DTZ: Cautious expectations for Prague office market in 2010 (CZ)

The Prague office market is still relatively small compared to its Western European peers, when comparing stock per capita. The total stock per inhabitant accounts for 2.15 sq m, whereas in Munich it is six times mores and in The Hague it is almost four times more than in Prague. This provides scope for growth once demand starts increasing. Since the beginning of the ninetees, the emergence of the modern Prague office market, the office stock increased from from 68,000 sq m to around 2.7 million sq m at the end of 2009.

There are currently 115,000 sq m of office space in different stages of construction, whereas in ca. 27,000 sq m construction works were halted. „There is ca. 360,000 sq m of projects with a valid building permit, which means that these projects can be completed within 14-24 months after pre-leases are signed. There are further 362,000 sq m with valid planning permits and 227,000 sq m in early planning stages," adds Lenka Hartmanová, analyst at DTZ.

The main criteria for success of an office project in Prague is transport accessibility. Therefore, the majority of new supply has been clustering around the metro lines within 5-10 minutes walking distance and along main roads such as D1 or Sokolovská.The importance of the proximity to the metro also shows potential for future development along the newly planned metro lines (D, extension of A).

The highest supply pipeline until 2012 is in Prague 9 and Prague 8 (247,000 sq m and 232,000 sq m), followed by Prague 4 (190,000 sq m). Prague 4, 7 and 8 have the highest amount of planned office space with building permits, which means thatm these projects have a high probability of being completed by 2012, if pre-leases are signed, whilst Prague 7, compared to other districts, has the highest amount of projects in early planning stages. Prague 2 and Prague 3 have no supply pipeline.

Prague 9 is also at the top of the supply pipeline chart for the years following 2012, with immense development potential on numerous Brownfield as well as Greenfield sites. However, the development will have to be phased carefully with respect to demand. Major long - term projects include the Brownfield regeneration within several projects in the so called Nové Vysoèany, which could amount to up to 600,000 sq m, other large development zones are Bubny in Prague 7 as well as the transformation of the cargo railway station Žižkov and Smíchov railway site, where the overall volume of offices to be developed will depend on the regulations in the new master plan of Prague. In Prague 8 one of the major projects is the regeneration of Rohanský ostrov.

Several micro-locations have evolved at the edge of the center into established sought – after office locations over time. The most developed are Pankrác, Smíchov and Karlín. Pankrác office zone has the highest stock with 489,000 sq m, which is 18% of the total Prague office stock. Karlín´s stock reached 237,000 sq m (9% of the Prague stock), while in Smíchov it amounts to 133,000 sq m (5% of the stock).

Pankrác and Smíchov have the lowest vacancy rates (ca. 7 % and 6 % respectively), far below the overall Prague vacancy rate. For the coming years highest supply is expected in Karlín (174,000 sq m), whereas Smíchov has only 20,000 sq m supply pipeline.

"The take-up has dropped last year, net absorption reached only 87,000 sq m. According to macroeconomic predictions there will be 14,000 workplaces created in office related employment sectors by the end of 2012, which translates to ca. 210,000 sq m of office space, that could be absorbed. However, during 2010 the majority of companies will not start expanding. The vacancy rate is still expected to grow this year. Despite the low new supply, space will be vacated in existing older projects due to relocations of companies into new premises," sums up Lenka Hartmanová.

Rents should remain stable in districts where supply and demand are in balance. It is expected that prime headline rents in the city center will stabilize during 2010 after some minor adjustments.


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