According to “Office Occupier – Office Market in Regions, Q1 2024”, a report published by real estate advisory firm Newmark Polska, during the first three months of 2024, Poland’s regional city office markets experienced moderate occupier demand, with regearing accounting for most of total take-up. In addition, while the overall regional vacancy rate rose to nearly 18%, development activity was more muted and focused on three cities: Katowice, Poznań and Wrocław, which contain 75% of the office stock under construction.
With more than 6.7 million sqm of office space at the end of the first quarter of 2024, Poland’s largest regional city markets surpassed Warsaw in terms of the total office stock by nearly 0.5 million sqm. That said, just 31,200 sqm was completed in the regional cities in the period January-March 2024, the lowest first-quarter regional figure since 2012. The first three months of 2024 saw two office completions: Quorum Office Park A in Wrocław (18,200 sqm) and Brain Park C in Krakow (13,000 sqm).
“The downturn in construction activity continued throughout the first quarter of 2024, with around 240,000 sqm underway, a decrease of over 19% since the fourth quarter of 2023 and more than 68% below the ten-year average of around 744,000 sqm. With office availability in standing buildings remaining high and a growing focus on office and operational optimisation, occupier demand weakened. This, in turn, made developers more cautious about commencing new office projects,” says Joanna Bartosiewicz, Senior Associate, Office Tenant Representation, Newmark Polska.
Total office take-up on the key regional markets in the first quarter of 2024 climbed to nearly 140,000 sqm, down by over 33% over the quarter and by nearly 17% year-on-year. In the period January-March 2024 there were only two large leases signed for more than 10,000 sqm, with the average size of executed leases being under 900 sqm, a clear sign of tenants favouring smaller offices. The sectors that generated most demand were IT and manufacturing, which accounted for 29% and 18% of the total take-up respectively. Retail came third with 9%.
“Broken down by transaction type, renegotiations and renewals have for long accounted for a significant proportion of regional city office take-up – in the first quarter of 2024 they made up 46.6% of the total and were followed by new leases (45.8%). The remaining 7.6% came from expansions (4.8%) and owner-occupier transactions (2.8%),” says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.
In the second quarter of 2020, the overall vacancy rate on the core regional city office markets surpassed the 10% mark and has since continued to trend upwards. At the end of March 2024, it stood at 17.8%, up by 0.3 pp since the fourth quarter of 2023 and by 1.9 pp year-on-year. Vacancy rates above 20% were in three cities (Krakow, Katowice and Łódź), but remained slightly below that level in Wrocław. The combined office availability on the eight key regional markets hit a record high of nearly 1.2 million sqm, accounting for almost 18% of the total regional office stock.
“With office availability remaining high in standing buildings, rental rates remain at a stable and relatively high level of around EUR 16.00-17.00 per sqm per month and are expected to hold firm in the coming quarters. In addition, landlords of office buildings equipped with modern technologies and meeting environmental and social (ESG) requirements are unlikely to give ground in rental negotiations or to offer any major lease incentives such as rent-free periods or fit-out contributions,” says Urszula Sobczyk, Head of Valuation, Newmark Polska.
