Prague office property market in Q4 2017
Demand significantly increased and annual gross demand reaches a new record. Five new office buildings were completed, vacancy decreased to just 7.5 %, and prime headline rents were higher.
The fourth quarter of 2017 was very strong for the office real estate market in Prague and closed the year with significant results.
New office supply reached 136,000 sq m at the end of Q4 and the total modern office stock in Prague increased to 3,342,000 sq m. In Q4 2017, five new office buildings totalling 70,400 sq m were completed in Prague. New supply included Palác Špork (6,600 sq m) situated in Prague 1, Main Point Pankrác (22,000 sq m) and Pankrác Prime Office Building (7,500 sq m) in Prague 4, Aspira Business Centre (16,400 sq m) in Prague 5 and AFI Karlín (17,900 sq m) in Prague 8. The share of A class office space stands at 72%, with top quality projects, i.e. AAA class buildings, representing ca. 19% of the total stock. The largest office district remains to be Prague 4 (27% of the total stock), followed by Prague 5 (17%) and Prague 1 (16%).
Currently, there is over 308,600 m2 of office space under construction with scheduled completion between 2018 and 2019. New supply will mainly be delivered in Prague 4 (24% in five projects), followed by Prague 5 (19% in four projects) and Prague 8 (17% in three projects). The share of speculative construction currently stands at 58% whilst a year ago it represented 75%. For 2018 we expect ca. 209,000 sq m of new office space to be delivered to the market.
During Q4 2017, three new projects commenced construction. These include: DOCK IN THREE in Prague 8, with ca. 16,100 sq m of office space, Churchill I in Prague 3 with ca. 15,200 sq m and Mayhouse with ca. 7,400 sq m in Prague 4.
Major planned office projects for 2018
|ČSOB HQ II||Prague 5||Q4 2018||30,000|
|Palmovka Open Park||Prague 8||Q2 2018||24,900|
|BB Centrum A||Prague 4||Q2 2018||21,500|
|Visionary||Prague 7||Q1 2018||20,500|
Source: JLL, PRF, Q4 2017
Demand for office space in Prague was very strong. In Q4 2017, gross take-up reached ca. 169,800 sq m (+60% q-o-q and +72% y-o-y). Net take-up, which excludes renewals, amounted to 131,000 sq m (+66% q-o-q and +89% y-o-y). For the entire 2017, gross take-up reached 536,000 sq m, exceeding last years' results by 29 % and representing a new record level registered on the Prague market.
In 2017, the highest level of leasing activity was recorded in Prague 4 (28% of the total demand) where the largest transaction of the quarter (21,500 sq m) was concluded on BB Centrum A. The leading source of demand was the IT sector which accounted for 18% of both gross and net take-up.
As a result of strong leasing activity, the vacancy rate further declined in Q4 2017 to its current level of 7.5%. This reflects a q-o-q decrease of 25 bps and is the lowest level achieved since 2008. The lowest vacancy rates were recorded in Prague 8 (5.2%), Prague 2 (5.3%) and Prague 6 (5.6%).
"For the whole of 2017, demand exceeded supply. The result is the lowest vacancy rate in the Prague office market after almost ten years, which stood at just 7.5% at the end of the year. Gross take-up exceeded 100,000 sq m in each quarter of the year for the first time. That is an historical milestone. For 2018, we expect another supply growth with more than 200,000 sq m of new office space, of which almost half is already pre-leased. Depending on current market developments, it can be assumed that there will be no significant increase in vacancy rates." said Martin Stričko, JLL Senior Research Analyst.
In Q4 2017, prime headline rents in the city centre increased to their current level of €20.0 – 21.0 sq m/month. Inner city rents varied between €14.5 – 16.0 sq m/month in Pankrác (Prague 4) and at €14.5 – 15.5 sq m/month in Smíchov (Prague 5) and Florenc (Prague 8). Rents in the outer city markets reach €13.5 – 15.0 sq m/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.
In Q4 2017, Prague's net absorption reached ca. 74,000 sq m, the highest quarterly level since Q4 2015. Compared to the same period last year, net absorption rose by 269%. Quarterly it registered an increase of 25%. During the entire 2017, net absorption amounted 223,600 sq m which represents a significant increase of 92% compared to 2016 results and the highest annual level since 2008.