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Prague still has space for growth

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Interview with Josef Stanko

Despite a temporary, slight increase in the vacancy rate of office space in the city, Prague still has large reserves in the office market compared to similar-size cities in Western Europe. Where will new, interesting projects appear? And where will Prague’s future business center be located? Josef Stanko from our market research department answers these questions.

In the coming years, several hundred thousand square meters of office space are to be built in Prague. Will there be tenants to occupy these office, even though currently many premises remain unoccupied?

The vacancy rate is not high. In 2019, the vacancy rate reached about 4%, which was the lowest in recorded history for the city. At the end of 2021, it was just under 8% due to the pandemic. Now, after the first quarter of 2022, it is 8.4%. In absolute numbers, there are currently approximately 315,000 square meters of free space. This may seem like a lot at first glance, but there are many smaller units scattered throughout the city in hundreds of buildings. Plus, tenants, in some cases, have trouble finding space that fits their needs.

Prague’s capacity is therefore large: one could certainly speak of space in the upper hundreds of thousands to millions of square meters. Our recent survey found that compared to similar-size cities in Western Europe, Prague has only half the existing office space per capita. It must also be taken into account that some office buildings will eventually reach the end of their life cycle and be replaced by other structures.

How did the covid pandemic affect user preferences?

During the pandemic, we experienced some uncertainty among those clients interested in offices. This played out mainly in the negotiation of contracts for shorter periods or the postponement of planned expansion. But now everything seems to be more or less the same.

Could developers' plans be affected by inflation and rising construction materials?

We already experienced certain problems during the covid pandemic. Developers were more careful about starting speculative construction and some banks conditioned the financing of construction projects on higher pre-lease levels. The current situation has made construction significantly more expensive for developers, so they have to increase required rental rates. This is especially evident for projects that are currently under construction. However, it also affects reconstruction projects, built-in interiors, and basically all construction cost inputs.

Which new projects will be most important from your point of view?

One of those currently under construction is Masaryčka. The building will offer a high-standard offices and world-class architecture. It will definitely become another prime location building. Other projects include large multi-sector projects in brownfields or long-term undeveloped areas; for example, in the vicinities of neglected metro stations or specifically the Hagibor district, where the developer decided to create a new office location. One should also keep an eye on the development of the Rohan Island and the area around the Smíchov railway station. Personally, I am also looking forward to projects that aim to move the definition of an office building beyond today's standards. This could involve smart-building elements, net-zero operations, new architecture, used materials, green certifications, or something completely new. In my opinion, the time for developing the brownfield space in Bubny will come later, but interesting projects can be expected there as well.

So which part of Prague will be the next business center?

I expect that the districts of Prague 4, 5, and 8 will remain the largest markets. Especially in Prague 8 between the Florenc and Palmovka metro stations, we can see one project after another: whether it be new construction or planned reconstructions. Prague 1 will likely retain its status as an exclusive business location that will continue to be sought after by tenants who prefer prestigious addresses. However, with each passing year, having offices there will become more difficult as buildings become obsolete. Sooner or later extensive renovations will be needed to retain tenants from large companies in Prague 1 spaces. Additionally, companies must show their own environmental impact, including that of office spaces, in their annual reports. Replacing an old building with a new one could be something that companies are simply told to do by headquarters.


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Josef Stanko

Senior Research Analyst | Czech

Prague

I joined Colliers Czech Republic in March 2019 as an agent in Office Agency. In several months, I quickly caught-up and was involved in several successful contracts done by the agency. By the end of 2019 I’ve decided to join newly staffed department of research with vision to utilize my curiosity and look for new challenges, as I become responsible for whole new set of tasks.

My first step in commercial real estate carrier was in 2013 with PSN, a local developer active in residential, retail, office and warehouse sectors. I was able to acquire much experience in all these fields and in time accepted a position of letting manager of Kotva Department store.

Just before joining Colliers, I worked for Tesco Stores as a Mall Leasing Manager. My responsibility was to secure new leases for five biggest shopping centres which Tesco owned by that time in Prague, Pilsen, Ostrava, Opava and Karlovy Vary.

Prior of my career in commercial real estate, I worked in several construction companies as a designer in both civil and transport construction.  

 

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