Market Report Q2 2023

The Residential Market Is Slowing Thawing, Demands for Quality Properties Are Increasing

Prokop Svoboda

Owner of Svoboda & Williams

Welcome to a beautiful new world. No, I’m not suggesting that this summer we’ll be experiencing the dystopian society that Aldous Huxley masterfully depicted in his book written nearly a century ago. I’m only adapting the title of his most famous work to describe the current state of the real estate market, which, after months of stagnation, is coming to life again.

Here at Svoboda & Williams, we’re witnessing a higher demand both for new build as well as for quality resale properties. The majority of investors who have been waiting for a significant drop in prices have found that this is unlikely to happen in the premium real estate segment. It may, however, occur for individual resale properties in situations when an owner is forced to sell at a discount due to personal reasons.

Investors with financial savings in particular are therefore no longer playing the waiting game, while clients with mortgage loans are adapting to a new reality—though inflation is going down, the lower interest rates of the recent boom era are unlikely to return for some time. Plus, once interest rates start falling again, banks are likely to be more accommodating to clients with good credit ratings who want to refinance their loans. The Czech National Bank’s July decision to relax mortgage rules will also give the mortgage market a much-needed boost.

What’s the driving force behind the slowly thawing real estate market, you ask? In short, quality! The oversized opulent villas of the 1990s with astounding built-up areas yet badly designed and poorly built are the unsellable real estate trash of today. Buyers are now interested in modestly sized properties that boast exceptional materials, energy ratings, and environmentally friendly facilities. This means that the temporary downturn of the real estate market has made us more aware of true quality that is able to withstand crises. This is great news, and not just for buyers.

Sample of Properties Monitored by Svoboda & Williams

1/2023–6/2023 vs. 7/2022–12/2022

  • CZK 155,793

    New builds and reconstructions, Ø per sq. m.

    Half-year change -1.7 %

  • CZK 137,505

    Resales, Ø per sq. m.

    Half-year change -2.6 %

  • CZK 38,712

    Rent per the Rental Price Index, per month

    Half-year change -3.1%

  • Increase in inquiries

    Half-year comparison

    (H1 2023 vs. H2 2022) +21.4 %

TRENDS IN PRAGUE’S PREMIUM PROPERTY MARKET

Based on the sample monitored by Svoboda & Williams

Sales

Demand is recovering somewhat after the record-breaking drop in H2 2022 when it was at its weakest level in several recent periods. Although in the half-year comparison it grew by 21.4%, it still hovers below pre-crisis figures. The sample of properties monitored by S&W has seen a year-on-year decrease in demand of 17%.

The recovery in demand was likely due to the fact that the market absorbed both the geopolitical situation as well as the rise in interest rates. Increased demand also shows that investors are expecting prices to go up in the future, and the easing of mortgage conditions by the Czech National Bank is a positive sign for bank clients.

The decline in sales prices for all apartments (-2.5 %) is driven by the decrease in prices for resales (-2.6 %), which currently account for the majority of real estate transactions. New build sales are down and their prices are still stagnant.

Up to 72% of clients purchased property using their own financial resources.

In the Prague market, domestic capital is much higher than foreign capital and purchases by private equity investors. Czech clients accounted for 63% of buyers.

Rentals

The post-covid boom in rental prices has definitely peaked. Between H2 2022 and H1 2023, according the Rental Price Index of S&W, rents fell by 3.1% to CZK 38,712.

The greatest decrease in rental prices was for properties in the very center of Prague. Rents for smaller studio to one-bedroom apartments were at an all-time low (down by 11.9%) and three-bedroom and larger units were 13.1% cheaper. In contrast, in the wider center of Prague rents for all layouts rose by an average of 7%.

In the sample monitored by S&W, 61% of tenants were foreigners.

Price Analysis

The Prague residential market through the lens of Svoboda & Williams during the monitored period 1/2023–6/2023

Prague

during the monitored period 1/2023–6/2023

Average prices during the monitored period (JANUARY–JUNE 2023) and their half-year change (compared to JULY 2022–DECEMBER 2022).

Ø Apt. price* Ø Price per sq. m. Ø Apt. size Ø Price per sq. m. Ø Apt. price
New apt.** Resale apt. 1bdrm 2bdrm
Sales CZK 14,022,770 CZK 149,500 94.1 sq. m. CZK 155,793 CZK 137,505 CZK 8,699,292 CZK 14,578,743
-0.1 % -2.5 % 3.0 % -1.7 % -2.6 % 3.5 % -1.8 %
Rentals CZK 38,712 N/A 95.0 sq. m. N/A N/A CZK 27,675 CZK 41,427
-3.1 % N/A -5.2 % N/A N/A -9.7 % 6,2 %

Source: data of Svoboda & Williams | *all layouts | **new builds and reconstructions

DEVELOPMENT OF THE AVERAGE ACHIEVED SALES PRICE PER SQ. M. IN THE SEGMENT MONITORED BY SVOBODA & WILLIAMS

AVERAGE APARTMENT PRICES AND LAYOUTS

IN PRAGUE’S POPULAR RESIDENTIAL LOCATIONS BASED ON THE SAMPLE MONITORED BY SVOBODA & WILLIAM IN H1 2023

  • studio 35.1 sq. m. CZK 5,218,907
    1bdrm 54.8 sq. m. CZK 8,690,905
    2bdrm 86.2 sq. m. CZK 13,521,686
    3bdrm 116.8 sq. m. CZK 14,932,801
  • studio 35.6 sq. m. CZK 6,387,463
    1bdrm 53.7 sq. m. CZK 10,330,000
    2bdrm 136.0 sq. m. CZK 20,716,667
    3bdrm 217.5 sq. m. CZK 55,100,000
  • studio 35.1 sq. m. CZK 5,982,425
    1bdrm 56.7 sq. m. CZK 9,169,733
    2bdrm 91.9 sq. m. CZK 13,711,000
    3bdrm 129.5 sq. m. CZK 23,500,000
  • studio 69.5 sq. m. CZK 9,990,000
    1bdrm 61.4 sq. m. CZK 9,839,000
    2bdrm 107.4 sq. m. CZK 16,033,334
    3bdrm N/A N/A
  • studio 38.8 sq. m. CZK 6,156,772
    1bdrm 59.8 sq. m. CZK 8,625,470
    2bdrm 92.0 sq. m. CZK 14,834,150
    3bdrm 106.6 sq. m. CZK 19,397,081

DATA SUMMARY

OVERALL SUMMARY OF AVERAGE ACHIEVED RENTAL PRICES IN MUNICIPAL DISTRICTS (January 2023–June 2023)

Municipal district Ø Monthly rent Ø Apt. floor space Ø Monthly rent 1bdrm Ø Monthly rent 2bdrm
Prague 1 CZK 42,762 106.1 sq. m. CZK 29,696 CZK 45,702
Prague 2 CZK 41,043 97.5 sq. m. CZK 27,825 CZK 42,371
Prague 3 CZK 39,768 92.3 sq. m. CZK 25,752 CZK 41,692
Prague 4 CZK 31,000 89.8 sq. m. CZK 21,909 CZK 33,571
Prague 5 CZK 39,555 98.4 sq. m. CZK 29,352 CZK 37,928
Prague 6 CZK 40,879 99.9 sq. m. CZK 27,048 CZK 33,967
Prague 7 CZK 27,315 68.5 sq. m. CZK 25,720 CZK 36,100
Prague 8 CZK 40,582 79.5 sq. m. CZK 32,021 CZK 48,820
Prague 9 CZK 29,611 91.3 sq. m. CZK 22,300 CZK 35,833
Prague 10 CZK 35,952 104.0 sq. m. CZK 21,167 CZK 38,677

Source: data of Svoboda & Williams

AVERAGE ACHIEVED RENTS VS. SALES PRICES FOR SPECIFIC LAYOUTS IN PRAGUE 1-10 (January 2023–June 2023)

Layout Ø Monthly rent Rentals Ø apt. floor space Ø Selling price Sales Ø apt. floor space
studio CZK 19,251 36.8 sq. m. CZK 5,805,645 39.3 sq. m.
1bdrm CZK 27,675 65.2 sq. m. CZK 8,699,292 63.2 sq. m.
2bdrm CZK 41,427 101.7 sq. m. CZK 14,578,743 101.3 sq. m.
3bdrm CZK 58,484 143.4 sq. m. CZK 25,364,405 158.1 sq. m.
4bdrm CZK 85,711 224.1 sq. m. CZK 27,962,000 205.5 sq. m.

Source: data of Svoboda & Williams

AVERAGE ACHIEVED RENTS VS. SALES PRICES FOR SPECIFIC LAYOUTS IN PRAGUE 1-10 (January 2023–June 2023)

Ø Apt. price* Ø Price per sq. m. Ø Apt. size Ø Apt. price
1bdrm 2bdrm
Prague 1 22 416 000 Kč 221 590 Kč 101,2 m2 13 807 500 Kč 21 820 000 Kč
Prague 2 18 230 382 Kč 153 571 Kč 118,7 m2 9 066 706 Kč 16 634 167 Kč
Prague 3 13 029 423 Kč 151 235 Kč 86,2 m2 6 783 333 Kč 14 780 490 Kč
Prague 4 11 237 500 Kč 121 921 Kč 92,2 m2 8 775 000 Kč 13 666 665 Kč
Prague 5 12 941 092 Kč 134 523 Kč 96,2 m2 7 379 500 Kč 12 000 500 Kč
Prague 6 16 338 000 Kč 161 010 Kč 101,5 m2 9 481 470 Kč 14 250 000 Kč
Prague 7 12 869 060 Kč 143 486 Kč 89,7 m2 8 422 873 Kč 15 273 011 Kč
Prague 8 12 478 215 Kč 141 381 Kč 88,3 m2 9 369 857 Kč 14 284 450 Kč
Prague 9 8 494 000 Kč 117 446 Kč 72,3 m2 7 019 333 Kč 10 275 000 Kč
Prague 10 11 421 875 Kč 134 678 Kč 84,8 m2 8 206 250 Kč 14 450 000 Kč

Source: data of Svoboda & Williams

Methodology of Data Processing

The analysis is based on data obtained from the database of properties offered by Svoboda & Williams during the monitored period (January 2023–June 2023). Sales transactions were supplemented with data on sales of new builds with parameters that match Svoboda & Williams’ portfolio (in this case, the achieved prices were obtained from the Cadastre of Real Estate). The sample monitored by Svoboda & Williams contains nearly 200 sold and 500 rented properties over a 6-month period and therefore covers a significant portion of the premium segment of the Prague residential market. 

The monitored properties are apartments in Prague 1–10; other municipal districts are minimally represented. Within each district, most of the properties in the sample are in premium locations with higher achieved prices such as Bubeneč, Dejvice, Střešovice, and Břevnov in Prague 6, Pankrác, Vyšehrad, and Podolí in Prague 4, Karlín and parts of Libeň in Prague 8, Smíchov in Prague 5, etc. The monitored property prices and rents are actually achieved transactions; we don’t monitor advertised prices. To calculate the price per sq. m., we take into account the price for parking spaces, which we deduct from the achieved sales price and we also include a proportional part of the exterior (terraces, balconies, loggias, and gardens) in the floor area of the apartment (according to the Civil Code). To recalculate the exterior area, we apply a specially developed algorithm that progressively reduces this area and takes into account the ratio of the exterior to the interior area. Average prices are calculated from the transactions finalized over the last 6 months (1/2023–6/2023); percentage changes are half year (1/2023–6/2023 vs. 7/2022–12/2022). For sales, we also determine the price per sq. m. for two categories: new builds (new apartments in residential projects, completely reconstructed apartment buildings, or loft conversions) and resales (secondhand apartments). The prices of new apartments in residential developments are listed including VAT. In order to be able to compare the prices per sq. m. for all apartments, we unified the stage of construction progress for several units using an average assumption of CZK 50,000/sq. m. for the stage prior to reconstruction (shell & core) and CZK 20,000/sq. m. for the stage before the completion of surfaces (white walls). We don’t monitor the price per sq. m. for rentals. While the price per sq. m. is relevant for sales, for rentals the price is determined mainly by layout in addition to location. For example, a one-bedroom apartment with a 50 sq. m. floor area is normally rented for the same price as an apartment with the same layout with a floor area of 60 sq. m., whereas the purchase price of a larger apartment can be up to 15 to 20% higher. Therefore, in our analyses of residential rentals we work with the total rent, and not with the price per sq. m. For a better picture, we also state the achieved price for the most frequent layouts in the sales and rental transactions realized by Svoboda & Williams, i.e., one-bedroom and two-bedroom apartments. 

Data analysis

Methodology of Svoboda & Williams

Ne

Listed price

Ano

Achieved price

Price per sq. m =
Achieved sales price - price of parking Apartment area + proportional part of the exterior (b/t/g)

Algorithm for conversion of the exterior

The area of a terrace that exceeds 30% of the interior is divided by two.

RENTAL PRICE INDEX

Svoboda & Williams + VŠE

ACHIEVED RENTS FOR PREMIUM APARTMENTS IN PRAGUE

H1 2023 (January–June 2023)

CZK 38,712

Average achieved rents in the 1st half of 2023

Achieved apartment rents in H1 2023 per segment and half-year changes

Segment Center Wider center Rest of Prague
Studio to 1bdrm CZK 27,328 -11.9 % CZK 25,673 5.8 % CZK 21,457 -6.2 %
2bdrm CZK 43,635 2.6 % CZK 40,365 8.4 % CZK 32,929 1.3 %
3bdrm and larger CZK 66,713 -13.1 % CZK 72,428 6.4 % CZK 43,000 -4.2 %

Source: data of Svoboda & Williams

Development of achieved rents for apartments in the segment monitored by Svoboda & Williams (2015 H1 = 100)

Prague 1 Prague 2 Prague 6 Prague 5 Prague 4 Prague 3 Prague 7 Prague 8 Prague 9 Prague 10
  • Center
  • Wider center
  • Rest of Prague

The Rental Price Index by S&W + VŠE monitors the changes in the average achieved rental price for an apartment in Prague from the portfolio of Svoboda & Williams compared to the half year period in the previous year (July 2022–December 2022). This aggregate price index calculates the weighted average of the changes in rents for each apartment category. 

We also state the average achieved monthly rents in the monitored period (January 2023–June 2023) in Prague and for each apartment category (incl. half-year changes).

WHAT IS THE RENTAL PRICE INDEX BY SVOBODA & WILLIAMS + VŠE?

The Rental Price Index by S&W + VŠE is an analytical tool that monitors the growth of rental prices in the premium segment in Prague developed by the Svoboda & Williams real estate agency in cooperation with the Faculty of Informatics and Statistics of the University of Economics in Prague. The data is sourced from the actually achieved rents of the apartments that were listed by Svoboda & Williams. Annually, it amounts to 1,100 properties in the territory of Prague 1–10 with studio to 5-bedroom layouts. Since the properties exhibit a high level heterogeneity, we apply an aggregate price index to the development of their prices. It works just like the Consumer Price Index maintained by the Czech Statistical Office, which measures inflation.


WHY SIMPLY COMPARING THE AVERAGE PRICE DEVELOPMENT IS NOT ENOUGH?

The development of average rental prices doesn’t correctly reflect the actual change in prices. This is because the average rent is influenced not only by fluctuations in prices, but also by a changed product structure. Let’s give an example. In two monitored periods, a sample of apartments including luxury apartments in the center of Prague and cheaper apartments in the broader center have been rented. The prices of both the cheaper and the luxury apartments in the second period remain equal, but more of the expensive units have been rented. This will raise average rents, but the price index will remain the same. The aggregate price index is based on the assumption of the fixed presence of rental segments in the portfolio and therefore reflects the change in price, which is “cleaned” of the change in the rental structure. The index is calculated as a weighted average of the price changes in the individual segments, where the weights are their representation in the portfolio (structure) in the selected fixed period.

CONSTRUCTION OF THE RENTAL PRICE INDEX BY SVOBODA & WILLIAMS + VŠE

Selection of segments

The segmentation made sure that the apartments in the same group were as similar as possible and, on the other hand, that the groups were as different as possible. At the same time, each group had to contain a sufficient amount of data. Within the statistical analysis, the impact of many factors on rental prices was examined. These parameters included the specific layout of an apartment, its location, floor, and whether it came with a terrace, balcony, or loggia, or the option to rent a parking space. The analysis proved that rents were most affected by the location and layout of the apartment, and therefore we performed the segmentation based on these two factors.

Based on our expertise and the data analysis of rental prices, we divided Prague into three locations—the center, the wider center, and the rest of Prague (see map above).

Apartment layouts were chosen as the second factor. Based on the location and the layout we defined 9 segments in total:

Relative representation in the portfolio

Segment Center Wider center Rest of Prague
Studio to 1bdrm 12.6 % 26.4 % 7.6 %
2bdrm 12.4 % 15.9 % 4.6 %
3bdrm and larger 6.3 % 10.9 % 3.3 %

Note. Apartments with 6-bedroom layouts and larger are represented too sparsely and they are not included in the analysis.

Selection of Weights

We assigned weights to the individual segments on the basis of the structure of the apartments rented during the calendar year of 2016. The weight of a segment in the price index is calculated as a proportion of the total rent in the relevant segment to the total rent for all segments brokered in 2016. 

The index is compiled on a biannual basis to ensure that a sufficient number of observations could be made. In practice, biannual indexes aren’t as common as monthly or quarterly indexes, but they’re by no means exceptional. For example, the United States Department of Labor uses one to construct the consumer price index.

We calculate two kinds of indexes

A year-on-year index  – monitors the rental price changes between the current half-year period and the previous half-year period (e.g. H1 2023 vs. H2 2022)

A base index – monitors the rental price changes between the current and the so-called base period. A stable period considered a long-term “normal” default should be selected as a base period, in our case H1 2015.

Sales

Ratio of Czech and foreign buyers

63% Czechs
37% Foreigners

Financing the purchase of property

72% Own funds
28% Mortgage loans

Rentals

Ratio of Czech and foreign clients inquiring about a property

49% Czechs
51% Foreigners

Ratio of clients who rented a property

39% Czechs
61% Foreigners

OVERVIEW OF RENTAL PRICE SEGMENTS—RENTAL INQUIRIES VS. REALIZED RENTAL TRANSACTIONS

Price segments Inquiries - Czechs Inquiries - Foreigners Realized rental transactions - Czechs Realized rental transactions - Foreigners
CZK <25 thous. 48 % 52 % 36 % 65 %
CZK 25-55 thous. 49 % 51 % 37 % 63 %
CZK >55 thous. 55 % 45 % 49 % 51 %
Total 49 % 51 % 39 % 61 %

Source: data of Svoboda & Williams

SHARED OFFICES

Q4 2022

Total volume of flexible office space in Prague

112,640 sq. m.

In the past six months, Prague has added 11,540 sq. m. of flexible office space, almost 70 percent of which are operated by local companies. In all other respects, the Czech market follows global trends. Most significantly, shared offices are becoming a preferred option for multinational corporations. The increasingly popular Hubble HQ or Upflex portals today offer offices, coworking spaces, or meeting rooms all over the world, so employees of international companies can use these types of spaces according to their own needs worldwide. This trend is linked to the growth in more flexible rental options and the expansion of shared office centers closer to end users. In the Czech Republic, the number of branches opening up on the outskirts of cities or towns will only increase in the coming months. 

Price range per workspace in a private office in Prague and Europe per month
Prague CZK 5,500 CZK 12,500
Amsterdam CZK 12,500 CZK 21,300
Paris CZK 16,600 CZK 28,400
London CZK 19,000 CZK 30,800
Madrid CZK 9,500 CZK 15,400
Brussels CZK 9,500 CZK 19,300
Warsaw CZK 7,100 CZK 13,000
Berlin CZK 11,900 CZK 21,300

Shared Office Market in Prague

Ratio of local to international providers

69% Lokální
31% Mezinárodní
  • Local: Offices Unlimited, Scott.Weber, Fleksi, Flexi Offices, Impact Hub, Opero, WorkLounge, Base4Work, Mo-Cha
  • International: IWG (Spaces + Regus), WeWork

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