In the center of Prague, a record amount of offices is being created, rental prices will fall

Florentinum

Prague - The office market in Prague 1 will grow this year by more than 50,000 square meters, resulting in a total of half a million square meters of office space in the very center of the capital. The oversupply of new spaces is likely to reduce rental prices.
According to DTZ, about 58,600 m² of office space will be delivered to the Prague market this year, only in Prague 1. Cushman & Wakefield also points out that 77,000 m² of top category A offices are currently under construction in the city center. This year, the investment group Penta is set to open Florentinum with 43,000 m², and a year later the CPI group will complete Quadrio at Národní třída with more than 16,000 m² of administrative space.
In total, approximately 300,000 m² of offices are to be built in Prague this year. However, the current construction boom significantly exceeds demand. "By the end of the year, new lease agreements for about 50,000 m² will be signed. Moreover, in 2014, another 200,000 m² of offices are to be built in Prague, but only 50-80,000 will be occupied. About 120,000 will remain unoccupied," warned the head of the research team at Cushman & Wakefield Michal Soták.

Quadrio

The surplus of supply over demand will further strengthen the already strong position of tenants and ultimately lead to a decrease in rent. "We can speak of a boom that will also affect the level of required rent. In the offerings of projects that will be completed this year or in 2014, we see considerable competitive overlap - it concerns, for example, the reconstruction of apartment or townhouse buildings with several thousand square meters, which will likely target a similar group of tenants," noted the head of the Research & Consulting department at DTZ Lenka Šindelářová.
Modern office rents have remained unchanged for several quarters. For prime offices in the center of Prague, companies still pay an average monthly rent of 20 to 21 euros per m² (517 to 543 crowns). In the outskirts of the city, the monthly rent for modern offices remains long-term at 13 to 14.5 euros per m² (336 to 375 crowns).
A decrease in rents is inevitable according to Pavel Kliment, a partner responsible for services for construction and real estate at KPMG Czech Republic. "Prague together with Warsaw are the long-term most attractive locations in Central Europe, which corresponds to the volume of new construction and investor interest. With the gradual recovery of the economy, a slight increase in interest in new office spaces can be expected. However, the additional supply largely relies on coverage by existing tenants from competing projects, thereby increasing pressure on individual landlords," noted Kliment.
The total area of modern office spaces in Prague exceeded 2.89 million square meters at the end of the second quarter. Their vacancy rate slightly decreased to 12.8 percent in the second quarter, with 369,600 square meters of office space being unoccupied.

Administrative projects in the center of Prague under construction or in renovation

Project Name	Size of Office Space (in m²)	Developer	Completion
Revoluční 7	4,800	BA Betriebsobjekte Praha	2013
Rybná 9	1,600	Amadeus Real	2013
Na Příkopě 14	7,400	Lordship a.s. IMMOFINANZ Group	2013
Florentinum	43,000	Penta Investments	2013
Jindřišská 16	6,000	Immofinanz	2014
Jungmannova 15	6,800	Immofinanz	2014
Quadrio	16,200	CPI	2014