Krakow remains the leader among regional markets in terms of modern office space. The city’s office stock accounts for 14% of the national volume. Developer activity has significantly slowed in recent months, and the area under construction is the smallest among the largest regional cities.
At the end of Q1 2024, the volume of modern office space stood at 1.82 million square meters, representing 14% of Poland’s total office stock.
“Significant office space supply in previous years and an unfavorable macroeconomic environment are limiting developer activity. In the first quarter of 2024, only one building was delivered – Brain Park C (Echo Investment) with an area of 13,000 square meters. By the end of the year, we forecast the completion of an additional 27,000 square meters,” commented Michał Kusy, Junior Analyst in the Market Research Department at Knight Frank.
Currently, only 25,000 square meters are under construction, which is the smallest amount among the largest regional cities in Poland (less office space is only being built in Lublin and Szczecin). It is worth noting that 42% of the area under construction is for owner-occupiers. For comparison, the average annual new supply over the past five years was over 110,000 square meters, the highest among regional cities.
“In contrast to developers, Krakow tenants are more active. In Q1 2024, the lease transaction volume was 15% higher compared to the same period last year. The result of over 44,000 square meters was the highest among regional cities and accounted for 32% of the total transaction volume in the largest cities,” added Aleksandra Markiewicz, Director in the Tenant Representation Department at Knight Frank.
The capital of Małopolska is one of the two cities in Poland (alongside Poznań) where an increase in leased space was recorded in the first quarter. During the analyzed period, new leases had the largest share in the transaction structure, accounting for 55% of total demand. Renegotiations accounted for 41% of transaction volume, and expansions for 4%.
The vacancy rate at the end of March increased by 0.4 percentage points compared to the previous quarter, reaching 20.2%. Assuming continued stable demand and limited new supply in the long term, a decrease in the vacancy rate can be expected.
Asking rents in Krakow at the end of Q1 2024 remain stable, typically ranging from 12 to 16 EUR/square meter/month, with the most prestigious buildings reaching up to 18 EUR/square meter/month. Average operating costs, after increases in previous years, remained stable in the first quarter of 2024, usually ranging from 16.00 to 29.00 PLN/square meter/month.
