7%).

The share of renegotiated leases in the third quarter of 2020 reached 62.4%. Net demand (new leases, expansions and pre-leases) accounted for 30.7% of the total gross take-up and the share of subleases accounted for 6.9%.

Major office leasing transactions

The major transactions of the third quarter of 2020 were the renegotiation of UniCredit Bank (22,900 sqm) in BB Centrum Filadelfie in Prague 4, followed by the renegotiation of Bluelink International in Florentinum (3,200 sqm) in Prague 1, the new occupation of Verizon Czech in Life Building C (3,200 sqm) in Prague 4 and the renegotiation of Good Data in Danube House (2,500 sqm) in Prague 8.

Office vacancy

The share of vacant office space in Q3 2020 reached 7.2%, representing an increase of 110 basis points in comparison with the previous quarter. The vacant space totalled 267,300 sqm. The largest availability was in Prague 5 with 59,300 sqm, representing a vacancy rate of 9.1% and followed by Prague 4 with 58,500 sqm and a vacancy rate of 6.1%. The lowest amount of vacant space was recorded in Prague 2 with 5,100 sqm (vacancy rate of 3.7%) and in Prague 3 with 6,700 sqm (5.5%).

Rents

Although the vacancy rate increased in the last two quarters and overall activity slowed down, prime headline rents remained stable and stood between €22.50-23.00/sqm/month in the city centre at the end of Q3 2020. Inner city prime rents ranged from €15.50-17.00/sqm/month and from €13.50-15.00/sqm/month in the outer city.

The members of the Prague Research Forum – CBRE, Colliers International, Cushman & Wakefield, JLL, Knight Frank – share non-sensitive information with the aim of providing clients with consistent, accurate and transparent data about the Prague office market. The RICS supports the activities of the Prague Research Forum.