In recent times, much more has been happening in the Warsaw office market than in the regional markets, both in terms of demand and new investments. Compared to last year, demand for offices in Warsaw has increased, while in the regions, total demand has decreased. There are also more vacancy rates.
The demand for office space in Warsaw remains at a high, stabilized level. In recent months, even increased. It should be mentioned that in terms of the office market’s absorption capacity, Warsaw is among the top European cities. In the regional markets in Poland, however, the demand for offices has dropped compared to last year. Although office rents in the main regional cities are almost twice as low as in Warsaw, the vacancy rate is almost twice as high as in the capital market.
The widespread optimization of workspace carried out by companies goes hand in hand primarily with the demand for high standard offices, located in the city center. This leads to deepening differences in office availability depending on the location. There are clearly fewer vacant spaces in the central areas of cities, and their number is increasing in areas far from the centers.
In the nationwide rental structure, the share of renegotiations is increasing, which have recently started to dominate in the Warsaw market. In this way, companies try to avoid costs associated with relocations and arranging new space.
Office investments have come to a halt throughout Poland; there are few new projects. Developers analyze the market’s absorption capacity in relation to new supply. In addition to verifying the actual demand for space by companies in the context of hybrid work, the brake on the development of office resources are prices and limited availability of centrally located land, as well as higher investment financing costs.
Developers are also cooled down by less investor activity in the transaction market. However, improvements in this aspect are already visible. In the office segment this year, package agreements were signed in Warsaw, and properties of the prime segment changed owners in the regions. This indicates that investors are once again looking at office assets.
In the first half of this year in the eight largest cities, apart from Warsaw, the total demand for offices fell compared to last year. Almost 290,000 sqm of space were contracted. In the second quarter, contracts were signed for 146,000 sqm, which is a result of several percent lower compared to the same quarter in 2023.
Demand for offices in the regions is primarily reported by companies from the IT and business services sector, as well as manufacturing companies. The rental market in Krakow, Tri-City, and Wrocław shows the greatest dynamics.
In the Krakow market, the demand for offices exceptionally increased in the first half of the year by several percent compared to 2023. In the capital of Lesser Poland, tenants signed contracts for over 90,000 sqm of space, giving it the first position in the regions. Kraków generated one third of the total transaction volume in regional cities.
In Wrocław, 50,000 sqm of offices were contracted, and in Tri-city 56,000 sqm. In Poznań, over 30,000 sqm of space was rented to tenants, and in Katowice 25,000 sqm.
In the regions, on average, almost 18% of the area is available for immediate rental, and in Warsaw, only over 10% of the offices are not rented. There is a relatively wide offer in Krakow and Katowice, where over 20% of the area is waiting for tenants, and in Łódź, even over 23%. In Wrocław, there are 18% of free offices. In Tri-City, vacancies account for 12% of the area, and in Poznań 14%.
Demand for offices in Warsaw turned out to be similar to the previous year in the first half of 2024, both in terms of quantity of contracted space and number of contracts concluded, which indicates a stabilization of the market. By the middle of this year, contracts were signed for about 320,000 sqm of offices, most of them located outside the city center. However, in the second quarter of this year, the demand for Warsaw offices was about 30% higher than in the previous three months, and also higher than the leasing volume in the same quarter of the previous year.
Warsaw offices are most often leased by companies from the banking, manufacturing, media groups, and IT and business services sectors. Institutional tenants and state entities are also becoming more active as a result of lifting decisions post government change. A facilitation for the State Treasury companies and public sector institutions is the possibility of paying rent in zlotys, increasingly offered by building owners.
Renegotiations of contracts, which have been gradually increasing in Warsaw recently, began to predominate. In the second quarter of this year, they clearly dominated the leasing structure on the Warsaw market, which is caused by the high costs of finishing and equipping new spaces.
The increase in new office supply in Poland now exceeds just over a quarter of that which was noted before the pandemic. In the nine major cities of Poland (Warsaw, Krakow, Wrocław, Tri-City, Katowice, Poznań, Łódź, Lublin, Szczecin), almost 500,000 sqm of office space is under construction. And remember that five years ago, 1.9 million sqm of offices were built in the country.
New investments have almost completely stopped in the regional markets. In the first half of the year, the construction of one investment in Wrocław began, which will offer several thousand sqm of offices.
During this period in Warsaw, construction or modernization began on over 90,000 sqm of space in six office buildings. In total, about 280,000 sqm of offices are under construction on the Warsaw market. New office buildings are mainly growing in the city center (90% of new space), reflecting a strategic adjustment to the current preferences of tenants and company employees.
After completion of the construction, the resources of the capital will be replenished by projects such as The Bridge (47,000 sqm), Upper One (36,000 sqm), Skyliner II (24,000 sqm), Office House (31,000 sqm), Warta Tower (30,000 sqm), The Form (30,000 sqm), Studio II and Vena (15.4 thousand sqm) and CD Projekt HQ (5.6 thousand sqm), as well as V Tower (33.7 thousand sqm), G5 Prime Offices (11,000 sqm) or Lakeside II (18,000 sqm), former UBC II after modernization.
Office projects being initiated now have much less space than those built a few years ago. Besides, in the Warsaw market, more conversions of old office buildings can be observed, primarily into residential projects, PRS or dormitories.
In the regions, about 190,000 sqm of offices are under construction, mostly in Krakow, Katowice, Poznań, and Wrocław. Almost 70 sqm of office space under construction gives the Krakow market the highest result among regional cities. Second in terms of the number of offices underway are Katowice with 60,000 sqm. The largest projects being implemented in the Katowice agglomeration are Grundmanna Office Park (21,000 sqm) and Eco City Katowice (18,000 sqm).
In Poznań, about 58,000 sqm of offices are under construction. Among the projects in progress is the AND2 building (40,000 sqm). In Wrocław, three office projects with a total area of about 40,000 sqm are under construction. In the Tri-city, 36,000 sqm of offices are being built.
In the first half of the year, developers in Poland only handed over just under 130,000 sqm of new spaces. New supply was almost halved between Warsaw and the largest regional markets combined. The Wrocław and Krakow markets were leading in terms of new supply. Wrocław dominated the other regions, accounting for over half of the space delivered outside Warsaw (32,000 sqm).
In Warsaw this year, office buildings such as Lixa D and E and Vibe I were completed, in Wrocław Quorum Office Park A (16.8 thousand sqm) and B10 were completed, and in Krakow Brain Park C (13 thousand sqm).
By Mateusz Strzelecki, Partner / Head of Tenant Representation at Walter Herz.
Source: https://managerplus.pl/warszawski-rynek-biurowy-rosnie-w-sile-podczas-gdy-rynki-regionalne-zmagaja-sie-ze-spadkiem-popytu-i-wzrostem-pustostanow-91918
