In the third quarter of 2024, the office space market in Poland’s regional cities remained stable, although high vacancy rates continue to pose challenges and slow down developer activity. The office supply in the eight major cities reached 6.73 million sqm, with Krakow remaining the leader at 1.82 million sqm, followed by Wrocław (1.37 million sqm) and the Tri-City (1.06 million sqm).
Stabilization of Vacancy Rates
The vacancy rate stabilized at 17.3%, a decrease of 0.4 percentage points compared to the previous quarter and comparable to the same period in 2023. The most significant declines in available office space were observed in Łódź, Poznań, and Krakow, while an increase was noted in Wrocław. The highest vacancy rate was recorded in Łódź (21.1%), and the lowest in Szczecin (6.8%).
According to analysts from BNP Paribas Real Estate Poland, the high volume of unleased office space will persist in the coming months, with vacancies expected to be absorbed by the market over the next 3-5 years. The largest contributors to these vacancies are buildings older than 10 years, which account for more than half of the existing vacant spaces and have difficulty attracting tenants.
What Does Demand Look Like?
The total leasing transaction volume recorded in the third quarter of 2024 amounted to 223,000 sqm, an increase of 54% compared to the previous quarter and 13% higher than the same period last year. Most office space was leased in Krakow (85,000 sqm), Wrocław (43,000 sqm), and the Tri-City (40,000 sqm).
– “At the end of Q3, demand in regional cities was at a similar level to the same period in 2023, which was a record year for the largest regional cities, suggesting market stabilization. Since the beginning of the year, the transaction volume has exceeded 0.5 million sqm, a decline of just 4% compared to Q1-Q3 2023. Lease renewals accounted for 53% of third-quarter transactions, new agreements made up 43%, and expansions only 4%. IT sector companies remained the most active tenants in the first nine months of 2024,” notes Małgorzata Fibakiewicz, Senior Director, Head of Office Leasing at BNP Paribas Real Estate Poland.
In the third quarter of 2024, several large transactions were recorded in regional cities. The largest was the lease renewal by a confidential tenant in Krakow’s Kapelanka 42 A complex for 16,000 sqm. Other notable transactions included State Street Bank’s lease renewal in the Alchemia II complex in Gdańsk (10,000 sqm) and Rossmann’s lease in Łódź’s Teofilów Business Park – C (8,000 sqm). In Wrocław, significant transactions included lease renewals in Bema Plaza (8,500 sqm) and Wrocław Business Park – Nowa Strzegomska (8,500 sqm). These results confirm tenant activity in the largest regional cities.
Supply and Impact on Rental Rates
Developer activity in the regional office market remains limited. Currently, 286,000 sqm of office space is under construction, with completion expected between 2024 and 2026. Major projects include Quorum Office Park B in Wrocław (53,000 sqm, developer: Cavatina) and AND2 in Poznań (37,000 sqm, developer: Von der Heyden Group). In Krakow, the WITA Project (26,000 sqm) is being developed by Archicom & Echo Investment.
Despite limited new supply, rental rates for office spaces in regional cities remain stable. In Q3 2024, rates ranged from €11.5 to €18.0 per sqm per month, depending on location and building standard. In the coming months, rental pressure may increase due to the limited number of new projects and a moderate decrease in the vacancy rate. According to BNP Paribas Real Estate Poland experts, lease agreements in new buildings are increasingly long-term, often ranging from 5 to 10 years, due to high fit-out costs.
In older buildings, lease conditions are more flexible – renegotiations often offer terms of 2-5 years, while new leases are typically for 3-5 years.
Challenges for Developers and New Projects
According to the report “At a Glance – Regional Cities Office Market in Q3 2024” by BNP Paribas Real Estate Poland analysts, new supply during the analyzed period was only 15,400 sqm. The largest completed project was the Waterfront II complex in Gdynia (14,500 sqm), developed by Vastint.
Since the beginning of 2024, the regional office market has grown by nearly 77,000 sqm. The high vacancy rate in the regions translates into low developer activity and the completion of only a few projects. Moreover, developers have significantly reduced their activity in the office sector, shifting the target function of planned buildings to include residential formats (e.g., apartments or rental housing). However, a supply gap is not expected, as planned projects are being carried out in stages or as mixed-use developments.
– “A clear trend of consolidating and optimizing office spaces is evident. Companies aim to use space more efficiently while improving its standard. A key factor in this process is the growing demand for modern, flexible offices that meet the needs of contemporary employees. The war for talent, which has become a key challenge, is increasingly present in regional markets,” emphasizes Jan Pawlik, Workplace Management Director, ISS Poland.
Source: CEO.com.pl
