DTZ: Prague office market 28 % overvalued relative to occupiers output (CZ)

Effectiveness and cost optimization – these terms have been crucial in the last months irrespective of the line of business, turnover and/or number of employees. Existing economic stagnation is forcing many company managements to recalculate expenditures which were being overlooked last year. These expenses also include office occupancy costs. The latest study of the global property adviser DTZ European Office Affordability Index identifies that the average European CBD occupier spends 15 % of an employee's output (GVA) on office accommodation.

Prague skyline

Affordability remains a concern in Central and Eastern European cities such as Prague, Warsaw and Budapest.

"Although differences in occupancy costs between cities are not the principle driver of location decisions, companies are increasingly looking at differences between cities and taking it into consideration when choosing a location," says Bert Hesselink, Head of Office Agency at DTZ in Prague.

The Office Affordability Index which relates average occupancy costs to revenues per employee in key European markets nevertheless shows that in Central and Eastern European cities of Warsaw, Prague and Budapest affordability remains a concern. Despite relatively moderate rental levels these locations are amongst Europe's least affordable cities in terms of office space. Slowing economic growth will lead to deteriorating accessibility of modern office facilities for many local occupiers, thus limiting market growth potential.

On a global scale, the position of Prague is rather good. According to the recent DTZ study entitled 'Global Occupancy Costs – Offices' (GOCO), which is aimed at the global comparison of office occupancy costs in 114 business districts in 49 countries worldwide, Prague took 83rd place with the costs amounting to €4,340/year/workstation (as at the end of 2008). These costs include any payments charged to a tenant, i.e. rents and outgoings such as maintenance costs, property taxes. Also the average space utilization standard per worker of 11.3 m² in the Czech capital is below the global average of 13.5 m².

The situation is becoming difficult in euro zone cities that experienced significant credit-induced asset inflation and who are unable to deflate themselves out of these bubbles via monetary policy, such Milan and Rome. Conversely, a number of European cities are becoming much more affordable when employee output is taken into account. In Paris CBD, London West End and Dublin, accommodation costs are becoming more affordable, as rental decline and incentives given by developers to attract tenants continue to rise. City of London, Brussels, Stockholm and Amsterdam are amongst the most affordable in all of Europe with tenants spending less than 13% of their revenues on accommodation costs.

The previous growth of office occupancy costs came to a standstill in the second half of 2008 in large European cities. According to DTZ, between 2001 and 2008 average rental growth in these locations posted a staggering 13.5 % per year, which significantly exceeded the average GDP growth (2.3%), as well as the inflation rate (2.6%). It is becoming obvious that companies are trying to reduce t

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