Saturday, 21 October 2017

Tenants gaining value over real estate developers

By Denisa Novotná | E15 |
8 September 2009

Tenants are gaining value in the Czech office space market. Real estate brokers have already started reacting to their strong position in property lease negotiations. While in the past years, consulting firms specialised mainly in representing developers and property owners, now they are increasingly offering services to existing or potential tenants.

It is the tenants who could use the current abundance of office space and request better conditions and lower rent.

"We want to focus on representing tenants," said Karel Stránský, who heads the Prague office of the consulting firm Colliers International. In addition to searching for new commercial space, the company would also help negotiate more advantageous lease conditions and renew existing contracts. "Renegotiations will represent a major part of all transactions," Colliers said in its latest report. Renegotiations represented more than one fifth of all transactions signed in the first half of the year.

King Sturge, another consulting firm, has also expanded its business this way. "Representing tenants is now a highly demanded service with a promising future," said Eva Lovětínská, who heads the company's office property department. One reason is also the constantly falling volume of construction and the resulting low number of new property introduced by developers to the market.

Thanks to their stronger focus on tenants, some consulting firms are now more willing to disclose real prices for rent. Before, they would publish on developers' request only prices included in their official price lists, although now the tenants are able to negotiate much lower prices due to the falling demand. "Deduct 25% from the official figures and you will get the real price paid by the tenant," said Stránský.

It is normal these days to offer tenants a rent-free period of one year, which means a 20% discount on a five-year lease contract. A deduction of another few percent may result, for example, from interior adjustments financed by the lessor.

Prague centre and Prague 4 most attractive
Besides the centre of Prague, companies are interested primarily in Prague 4, where the amount of occupied office space is currently at 90%. The most vacant places, where the occupancy rate is nearly 22%, are in Prague 9. This high number is the result of the Vysočanská brána project, which the developer Orco completed without having a tenancy agreement signed in advance. Prague 6, 7 and 8 also have higher vacancy rates, ranging from 15% to 18%. Consulting firms say that the amount of vacant places in Prague is slightly more than 10% of the city's total administrative area.