Renegotiations Dominate Warsaw Office Market, Vacancy Rates Hold Steady

Stable demand, scarce supply of new offices, and few vacancies could briefly describe the current condition of the Warsaw office market.

Just under 11 percent of office spaces in Warsaw, currently totaling over 6.30 million sqm, are waiting for tenants. The average vacancy rate has hardly changed for a year, but there are growing disparities when it comes to the availability of offices depending on location. The availability of free spaces has decreased primarily in the center, where we face a shortage of offers, with rental rates reaching up to 29 euros/sqm/month, while in other parts of Warsaw, the choice has slightly increased (13-17 euros/sqm/month).

“Developers show limited activity in terms of new projects, which results from caution and careful analysis of the market’s absorption capacity regarding new resources. At the same time, we are witnessing a growing trend to convert office buildings into residential projects, PRS or dormitories, as well as a decrease in the planned office area in new investments” says Mateusz Strzelecki, Partner / Head of Tenant Representation at Walter Herz.

Slightly more offices handed over than a year ago

In the second quarter of 2024, Warsaw’s office potential increased by only 15,000 sqm due to the completion of the Vibe A office building. However, 49,000 sqm of offices were handed over in the first three months of the year.

During the first half of this year, only 65,000 sqm entered the Warsaw market, and plans for the entirety of 2024 indicate that about 100,000 sqm of new offices will be handed over. Remember that in 2023, new supply in the sector did not exceed 60,000 sqm.

According to Walter Herz’s calculations, over 248,000 sqm of office space remains under construction in Warsaw. Projects under construction include the Office House (Towarowa 22), Upper One, The Form, The Bridge, Vena, CD Projekt HQ, Skyliner II Warsaw, Studio II and the V Tower, University Business Center II, and G5 Prime Offices are being modernized. Almost 90 percent of the area is located in new projects located in the city center and Wola, near Daszyńskiego roundabout.

Mateusz Strzelecki notes that decisions about designing office spaces are now significantly influenced by ESG criteria. “A large amount of greenery and the use of sustainable development solutions for upholding environmental standards characterize both new and modernized properties,” he informs.

Renegotiations dominate transactions

In Warsaw, the demand for offices in the second quarter of this year was almost 40,000 sqm higher than in the first. Nearly 180,000 sqm were contracted. Offices located in the central part of the city and in Służewiec, where economic offers are available, were in high demand. These are attractive for companies that have planned to cut costs due to the economic downtrend.

“In recent months, we observed an increase in demand for office space in Warsaw compared to the first quarter of 2024. Despite this, vacancies remain at a constant level. Tenants’ priority is to minimize costs associated with moving and adjusting space to new needs,” notes Mateusz Strzelecki.

In Warsaw’s leasing structure, renegotiations have begun to dominate in the last quarter. We observed a sharp increase in these transactions considering their share in the lease structure in the first quarter of this year, during which most were new agreements.

The first half of this year closed with demand results at the same level as the first half of 2023. By mid-2024, nearly 320,000 sqm had been leased, about 2 percent less than the same period last year (326,000 sqm).

“Among tenants, large entities, especially media groups, dominate, fighting for employees’ full return to the offices. However, most companies prefer a hybrid model that involves frequent office visits. IT companies continue to show a great interest in new spaces, aiming to optimize area and improve office space quality. Key here are solutions supporting hybrid work, teleconferences, and collaboration between employees. Also, institutional tenants and governmental organizations are increasing their market activity, which is a result of decisions being unlocked after the elections,” informs Mateusz Strzelecki.