Prague is running out of modern offices. Karlín is growing in popularity, where companies compete for older and dilapidated spaces

The most desirable office address in Prague? According to the real estate consulting company 108 REAL ESTATE, it is definitely Karlín. Pankrác and, thanks to the capitalized development potential, also Smíchov are close behind. In Karlín and its vicinity, there is such an interest in offices that several companies often compete for less attractive spaces - including former shops or re-leased flats. Almost immediately, and often at higher rents, space in modern class A office buildings is being leased, especially in the case of large-volume space exceeding 1,500 sqm. There is also considerable interest in new construction taking place in the area near Rohanské nábřeží.

"Karlín has everything a modern, progressive district needs. Large and successful companies that have dozens of supplier or collaborating satellites around them, great accessibility, as well as a plethora of leisure activities, including gastro businesses. If employers are targeting younger workers, Karlín is a resonant address,"

explains Lena Popová, Head of Office Leasing at 108 REAL ESTATE.

The fundamental problem of the Prague office market is the current shortage of office space. From 2021 to 2024, between 50,000 and 100,000 sqm per year have been delivered in Prague, with the exception of this year, when only 24,000 sqm is scheduled for completion. However, gross demand including renegotiations is several times higher. Due to high demand and high global indexation, rents have risen by an average of EUR 3 to 4 per sqm per month over the last two years.

"Due to limited construction, we see room for further rental growth up to the EUR 24-30/m²/month range. However, tenants are not yet ready for this - not least because of the high costs associated with moving or fitting out offices,"

Jakub Holec, CEO of 108 REAL ESTATE, adds that the supply should expand slightly after 2027. Further significant additions are planned after 2029, when large development, multifunctional projects will be completed in the wider centre of Prague 6 or in Prague 9 in the vicinity of O2 Arena / Harp, where the Penta and Kaprain groups own large plots of land.

In addition to these benefits, there is another important factor in favour of Karlín: the rent level. Despite the growing interest of tenants, modern offices are rented here at an average price of around EUR 19.50 per sqm/month. For older office space, the price can be even EUR 3-4 lower. The same and sometimes even higher prices are offered for offices in other, outlying parts of Prague, which are not nearly as attractive as Karlín or Smíchov. Moreover, demand in Prague 5 is expected to increase in connection with the planned relocation of large companies, including Česká spořitelna.

Large movements are expected by the 108 REAL ESTATE office leasing department in the vicinity of the Pankrác and Budějovická metro stations. This will be influenced by major development projects such as the complete modernisation of the original Generali headquarters, the planned construction of buildings by Skansky, the Boka project by Crestyl or the Hila building in Brumlovka by the Passerinvest group. The offer will also include the modernisation of entire buildings and interiors after large tenants leave their current premises. One of the major banks is heading from Prague 4 to the Florence area.

Several factors are behind the observed increase in developer activity. In addition to the disparity between current supply and demand, there are more affordable loans, investor interest and, last but not least, a change in tenant behaviour. New companies from abroad are still expanding into Prague or new ones are being established, targeting modern office space. In recent months, the reduction of leased space by tenants who are more often moving away from the home office and prefer a hybrid model of work, where employees come to the office 2-3 days a week, has almost stopped.

Landlords have also changed. For example, they are not requiring the premises to be brought back to their original state, compared to the practice in the recent past, also because of the reduction of Capex costs for companies moving into vacant premises. "Of course, it depends on who owns the fit-out and equipment. Owners write off the costs or buy them from departing tenants. This is a considerable relief for both parties and the environment - often new or usable fit-outs are demolished, which new tenants would both use and appreciate," adds Lena Popová. According to her, tenants are very sensitive to all costs, which also applies to sustainability: certified buildings still have a competitive advantage.