While the residential real estate market froze in the middle of last year, the office market was quite lively. The interest was mainly in flexible offices. And this year will be no different. “For many companies, there will be some relocation and optimisation of space as part of cost reduction. The available locations outside the city centre will become more attractive,” says Alexandra Němcová from Cimex.
The market was quite lively, especially at the end of the year, when tenants tried to negotiate the most lucrative terms in a hurry. For example, we managed to do some very fast transactions, which is not usual on the market. In short, it was evident that the companies realised that the price would rise.
Yes, we are seeing that trend. Although it’s not strictly about the use of telecommuting as much as it is a mix of home and office work. Some companies prefer flexibility. For example, by taking on extra space in some months.
Flexible offices are most in demand
So are flexible offices the winner in this situation?
Definitely, their occupancy is now at maximum.
Is Cimex converting its offices into coworking spaces?
Not all of them, but some of the spaces in selected buildings certainly are. Why not take advantage of that too, right?
What’s your current occupancy?
We are almost 100 percent on our MO-CHA flexible office concept and are therefore preparing additional space.
So you’ve had a very successful year?
After a covid that made us a bit tired, we deserve it.
The outskirts of Prague will be attractive this year
You have been in the real estate market for three decades. Is the situation that prevails there now anything exceptional?
First the covid and then the war in Ukraine pushed the situation to the extreme. At least that’s how I see it. Although flexible (formerly known as serviced offices) existed before covid, they were not nearly as popular. And the fact that they are now so sought after is of course also related to the fact that companies prefer flexibility, even contractual flexibility, in the context of uncertainty and cost savings. I remember a time when medium and smaller companies signed exclusively five-year or longer leases, but now it is different. I wouldn’t like to lump it all together, of course it works differently for large corporations. This is confirmed by the large transactions that took place on the market last year.
Could it be that companies will try to “escape” from the centre, where rents are many times more expensive than on the outskirts of Prague?
Prague 1 is attractive, but not for every company. Typically, for example, you often see technology, automotive and manufacturing companies in accessible locations on the metro and at the ring road. However, I do agree that some types of companies will look for more favourable conditions and if it is not absolutely necessary for them to be based in the centre, they will move further away. According to information from Prague office market reports, the occupancy rate in Prague 1 fell by 5,000 sqm in the third quarter of 2022.
Leaving aside Prague 1, which part of the metropolis can be perceived as attractive?
Karlín is clearly leading, which we could not have imagined just a short time ago. This neighborhood has grown tremendously, there are plenty of services and restaurants, and it’s attractive for living. Furthermore, it is traditionally Prague 4, but also Prague 5 and Prague 7, where most projects are currently under construction.
We will convert unattractive offices into apartments
Cimex’s office portfolio will grow, for example, with the reconstruction of the building on Václavské náměstí. In addition, are you looking for new premises?
We keep our eyes open and look around. Ideally, we look for properties to which we can add some additional value. For example, apply the concept of flexible offices, add commercial units on the ground floor or reconstruct the building into rental housing, etc. A property that is finished and fully leased is not that attractive to us.
Have you registered any demand for the premises on Wenceslas Square?
Ano. We are hearing from existing clients and new clients who are looking forward to opening a new location in Prague 1.
Are you considering converting some of your office buildings into housing?
We now have several such projects in the preparatory studies phase. These buildings are no longer suitable for offices in the long term, but are ideal in terms of location or size for housing. Specifically, there are two projects in Prague 1, one in Prague 4 and two in Prague 10. For some of them we are considering rental housing, which is currently in high demand and will increase.
And how many square metres of housing could be created by this conversion?
Roughly 20,000 square meters.
Does this apply to buildings where it does not make economic sense to convert them into modern offices, perhaps because of their unattractive location?
This is exactly the case of an office building in Prague 10, which has long loomed in a residential area. In Prague 4, on the other hand, we feel a high demand for rental housing; moreover, that particular building has already been used for housing in the past, so converting it back to housing will not be that difficult.
Rents will rise. Up to 15 percent
How much will office rents increase this year?
Normally, office rents are increased every year by an indexation. In recent years, the indexation has been around two to three percent, but for this year it is 15 percent. In addition to rents, the price of energy and other services is rising.
Is investing in offices a sure thing?
It depends on the location, but in general, offices will always be needed and investing in them will work. I believe primarily in investing in flexible offices in good locations, close to the metro and with good transport accessibility.
And what direction will the office market take this year?
I believe that flexible offices will continue to be a trend. For many companies, there will be some relocation and optimisation of space as part of cost reduction. I think the available locations outside the city centre will become more attractive. The office market in the segment of smaller offices will be lively.
She joined CIMEX GROUP as Director of Asset Management in 2019. He is responsible for activities related to the development, leasing and management of the real estate portfolio. He has been working in the real estate development market for almost three decades in managerial positions in the Czech Republic and abroad. She has also gained work experience through 15 years of working abroad, which included management positions for CBRE and IKEA in China and Russia.