Due to insufficient supply and high demand for residential real estate, there has been talk of steadily rising apartment sales prices for many years. Unfortunately, the rental market is no exception. Prague is currently experiencing the lowest number of apartment listings in eight years, leading to further increases in rental prices.

Over the past two years, the supply of rental apartments has fallen by 69% and is well below pre-pandemic levels, when it was significantly supplemented by apartments intended for short-term rentals. Supply is therefore decreasing while demand is growing, pushing rental prices up. Year-on-year, prices in large cities have increased by up to 18% and in many locations have already exceeded pre-COVID levels.

According to Deloitte's analysis (Rent Index Q1 2022), rents in Prague and regional capitals rose by an average of 2.4% in the first quarter of the year. Tenants paid an average of CZK 253 per m². The most expensive rents continue to be in Prague, where the price exceeds CZK 300 per m² (CZK 317/m²).

There are several reasons for the rapid growth in demand for rental housing. One of them is the high price of apartments for sale. In the Czech Republic, the price per square meter for an average older apartment can reach up to CZK 90,000, and in Prague up to CZK 149,100. Apartments in Prague 7 saw a significant price jump, with a 61% increase – buyers paid CZK 216,300 per square meter, making this district one of the most expensive in Prague.

Less accessible mortgages are also contributing to the rise in apartment prices. The average mortgage rate rose to 5%, and the monthly payment on an average mortgage of CZK 3.5 million increased by approximately CZK 5,500. Mortgages have thus become less accessible to the middle class, which is putting pressure on the rental market. Another factor is the wave of refugees in connection with the war in Ukraine. Therefore, it can be expected that rental prices will continue to rise.

Prague has long suffered from a housing shortage and is unable to meet growing demand. Although the construction of new apartments is planned, it is possible that Czechia will gradually move closer to the Western model, where it is more common to rent than to own. If the supply of rental housing does not expand quickly enough, it will not meet demand. Rents in Prague are rising and are likely to continue to do so. From an investor's perspective, buying real estate may make more sense as a way of storing capital.