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Limited Developer Activity in Tri-City Office Market in Q1 2024

REAL ESTATELimited Developer Activity in Tri-City Office Market in Q1 2024

Developer activity in the major office markets in Poland, including the Tri-City area, remains limited. In the first quarter of 2024, no new buildings were completed, and the amount of office space under construction is at its lowest level in over two decades.

The total office space in the Tri-City area remained unchanged from the previous quarter, standing at 1.05 million square meters at the end of March 2024. The vast majority (76%) is located in Gdańsk, primarily along Grunwaldzka Avenue and around the historic city center. Approximately 21% of the office space is in Gdynia, with the remaining 3% in Sopot.

“Developer activity has significantly slowed, similar to other office markets we monitor. In the first three months of 2024, no new buildings were completed. However, we already know that the coming months will bring changes in this area. Only 35,000 sqm are currently under construction, with 22,000 sqm expected to be completed by the end of this year,” commented Michał Kusy, Junior Consultant in the Market Research Department at Knight Frank.

A decline in demand for office space is also observed. After a record-breaking year in 2023, companies signed leases for just over 23,000 sqm in the first quarter of this year, a 9% decrease compared to the previous quarter.

“Our analysis shows that Gdańsk was the most popular among companies, with 18,800 sqm leased. The IT sector generated the highest demand, accounting for 49% of the total leased space,” added Joanna Gomułkiewicz, Director of Tenant Representation at Knight Frank.

Lease renegotiations dominated the structure of lease agreements, accounting for 57% of the leased space. New leases constituted 42%, while expansions made up only 1%.

The vacancy rate increased by 0.1 percentage points compared to the previous quarter. At the end of March 2024, it stood at 13.4%, making it the third lowest among regional cities, after Szczecin and Lublin. It is worth noting that the vacancy rate in the Tri-City area is quite varied. In Gdańsk, it is estimated at 11.3%, while in Gdynia and Sopot, it is 19.9% and 22.4%, respectively.

Asking rents in the Tri-City area at the end of Q1 2024 remained stable, ranging from EUR 11.00 to 15.50 per sqm per month. However, due to high construction costs and persistently high costs of construction loans, rents for the best spaces in new buildings may exceed this level. Operating costs have stabilized at a level ranging from PLN 17.00 to 30.00 per sqm per month.

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