Rents in Prague will approach Western European metropolises

Prague – Rental prices in apartments in Prague will approach the prices seen in larger cities in Germany or Austria in the coming years. The reason is the convergence of average wages and the increasing attractiveness of Prague for foreign investors, who will be particularly attracted by the higher yields from Prague rents compared to Western European metropolises. This is according to a study by the consulting firm KPMG, which is available to ČTK.

"While Prague currently does not reach rental prices typical to the west of the Czech border, with wage convergence and the growing attractiveness of the Czech capital in an international perspective, we can expect these levels to converge as well," said KPMG real estate expert Pavel Dolák. According to the Numbeo.com database, rents in Munich are about 70 percent higher than in Prague, and in Vienna or Berlin, they are 30 percent higher.

Last year, yields from rents in Prague reached 3.9 percent. This was the lowest in the last five years, down from 4.4 percent in 2016. "Apartment prices have surged in recent years. From 2016 to 2018, the market appreciation was several times higher than the returns from gross rents. Meanwhile, even in 2014, the situation was reversed," Dolák added.

The selling prices of new apartments in Prague, according to data from development companies Trigema, Skanska Reality, and Central Group, increased by 18.6 percent year-on-year last year to 101,091 crowns per square meter. Thus, the market appreciation was almost five times higher than the rental yield. In 2014, it was less than two-thirds of the then-current rent.

"The interest of both domestic and foreign investors considering entering the rental market in Prague has recently been increasing. They are attracted by the higher profitability of rents compared to western metropolises. However, they encounter a lack of suitable projects and the existing legal regulations of leasing relationships, which complicate the landlords' situation in several aspects. It is riskier for them, for example, due to termination periods in case of unpaid rent," said Dolák. According to KPMG, gross rents in Prague are up to one percentage point higher than in German major cities or in Vienna.

According to Trigema data, the average apartment rent without fees in Prague rose by 3.8 percent year-on-year in the second quarter to 327 crowns per square meter per month. The number of vacant rental apartments has decreased by 30 percent over the past two years to 6,324. "The rise in apartment and rent prices is primarily influenced by the low supply. Few new apartments are being built, and until that changes, no significant changes should be expected. The demand for rental housing will continue to grow. Apartment prices are rising, and mortgages are becoming less and less affordable," Dolák stated.

According to KPMG, 32 percent of Prague's population lives in rented accommodation. In London, the figure is 49 percent, in Amsterdam 70 percent, in Hamburg 76 percent, in Vienna 78 percent, and in Berlin 84 percent. "Rental housing will become increasingly common, bringing us closer to the situation in western metropolises. Although, for historical reasons, it cannot be expected to reach the same levels as in Vienna or in German major cities," Dolák further stated.

According to the Czech Statistical Office, there are about 187,000 rental apartments in Prague, of which 32,000 are owned by the city. Following with a significant gap are companies like CIB (700 apartments), CPI Property Group (500), Albertov Rental Apartments (269), or Luka Living (215). "The remaining rental apartments are owned by individual investors who have several rental units and smaller investors who own entire apartment buildings or dozens of rental apartments," Dolák added.

From 2014 to the end of last year, new apartments in Prague increased in price by about 80 percent, while the average rent rose by 42 percent. However, the average gross wage increased by only 22 percent. "Meanwhile, the population in Prague is growing, and for some of them, owning a home is becoming less and less accessible. Due to rising rents, an increasing number of people will be unable to afford rental housing in Prague. They will resort to moves to Central Bohemia and daily commuting to the capital," Dolák concluded.