In the office rental market, two diametrically different trends are apparent in corporate approaches to rent and arrangement of space, which can be described as lavish functionality and minimalism.
Two dominant trends among tenants
The first approach involves companies striving to meet the needs of all employees, both those working in the office and remotely. Desiring to attract as many people to the office as possible, they decide to invest in a new arrangement. Often however, spaces are then designed that ultimately serve no one. Too many concepts in one place lead to a lack of consistency, which does not produce the intended results and may even discourage employees from returning to work in the office.
The majority of companies, on the other hand, follow the second approach, focusing primarily on minimizing costs. They eventually decide to renegotiate the contract and leave the office in the same location, often reducing the space occupied in the process. These tenants firmly expect employees to return to the office, but instead of making radical changes they just optimize the space, perhaps introducing minor refreshments or leaving the office space without investment in a redesign. In many cases, companies do nothing, being aware of the rising costs of maintaining an office. They focus on meticulously calculating whether changes are really necessary.
Optimization, optimization, optimization
A prime example of the current approach of companies is a project we are working on. It is based on renegotiating a contract covering several thousand sq m for a large media sector company, extending the contract by 5 years for the second time at this location. Previously, during the pandemic, the space was completely revitalized during the office renovation. This time, we are focusing only on financial conditions, as the space is still fresh, functional and tailored to needs. The office is highly utilized by employees, which is an interesting trend compared to other projects.
A striking illustration of the direction of changes in thinking about offices is also the deal made by the company Kruk in Wrocław. After 15 years, the company changed its location from an office in an old building in a technology park, where it occupied over 10,000 sq. m., to the modern B10 building in the Business Garden complex, where it took up 6,000 sq. m. But there has been a significant qualitative change. The new space has been designed based on Workplace research, taking into account the needs of the organization and employees, in terms of function, technology and design.
Narrative change
On the market, we can observe the dominance of renegotiations of contracts, which are currently less often associated with the redevelopment of space, and more frequently with the pressure for better financial conditions. High construction costs force companies to optimize expenses, e.g. by using existing space layouts. The good, old open space is still in place as a basic form, constituting the layout of most offices.
If decisions are made to change the arrangement, they are usually based on Workplace research. Organizations analyze the needs of teams, the functions of space and the interconnections between departments. We recently described the topic related to the new functional profile of workplaces, the change in narrative – designing spaces for active office workers and the main directions in office arrangement in our report “25 trends that will change the office in 2025”.
When planning offices, a trend is emerging based on designing offices with the daily users in mind, not encouraging those who prefer remote work to come in. Smaller zones are created for team work, hubs for small groups. Dividing the space into modules livens up the office interior. Such solutions are implemented through easy-to-modify curtains and acoustic elements and sliding doors, which can be flexibly used in a different configuration if needs change.
Lease flexibility
The flexibility of leasing is playing an increasingly important role. The flex and coworking space sector is developing dynamically, especially in Warsaw. These spaces are no longer just the domain of start-ups and smaller companies, but are increasingly used by larger organizations to conduct part of their activities. Flexible offices were previously chosen mainly by IT companies, but now entities representing all sectors are opting for them.
Demand for offices in the largest markets in Poland remains similar this year to the last. Their utilization is varied, depending on the sector in which the companies operate and their organizational culture. The most commonly used model among companies is a hybrid one, involving 3 days in the office and 2 days working remotely. In the IT sector, which was already using a hybrid model before the pandemic, employees are still less likely to return to the offices. The sector, which had been growing dynamically for years, is now reducing its office space due to the globalization of recruitment and preferences for remote work.
Clients often optimize space, reinvesting the funds saved on smaller spaces in modern offices in better locations, which also ties in with ESG trends. Warsaw, being the seat of management boards, is feeling the effects of the supply gap, especially in the most popular areas among tenants in the center. The average vacancy rate in the Warsaw market exceeds 10%, but in the strict city center and in Wola the percentage of unleased area is only a few percent, while in Mokotów it’s several dozen percent. In regional markets, on the other hand, the available offer remains stable.
Subletting
A new standard in the rental market is the 7-year contract. Previously, with 5-year agreements, tenants could count on significant financial incentives and arrangement work done “turnkey”. Currently, such expectations are increasingly being met with contracts longer than 7 years, even 10 years.
Contracts often contain a provision about the possibility of subletting, similar to clauses related to assignment. Landlords are willing to accept subleases if certain conditions are met, such as the financial standing of the subtenant, compatibility of the business profile with the building’s policies and no conflict with competition prohibitions. Thanks to the joint nature of liability between the original tenant and the subtenant, landlords can feel secure, which increases the popularity of this solution.
Author: Mateusz Strzelecki, Partner/Head of Tenant Representation at Walter Herz
Source: https://managerplus.pl/renegocjacje-umow-i-podnajem-rynek-biurowy-w-obliczu-rosnacych-kosztow-30739
