FM newsroom – refit, office. Nearly a third of Prague’s office buildings are over 20 years old. This poses a problem for many occupants as the buildings are not meeting their ESG targets. The good news, however, is that a well-planned and well-executed strategic renovation can address this pain point and bring further long-term benefits to owners.
Although building owners have been offered a solution in the form of comprehensive renovations, but according to Colliers experts, this is hindered by a low vacancy rate in the Prague office market, which currently offers few alternative spaces, Property Forum reports.
However, renovating old buildings can be less demanding than building new ones. A well-planned and well-executed strategic renovation can bring long-term benefits to owners, including higher rents.
More than superficial changes
The modern office market in Prague offered approximately 3.91 million sqm at the end of Q1 2024. Some properties have undergone a certain degree of transformation, but that often involved purely superficial changes that did not improve or boost the buildings’ technological functioning.
Although domestic legislation does not yet require specific solutions regarding energy efficiency, sustainable building operations, or modern technologies, these issues already play a significant role for many clients. More and more companies are taking sustainability and ESG targets into account in their operations and, therefore, also reflecting on them in the context of negotiating building leases. It is only a matter of time before property owners in the Czech capital will begin to demand proactive solutions.
“It is obvious that those who take the appropriate steps in time will gain a considerable competitive advantage. The solution, which consists of refits, is well known. As a result, tenants have little opportunity to find temporary replacement space. They usually need them for 12-15 months, the average length of a standard building renovation.” – Josef Stanko, Senior Analyst at Colliers points out.
What else makes renovation projects difficult?
Besides the low vacancy rate for offices in Prague, the financial aspect and the fear of losing long-term clients make the decision to renovate so difficult. Owners should, therefore, consider their exit strategy, specify target tenants, and assess their building’s current state well. An analysis of operating costs is also essential to ensure that refurbishment will have a long-term impact, not just superficial changes.
Properly planned and executed renovation seems to be a way forward
Renovating old buildings can be less expensive than building new ones as long as the core structure has not been significantly affected. Retrofitted buildings often offer more efficient operations and modern services, which can be reflected in rental rates. Of course, the actual refurbishment cost always depends on the location and the current market situation.
“Older refitted buildings often try to compete with lower prices. But if they are well maintained, the difference between them and new buildings may not be significant. If you add to this the offer of an established location and stable operating standards, older buildings can be highly attractive to tenants. The disadvantages of refitting older buildings include the property’s technical limitations and the need to deal with regulatory restrictions, for example, from the historic preservation authority. Even so, renovation can be quicker and cheaper than new construction”- Josef Stanko, Senior Analyst at Colliers adds.
Investing in refurbishing older buildings seems to be an effective way forward. However, the whole process requires strategic planning and courage.
“Now, the property at Náměstí Republiky 7 is undergoing reconstruction and will become a modern, high-quality building with rents of around €30 per sqm/month, which would be up to double the rent charged before the reconstruction. In Western Europe, refurbishments of old buildings are common practice due to established legislation and high competition. The development that cities in the West have gone through shows the necessity of renovating old buildings in Prague to maintain their competitiveness,“- concludes Jana Vlková, Director of Office Agency and Workplace Advisory at Colliers.
Image: propertymaps.cz
