The consulting firm Savills, in its report “Market in minutes – Regional Office Market,” summarized three quarters of the year in eight key office markets in the region. During this time, only 76,000 sqm of space was put into use, a result 76% lower than last year’s. Despite this, the vacancy rate stabilized at 17.3%, indicating a striving for balance between demand and supply.
Three markets with over one million square meters, Krakow still the leader
Krakow maintains its position as the regional leader with a total supply of modern office space amounting to 1.82 million sqm. Wroclaw and Tri-City also cross the threshold of 1 million sqm, with resources of 1.37 million sqm and 1.07 million sqm, respectively. These cities also concentrate the majority of tenant activity.
“Krakow, Wroclaw, and Tri-City attract the largest number of companies, offering access to skilled workers, extensive infrastructure, and attractive rental conditions,” says Daniel Czarnecki, Head of Landlord Representation, Office Agency, Savills Poland.
The largest volume of new space increased resources in Wroclaw (32,300 sqm), Tri-City (19,500 sqm), and Krakow (14,400 sqm). The list of the largest projects put into use included: Quorum Office Park A (Wroclaw, 18,200 sqm), Waterfront phase II (Tri-City, two buildings with a total area of 14,500 sqm), B10 (Wroclaw, 14,100 sqm), and Brain Park C (Krakow, 13,000 sqm). Importantly, as much as 50% of the space delivered this year is still waiting for its tenants.
Few pre-leases, few constructions
At the end of September, 214,400 sqm of modern space was under construction across the regions. The most offices are being built in Poznan (55,400 sqm), followed by Katowice (46,200 sqm), Wroclaw (41,600 sqm), and Krakow (37,100 sqm). “A very low level of pre-lease agreements is extending the commercialization process of projects under construction, which combined with financing challenges has forced some developers to halt ongoing projects. Currently, the ‘on hold’ status applies to approximately 107,400 sqm, waiting to resume upon signing a pre-lease contract or assurance of new form of financing,” says Daniel Czarnecki.
The authors of the report estimate that in the most optimistic scenario, a total of 382,000 sqm of office space is planned to be put into use in 2025-2026 in regional cities, of which about 141,000 sqm is already under construction.
Demand down. Renegotiations dominate, IT sector with agreements
In the analyzed period, tenants rented a total of approx. 509,300 sqm of office space, representing a 4% decrease in demand compared to the previous year. The most offices were rented in Krakow (178,500 sqm, up 47% y/y), Wroclaw (95,800 sqm, down 21% y/y), and Tri-City (92,800 sqm, down 27% y/y). In addition, demand in Poznan was 53,500 sqm, in Lodz 45,100 sqm, and in Katowice almost 35,000 sqm. In Lublin and Szczecin leasing activity totalled less than 9,000 sqm collectively.
In the third quarter of 2024, lease renegotiations accounted for 53% of all transactions, compared to 35% in the corresponding period of 2023. Tenants from the IT sector remain the most active, generating 26% of the total demand. In Krakow, as much as 35% of new contracts were signed by tenants from this sector.
“Tech companies are looking for modern and flexible spaces that support a hybrid work model and allow for easy team scaling,” comments Jarosław Pilch, Head of Tenant Representation, Office Agency, Savills Poland.
Stable vacancies and rents
The Savills report indicates that vacancy rates differ depending on the city. The lowest level was recorded in Szczecin (6.8%), and the highest in Lodz (21.1%). In Katowice (20.5%), Wroclaw (19.7%), and Krakow (18.9%) the vacancy rate is around 20%. In Tri-City, Poznan, and Lublin, it did not exceed 13%. The average vacancy rate at the end of the third quarter was 17.3%, recording a slight upward correction by 3 percentage points compared to 2023.
Net absorption in the period from Q1 to Q3 was 79,800 sqm, representing a 7% increase compared to 2023. Only in two cities – Lublin and Szczecin – this indicator was negative and amounted to -1400 sqm and -2100 sqm, respectively. The highest positive values were recorded in Krakow (26,800 sqm), Tri-City (23,600 sqm), and Poznan (14,600 sqm).
“At the end of the third quarter the base rents in class A buildings in regional cities ranged from 12.00 to 17.00 EUR/sqm/month on average. The highest rates were registered in Poznan (17.00 EUR/sqm/month), Krakow, and Wroclaw (up to 16.50 EUR). In Szczecin the rents reached 15.50 EUR, and in Tri-City, Katowice, and Lodz they marked slightly lower values (15.00 EUR),” says Jarosław Pilch.
Of the eight key markets, the cheapest offices were in Lublin, where you had to pay up to 14.25 EUR per square meter for the best locations. In addition to rent, tenants must also account for service charges, which can reach 36.00 PLN/sqm/month.
Challenges and prospects of the market
The low level of new pre-lease agreements (below 10% in most regional cities) and difficulties in obtaining financing affect delays in the implementation of some office projects. However, the stable vacancy rate and growing tenant activity in the IT sector give reasons for cautious optimism.
“We expect that the office market in the regions will gradually adapt to the new reality. Key will be offering workspaces that meet the needs of companies using a hybrid work model and providing flexible rental conditions,” summarizes Daniel Czarnecki.
Source: https://managerplus.pl/rynek-biurowy-w-regionach-spadek-podazy-stabilne-pustostany-i-dominacja-sektora-it-64490
