The increasing volume of transactions in the Warsaw office property market, the return of investors from outside the Central and Eastern Europe region, and the increase in leased spaces signal a clear revival in the Polish market, according to experts at Baker McKenzie. The quick return to growth trends is still hampered by high financing costs.
According to Baker McKenzie experts, the Polish office property market has managed to weather the slowdown effectively. Indications of its good condition include a steady influx of new tenants, a rising value of rents, the persistence of vacancy rates at about 10% in Warsaw, and the absence of distressed assets.
“Investors, developers, and financing institutions are cautious, but the clear signs of recovery suggest a reversal of trends and entering a growth stage,” says Weronika Guerquin-Koryzma, partner in charge of property practice at Baker McKenzie’s Warsaw office. “Market statistics are still far from the record results of the last two years before the outbreak of the pandemic. However, there are reasons for optimism.”
According to JLL analysis, in the first half of 2024, there were 22 office property sales transactions on the Warsaw market, valued at €800 million. In the corresponding period in 2023, the value of such transactions was €200 million. Office transactions accounted for almost half of the investments in the entire commercial property market, which totalled nearly €1.7 billion, meaning a 91% increase compared to 2023. Both in the office and retail space market, the number of transactions in the first half of 2024 was larger than in the whole of 2023. The second half of the year also brought significant events like the largest office property market transaction in Europe, the sale of Warsaw Unit to a Swedish real estate company, for €280 million.
“The demand for office space is growing even though the return to stationary work is slow. All signs indicate that hybrid work will stay with us permanently,” adds Weronika Guerquin-Koryzma. “The last two years have shown how flexibly we can respond to external conditions. More importantly, new solutions are staying in place and contributing to the market’s attractiveness.”
Baker McKenzie experts particularly highlight the development of flexible workspaces in response to companies’ efforts to cut down on office spaces, the transformation of commercial building functions into residential ones, the dynamic growth of student housing, renovation, and enhancement of ESG parameters of older office buildings. Investments in older buildings in need of renovation are of particular interest to funds from Scandinavia, the Czech Republic, and the Baltic countries.
“Investors from Northern and Central and Eastern Europe are going to be with us for some time. At the same time, we see a return of investors from Western Europe and Asia,” says Weronika Guerquin-Koryzma. “Many entities see opportunities in the growing popularity among tenants of offices that meet stringent environmental criteria.”
The high cost of financing remains the main factor negatively affecting the level of investment in the commercial property sector. In the long term, the rising costs of office operations and a limited supply of attractive investment land may also impact the market negatively.
According to Baker McKenzie experts, the situation should improve next year with the expected loosening of monetary policy in Poland and Europe. Market players are also hopeful about anticipated legislative work on introducing REITs, which would enable an increase in participation by Polish investors, including individual ones, in the commercial property segment. Currently, this market is largely dominated by foreign investors.
Return to growth trends is slightly slower in regional markets than in the capital. The total office space in all major cities in the regions is just slightly larger than in the capital, but finding tenants proves to be more difficult, with a higher vacancy rate. However, don’t discount regional markets just yet: in 2024, investor activity in these areas increased after a period of stagnation. Significant office space transactions in the first half of 2024 were concluded in Tricity, among others. In November 2024, the Estonian investment fund Summus Capital signed a contract to purchase the React office building in Łódź from Echo Investment.
Source: https://ceo.com.pl/baker-mckenzie-rynek-nieruchomosci-biurowych-w-polsce-wraca-do-trendu-wzrostowego-77568
