At BNP Paribas Real Estate, we pride ourselves on careful analysis of all market data, including rent! This is, in addition to the vacancy rate, the main indicator of supply and demand and the overall market condition.
We would like to remind you that, since 2012, the prices for modern office rental in Prague have hardly changed. In some place, they have even dropped. Also, the incentives from developers and property owners to new tenants have certainly increased.
This, however, started to change at the turn of 2017/18. Modern offices in the centre of Prague centre responded as the first to be overcome by tenants demand. Here, the prime rent (the highest rent achieved) jumped about 1 EURO per square metre per month. In the wider centre, incentives were cut, however, this only showed a cosmetic correction of rent.
Although it was already obvious at the end of last year that we were on the threshold of record low vacancies, this is not the only factor affecting rents. Even more important is the price of construction work. This is particularly sensitive for developers of new buildings, as well as for owners investing in upgrades and major repairs.
According to some market information, the price of construction work has risen by between 30-40% over the past two or three years. However, there are also developers who are talking about a 50% increase, which limits the possible future development of rent. It cannot be expected that developers accept higher construction costs which impact their margins or the quality of the buildings.
The mosaic on this topic was recently covered by Hospodářské noviny. The question of how rent is developing, and will develop in the future, was asked of several market leaders. Here are some selected answers: "Rising is a necessity," said Eduard Forejt, Director of Business Development at Passerinvest Group. “Construction costs cannot be expected to fall. This is why, I believe, developers will have to project it into rent."
Forejt estimated that, in the next two years, the base rent would increase by two euros at locations in the wider city centre, where landlords now demand €14.5 - €15 per square metre per month. In the case of a standard office space of 10 square metres per worker, this costs an extra 7600 Czech crowns per head per year. However, according to Forejt, this is only a small expense for a corporation in today's labour market. The ability to retain or recruit new employees is more important.
In the third quarter of 2018, the highest interest in office rental was in Prague 8. In addition to Karlín, the Invalidovna and Palmovka metro stations are nearby.At Palmovka metro station, developers Crestyl are currently building an administrative centre, and in the autumn, the three buildings complex, named Palmovka Open Park and built by Metrostav Development, was completed.
"Within the DOCK IN project alone, the average rent has risen by about 15 percent over two years," said Lenka Vašutová, head of the Crestyl Group's commercial department. In addition to the generally higher demand for new modern offices, overall price perception of the site under Libeňský most contributed to the price increase. "Another factor is, of course, the increased cost of construction work and professionals, which affect the entire development, not only the office," wrote Hospodarske noviny.
Offices in the Metrostav Development at Palmovka Open Park today demands an average rent of €14 per square metre per month. “The rental amounts slightly increased during the lease, and the incentives dropped,” said Ondřej Buršík, CEO of Metrostav Development.
According to Alexandra Tomášková, director of another development company, Skanska Property, the basic office rental rates went up by 10 percent over the past year and incentives were reduced by 10 percent. The reason behind this is not just the rise in the price of construction work. "The second objective reason is an increase in land prices, high tenants' demand and still relatively low supply combined with extremely low vacancies," Tomaskova told Hospodářské noviny.
According to the data processed at BNP Paribas Real Estate, growth will be particularly evident in new offices in the centre. This applies to, for example, the lease of the premises which Penta Group is preparing around Masaryk Station. In some cases, the rent required may exceed €25 / m2 / month. It can't be ruled out that this 10% increase will be reflected in prices in the popular locations of Karlín, Smíchov or Pankrác...
