International consulting firm Cushman & Wakefield has summarized the first quarter in Poland’s office sector. High lease renegotiation rates in regional markets, more available space, and a slight increase in total occupied space.
SUPPLY: ABOUT 40% OF PLANNED 2024 SPACE DELIVERED IN Q1, NEW SUPPLY EXPECTED TO BE LIMITED UNTIL END OF 2026
By the end of the first quarter of 2024, the total stock of modern office space in the major markets in Poland reached approximately 12.95 million square meters.
The total size of completed projects was just under 80,000 square meters, encompassing projects in only three cities – Warsaw, Wrocław, and Kraków. This continues the trend of limited supply in terms of new investment volumes observed over the past three years. Despite the start of a few new projects, the scale of space under construction remains low. In regional cities, this amounts to about 225,000 square meters, compared to 850,000 square meters pre-pandemic, commented Ewa Derlatka-Chilewicz, Head of Research at Cushman & Wakefield.
The largest completions in Q1 included Quorum Office Park A in Wrocław (18,200 sqm – Cavatina Holding), Lixa E in Warsaw (16,900 sqm – Yareal), the refurbishment of the Warsaw office building Saski Crescent (15,500 sqm – CA IMMO), and Kraków’s Brain Park C (13,000 sqm – Echo Investment).
According to Cushman & Wakefield estimates, the Polish office market will expand by about 210,000 square meters by the end of this year. Slightly more space – around 240,000 square meters – is forecasted for 2025, with a larger volume of new supply expected only after 2026, added Ewa Derlatka-Chilewicz.
DEMAND – LOWER TENANT ACTIVITY, OCCUPIED SPACE SLIGHTLY UP
In total, companies signed leases for nearly 280,000 square meters in Poland’s main office markets. Nearly half of the demand in the first quarter of 2024 was in the capital – over 139,000 square meters (an 11% decrease compared to Q1 2023, though the number of leases increased by 4%). Notably, tenant activity in the last 18 months has been significantly influenced by the trend of optimizing and reducing occupied office space by market tenants.
In Warsaw in Q1 2024, new leases dominated the demand structure, accounting for approximately 54% of all agreements. Lease renegotiations represented 36%, while expansions made up about 10%.
Tenant activity in regional markets totaled 140,000 square meters, a 17% decrease compared to Q1 2023. Between January and March, demand was driven mainly by IT companies, as well as those in the manufacturing and services sectors. The transaction structure differed slightly from Warsaw, with new leases making up 48%, renegotiations 47%, and expansions 5%. A small but positive absorption rate indicates that the volume of occupied space continues to grow, commented Michał Galimski, Partner, Head of Regional Markets at Cushman & Wakefield.
VACANCY RATES UP SLIGHTLY, RENTAL RATES STABLE
The average vacancy rate in Poland at the end of Q1 was 14.5%, an increase of 0.4 pp. from Q4 2023, and a rise of 0.7 pp. year-on-year. In the capital, the vacancy rate increased by 0.6 pp. from the previous quarter, reaching 11%.
Most regional cities also saw an increase in available space, except for Katowice and Poznań, where the vacancy rate decreased by 1.0 and 0.6 pp., respectively. The average vacancy rate for the regions was thus 17.8%. Across all analyzed office markets, available space totaled 1.88 million square meters, a 7% increase from the beginning of 2023, explained Vitalii Arkhypenko, Market Analyst at Cushman & Wakefield.
Rental rates for prime office space in the Central Zone in Warsaw averaged 22-26 EUR/sqm/month, while non-central locations ranged from 13.50-16.50 EUR/sqm/month.
In regional cities, prime office rents in central areas averaged 12.50-16.50 EUR/sqm/month. Higher-than-average rents were observed in newly delivered buildings or those in good locations. Higher construction, fit-out, and investment financing costs continue to significantly impact the rental policies of newly built projects, summarized Vitalii Arkhypenko.
