In Czech Rep. the office market is increasingly leaning towards the tenant side. Flexibility and sustainability play a major role.
Demand for new office projects in attractive locations will continue to rise (up 41% y-o-y in Prague in H1), while changes in the way offices are used towards a hybrid working model will lead to a greater interest in flexible offices. According to the “EMEA Office Occupier Sentiment Survey 2022”, this is due to, among other things, the desire to reduce capital expenditure by companies, to respond flexibly to current changes and the ability to enter new markets. At the same time, the gap between rents in new premium offices and B offices will also widen.
From the beginning of the year until June, 47,880 sqm of new office space has been completed in Prague (56% of which has already been pre-leased) and a further 28,800 sqm in 6 different projects will be completed by the end of December. Quite a few new and attractive office buildings are expected to come to the Prague market in 2023. This, combined with slowing demand and the fact that almost no new companies are entering the Prague market, may lead to an increase in overall vacancy next year – it is currently around 8% (8.5% in class “A” offices and 8% in class “B” offices). So even though new premium office space is no longer being offered below EUR 14.50-15 per sqm per month, the market is becoming a “tenant’s market” in many locations and especially in Prague, with landlords having to come up with incentives in many projects.
SEE ALL THE INFORMATION ON CZECHIA HERE.
In Slovakia after a minor slowdown in the summer, the situation regarding leasing activity was cleared up and, in many cases, we witness restored demand. Therefore, take-up reached 38,800 sqm representing a 53% quarter-on-quarter increase. In addition, net take-up figures stand at 32,400 sqm with new leases accounting for more than 26,700 sqm. We expect the increased leasing activity to persist towards year-end. However, due to the rising costs of projects, we noticed that the office market is moving towards longer required rental contract periods by landlords, which is more and more in contrast to the flexible requirements by tenants. As a result, the vacancy rate rose mildly to 11.87%. In favour of vacancy was the completion of Lakeside Park 02, which brought fully leased space of 14,000 sqm. Altogether, development activity is slowed down this year, as only about 3,500 sqm of leasable space will be added next quarter, bringing the year’s total to 28,600 sqm. On the other hand, most of the projects will come on stream in 2023 representing 48% above the five-year average.
To cope with elevated energy and input costs, landlords continued in increasing service charges. Less energy-efficient buildings, mostly older B and C-class buildings, were affected the most. Therefore, the competitive advantage will go to the higher-end buildings with better energy efficiency. Still, many buildings have energy contracted only until the end of the year exposing themselves to the risk of purchasing energy at spot prices. As a result of high costs combined with popularity-gaining home offices, the trend of reducing space is ever more visible on the market. Therefore, the usage of workplace and space optimization strategies is sought after. Prime rent and prime yield remained unchanged at €17/sqm/month and 5.00%.
SEE THE FULL INFORMATION ON SLOVAKIA HERE.
Regarding Hungary, in Q3 2022, the volume of new supply in Budapest’s office market increased significantly compared to the previous quarter, marking the highest volume since Q2 2020, the Budapest Research Forum (BRF) reports.
The total modern office stock currently adds up to 4,175,670 sqm, consisting of 3,452,300 sqm of Class A and B speculative office space as well as 723,370 sqm of owner-occupied space.
In the third quarter of 2022, four new office buildings were delivered to the Budapest office market with a total of 82,420 sqm, the new owner-occupied Bosch Campus II building with a size of 17,130 sqm, Millennium Gardens with a size of 20,060 sqm, Budapest One II. and III. phase (37,950 sqm) and Major Udvar with a size of 7,270 sqm. Three buildings (total size: 11.760 sqm) have been moved to the owner-occupied stock.
SEE THE COMPLETE UPDATE ON HUNGARY HERE.