Despite the growth in rents, many companies are still interested in locating in the centre of Prague, especially for some types of companies such a location is important. Apart from the city centre, Karlín and Prague 5 are also popular.
“Companies are looking for modern office space with a range of other services, so demand is also where new centres with added value are being created,” says Alexandra Němcová, Director of Asset Management at Cimex.
Němcová, who has been in the industry for almost three decades, is responsible for the office portfolio of the Cimex Group. It handles activities related to the development, leasing and management of real estate. Cimex has shared and traditional offices.
In the interview, Němcová also talks about why Cimex wants to convert some of its offices into apartments or how the pandemic and subsequent economic crisis have affected the office market.
What do companies today demand from offices in terms of design, colours? Are there any trends right now?
The trends are there and they are very nice. The offices have become very “coloured”. I remember a time when they were grey, uninteresting and you didn’t like going to them. That’s changed now.
In large corporations, you can see how they prepare a nice environment for their employees. I think it’s also part of the strategy to lure employees from home offices back to the office. Companies that have the opportunity or are currently renovating their offices create large relaxation zones, often in company colours. These are spaces where people can meet, relax or even work, and organise various team meetings.
We recently visited a company where the kitchen studio is part of the premises and where various company events are held, including cooking together. I have to say I really like this trend.
Modern office buildings now offer, for example, pitched roofs with running tracks or gardens where you can relax or organise corporate events. The new buildings also feature beautiful restaurants, bistros and fitness centres. They’re nice environments to work in.
Following these trends, we have also created a variety of colourful common spaces in our coworking concept Mo-cha. Our tenants are mostly small to medium-sized companies that have interestingly structured relaxation zones, colourful kitchens and zones for informal presentations and meetings. We wanted the working environment to be creative and cosy, so that people feel comfortable here. In short, not to have a commission office environment.
So is this also about companies’ response to employees wanting to go back to the office after the coronavirus?
Partly yes, but I think the trend of interesting offices offering creative co-working spaces and other services started before the pandemic.
The relaxation zones also include ping-pong tables, billiards and other entertainment or sports elements. This is so that when employees are having a very busy period, they can relax a bit and do some other activity at work to unwind. This trend is also visible abroad and I think it has also come to us from large foreign companies. For example, the technology sector, where people are quite busy, sitting at computers for a large part of the day and need to relax by moving around.
The trend of open space offices also came to us from abroad a few years ago. What is their popularity today?
I would say that this trend depends on the type of business. Some companies will strictly continue to have individual offices because they need privacy. These are various financial advisors, consultants, law firms who need to deal with their clients in private zones.
We are experiencing strong demand for a combination of both. That is, you have a certain part of the company that works in an open space office because its teams need to communicate with each other all the time during the day, and the management or certain departments sit separately in private – typically HR, which rarely sits in an open space.
How is the office market after the pandemic? Last year, new office construction in Prague amounted to about 75,400 sqm, which is thirty-four percent more than in 2021, but below the long-term average. What numbers are you counting on for this year?
According to the latest market reports of Savills, with whom we work closely, there are currently about one hundred and thirty thousand square metres of offices under construction. These are well-known projects such as Masaryčka, Hagibor, Port7 or projects in Prague 5 in Smíchov. In 2024, it is expected to decline to about eighty thousand sqm of new offices.
So the pandemic has changed the office market and the situation will not return to the pre-Coronavirus period?
I don’t know if the pandemic had a direct effect on construction, there are other factors involved. The shortage and prices of building materials and office equipment, which increased several times over the last year, had a major impact on construction and the so-called “fit outs” of offices.
This has resulted in companies deciding whether or not to move to new premises, or whether to rent already equipped premises without any worries.
Flexible offices and coworking spaces are closely related to this. The uncertainty in the market caused first by the pandemic and then by the energy increase and the war in Ukraine in a good sense caused flexible spaces to become very popular. Shared flexible offices help companies deal with uncertainty. They don’t have to tie themselves up for long periods of time and can reduce or increase the size of the leased office space at any time. They can rent meeting rooms as needed and do not have to pay rent for the whole year.
But a large company with thousands of employees will not go down this route. The company can use the coworking space, for example, when its headquarters will be in Brno and some of its employees will have to travel to Prague for work, where it can rent coworking space for them.
You talked about energy prices and the war in Ukraine. Do you have data on how much rents in offices in Prague have risen on average as a result of the general price increase?
Normally, rents are indexed to inflation every year, this is stated in all contracts, unless the tenant has agreed other terms with the owner of the building. This year, however, the indexation was higher than ever. It copied inflation, so it was roughly fifteen percent.
Are you planning to build more coworking spaces?
This year we plan to test the concept of shared furnished offices in one of our buildings in Prague 10. We are also planning Wenceslas Square. I can’t confirm the exact opening date yet, but everything is ready. There is still a lot of interest in the city centre.
So, for Prague 10, you are not quite sure if it is a location that companies would covet? Do you have any data on this?
There is less data in these parts of the city because there are also fewer office buildings, so we want to test this. Our buildings in Prague 10 are traditionally well occupied because they are characterized by a large number of small offices. So it is more about what the demand will be for already furnished offices with extra services.
Demand for small offices in Prague 10 increased in the first quarter of this year, which is probably also a result of the market situation. Some companies are moving here from other parts of Prague where the rent was no longer acceptable to them.
What locations in the capital city are in the highest demand from companies, apart from Prague 1? I’m guessing it’s gonna be, like, the Carolinas.
Karlín is definitely leading, it’s a trendy location right now. It is also Prague 5. Companies are looking for modern office space with a range of other services, so demand is also where new value-added centres are being built.
Traditionally, Prague 4 is also very popular, where we own several buildings and we still register demand for offices. There were quite a few large transactions in the office market in Prague 4 last year. In the last quarter of 2022 alone, this amounted to more than 60,000 sqm, which includes so-called renegotiations, i.e. extending the contracts of existing tenants. That in itself is a testament to the enduring popularity of Prague 4.
You don’t think there will be a loss of interest in the centre because of the level of rents?
I don’t think so, the centre of Prague is very specific and will always attract a certain kind of company. For example, a technology company with five hundred to a thousand employees can never go to the centre because it would not find suitable office space with the necessary facilities. These companies need a large number of parking spaces, large open floors, and have high requirements for technological equipment in the building.
But then there are companies that need representative spaces and to be close to their clients, and such companies will always be in the centre. That is unlikely to change. Again, it depends on the type of company.
Cimex also plans to convert offices into apartments. Are there any more projects in the pipeline? Last autumn, you spoke to the media about the fact that this concerns Prague 4 and 10, but you did not want to be more specific. Have the projects made any progress?
We’re moving. We are in the process of preparing the documentation for the building permit and we firmly hope to start building the first housing project in Prague 10 in the first half of next year. It is in the pipeline, but the deadline can never be fully specified due to various permits and so on.
The office space is unused, or rather, is it no longer suitable (in the long term) for offices?
As far as the building in Prague 10 is concerned, it is quite large and consists of two buildings. The smaller one is ideal for conversion into residential units due to its floor layout. At the same time, there will still be a huge part of the building with offices. It is also a residential location where the demand for apartments is high.
Are you also responding to the lack of housing construction in Prague and the problem of housing affordability?
Yes, that’s right. We respond to the market situation. Moreover, the demand for offices in Prague 10 will probably not be as high in the future. We are therefore trying to change our buildings into multifunctional ones and include other segments, such as housing and partly commercial space.
More on Forbes