The summary of the volume of modern office resources, new buildings completed, the number of lease transactions, and the vacancy rate indicates cautious activity in the office market in regional areas – these conclusions are drawn from the report “At A Glance – office space market in regional cities in Q1 2024” prepared by BNP Paribas Real Estate Poland.
Regions to Surpass the Warsaw Market
At the end of the first quarter of 2024, developers in the largest eight regional office markets in Poland delivered only 31,000 sqm through two investments, increasing the sector’s total resources to 6.7 million sqm. In Kraków, the second-largest office market in Poland after Warsaw, Brain Park C (Echo Investment, 13,000 sqm) was completed, and in the third-largest market, Wrocław, the modern office space increased by Quorum Office Park A (Cavatina Holding, 18,000 sqm).
According to developer announcements, more office space is expected to be completed in regional cities in the coming quarters. By the end of 2026, Warsaw will see an addition of 280,000 sqm of new space, while regional areas are projected to realize around 335,000 sqm of new supply. Further decisions on the potential construction or expansion of office projects will be influenced by demand and the macroeconomic situation.
Low Lease Volume
The beginning of the year, however, shows a decline in demand. The total lease transaction volume in the first quarter of 2024 amounted to nearly 140,000 sqm, 36% lower than the previous quarter and 17% lower than the same quarter last year. From January to March 2024, the most office space was leased in Kraków (44,000 sqm), Wrocław (25,000 sqm), and Poznań (24,000 sqm).
In the demand structure, the ratio of new agreements matched the level of renewal agreements.
– In 2022-2023, tenants largely renewed ongoing leases in the face of high relocation and interior design costs and economic uncertainty. In the January-March 2024 period, the share of new agreements and renewals of existing contracts was nearly equal, at approximately 47% each. Four out of the five largest transactions during this period involved the renewal of existing contracts, points out Ewa Nicewicz, Senior Consultant, Office Space Leasing Department, BNP Paribas Real Estate Poland.
Given the significant amount of office space available in existing buildings and those under construction, the report’s authors predict that rental rates will remain at the current level of 16-17 EUR/sqm per month in the coming quarters.
Office Space Available Immediately
In the first quarter of 2024, regional office markets continued to set records for vacancy levels in existing office buildings. At the end of March 2024, around 1.19 million sqm of office space was available for lease across the eight main regional markets, corresponding to a vacancy rate of 17.8%. This represents an increase of 0.3 percentage points compared to the previous quarter and an increase of 1.9 percentage points compared to the same period in 2023.
The highest vacancy rate was recorded in Łódź – 21.3%, and the lowest in Szczecin – 5.5%. However, experts at BNP Paribas Real Estate Poland predict that with reduced developer activity and fewer new office projects in the regions, a decrease in vacancies is expected by the end of 2024.
4-Day Work Week on the Horizon
One factor that may shape office space in regional areas is the shift to a 4-day work week. Some companies are already piloting or permanently implementing this solution. For example, Herbapol announced the full introduction of a four-day work week for all employees starting January 1, 2025. Is such a solution possible across the country?
– According to Eurostat estimates, we rank second in the European Union in terms of the number of hours worked per week, averaging 40.4 hours. Poles are among the longest-working societies in Europe, but this does not always translate into work efficiency. Research conducted in the United Kingdom shows that reducing working hours by 20% per week without a loss in pay led to lower stress levels, increased employee loyalty to the employer, and significantly improved work-life balance without adversely affecting work productivity, highlights Małgorzata Fibakiewicz, Head of Office Leasing Department, BNP Paribas Real Estate Poland.
The prospect of a 4-day work week may, however, raise concerns among employers and the state due to Poland’s competitiveness and productivity results compared to other Western European countries.
