According to Savills, total modern office stock in the city stayed at 3.74 million sq m at the end of Q3 2021. More than a quarter of the total stock is located in Prague 4, and together with the second and third largest submarkets (Prague 5 and Prague 8) these provide almost 60% of the city’s total office stock.
In the first three quarters of 2021, the Prague market saw completion of five new developments and two refurbishment projects. The office inventory increased by 54,700 sq m, showing a 58% year-on-year (y-o-y) drop in new office supply. The third quarter was marked by almost no development completions, the only exception being the 1,700 m2 project at Holečkova 26 in Prague 5. Together with the space already introduced to the market in the first three quarters, should bring the annual office supply to only 69,000 sq m. Compared to the 2020 annual supply (151,000 sq m), this year’s completions will be 54% down. At the same time, this year will see the lowest annual volume of space delivered to the market in the last 5 years.
The volume of office space under construction rose to 199,000 sq m in Q3 2021 and Prague 5 became the district with the highest active development pipeline with almost 42,800 sq m. Penta broke ground on two buildings at their Nová Waltrovka scheme in Prague 5 (Legatica totalling 8,300 sq m and the 18,000 sq m Metalica), and construction works commenced on Red Court (7,100 sq m) in Prague 8.
Quarterly leasing activity made of lease renewals, new leases, pre-lets and subleases increased significantly and reached 103,700 sq m. In a y-o-y comparison, gross take-up rose by 20% and was 16% up from the previous quarter. With gross take-up only 15% below the pre-pandemic quarterly average*, it seems that occupier demand is re-starting. The share of subleases on gross take-up fell from 8% in Q2 2021 to 4% in Q3. The average share of subleases registered in the preceding four quarters stood at slightly above 5%. Lease renegotiations signed during Q3 2021 totalled 39,400 sq m (38% of gross take-up).
Net take-up maintained its growing tendency in Q3 2021 and went up to 60,150 sq m. That translated into a 22% quarter-on-quarter (q-o-q) increase and 127% improvement y-o-y. The cumulative net take-up registered in the first nine months of 2021 was 25% above the same period of 2020 and amounted to 154,500 sq m.
However, net absorption levels have been going up and down from Q2 2020 (when the first lockdown was announced in the Czech Republic). In spite of the negligible new supply in Q3 2021, net absorption returned to its negative side at -5,300 sq m (the previous quarter saw a positive absorption of 38,600 sq m).
Office vacancy rate in Prague increased to 8% (up by 80 bps y-o-y) and corresponded to 298,400 sq m of immediately available premises. This is the highest share of unoccupied office stock recorded on the Prague market since Q2 2017 and the highest volume of vacant offices (in sq m) seen on the market since Q1 2017. In Q3 2021, the office space offered for sublease declined by 25% q-o-q to 48,700 sq m, compared to 65,000 sq m offered in Q2 2021. Despite the fluctuating net absorption levels and rising vacancy, prime headline rents remained unchanged.
Pavel Novák, head of office agency, Savills CZ&SK, says: “Although the Covid-19 pandemic has practically not subsided or has worsened over the period, companies no longer have the option to postpone office space solutions and wait for further progress. At the same time, the role of offices in the thinking of companies has been validated - therefore, going forward, we can expect a stabilization of demand for office space and a gradual increase in the absorption value, which was in negative numbers in the third quarter.“
* pre-pandemic 8-quarter average means 2018 & 2019
Data source: Prague Research Forum, Savills Research