As of the end of June 2024, the total office space supply in the Tricity (Gdańsk, Gdynia, Sopot) reached 1.05 million sq.m., confirming the region’s position as one of the key business hubs in Poland. Gdańsk remains the largest office market, accounting for 76% (800,900m sq.m.) of the total supply.
Expert Comment
Jarosław Pilch, Head of Office Space and Tenant Representation at Savills, comments: “The ongoing trend of office space reduction is a direct result of companies transitioning to a hybrid work model. Tenants are seeking savings and efficiency, leading them to renegotiate contracts and remain at their existing locations. The high vacancy rate and drop in demand are forcing developers to halt new investments or change their purpose. The office market in Tricity is currently undergoing significant transformation, adapting to the new needs of tenants.”
A decrease in construction activity, but strategic projects in progress
At the end of June, about 23,000 sq.m of office space was under construction, a decrease of 66% compared to the same period last year. The largest project is the second stage of the Gdynia Waterfront complex, where developer Vastint, will provide 14,500 sq.m to the market. The Gdańsk Wrzeszcz district’s Grunwaldzka Avenue will be complemented by a growing office and commercial building with a workspace of 1,500 sq.m, the Alzare Office.
Currently, four investments (three in Gdańsk and one in Gdynia) totaling over 48,000 sq.m have been halted.
Activity of tenants and demand structure
In the first half of 2024, the total lease activity amounted to 55,800 sq.m, signifying a 19% decrease compared to the first half of 2023. Most of the space was rented in Gdańsk (46,700 sq.m), while in Gdynia tenant activity stood at 8,600 sq.m.
Renegotiations constituted about 43% of total demand, new leases (including proprietor’s own use contracts) 54%, and expansions 3%. No preleases were reported, potentially pointing to tenant caution in the face of market uncertainty.
The most active sectors were IT (35% share of demand), manufacturing (18%) and business services (13%), which together generated almost two-thirds of the demand for office space.
Decrease in vacancy rate and rent stabilization
By the end of June 2024, the vacancy rate in the Tricity reached 12.5%, a decrease of 180 basis points year on year, despite it being the market’s historical high. In Gdańsk, the vacancy rate was 10.8% (86,600 sq.m of available space), in Gdynia 17.6% (38,200 sq.m), and in Sopot 19.5% (6,900 sq.m).
Net absorption reached 13,400 sq.m, a significant reversal compared to negative absorption of -4,700 sq.m in the first half of 2023.
“The rise in vacancies in the Tricity to a record 12.5% is a result of transitioning to a hybrid work model and reduced investment activity. Companies are renegotiating contracts, optimizing costs, affecting developers who put new projects on hold. Despite difficult circumstances, the IT sector and other key industries continue to generate demand, raising hopes for gradual market stabilization,” says Piotr Skuza, Associate Director | Regional Manager Office Agency.
Starting rents remain stable, with a slight increase noted for Class A buildings. At the end of Q2 2024, rates in the Tricity’s prime locations ranged from 13.00 to 15.00 EUR/sq.m per month. The rise in rents is due to gradual absorption of vacant space and rising fit-out costs.
Increase in operating charges
Due to persisting high inflation and energy costs, operating charges in the Tricity have risen, now standing at 21.00 to 29.00 PLN/sq.m per month.
Key market data for H1 2024:
– Total office space supply – 1.05 million sq.m
– Under construction – 23,000 sq.m (down 66% YoY)
– Newly delivered space – 5,000 sq.m (down 27% YoY)
– Vacancy rate – 12.5% (down 180 basis points YoY)
– Total lease volume – 55,800 sq.m (down 19% YoY)
– Net absorption – 13,400 sq.m (vs -4,700 sq.m in H1 2023)
Market trends and observations
The office market in the Tricity is experiencing significant changes due to the new realities of work and tenant behaviors:
1. Ongoing trend of office space reduction – This results directly from the increasing popularity of the hybrid work model. The vacancy rate has risen to the historically highest level, reaching 12.5%.
2. Preference for renegotiation and staying in current locations – Tenants are more often opting to downsize their rented space, renegotiating terms with existing landlords, leading to approximately a 19% decrease in demand.
3. Halted developer investments – Office developers have suspended previously started constructions due to decreased demand. It has become particularly challenging to sign pre-let lease agreements.
4. Redirection of planned investments – Office projects planned for the coming years are currently being transformed into PRS (Private Rented Sector) investments or apartments for sale.
Outlook
Despite challenges, the office market in the Tricity exhibits signs of stabilization. Positive net absorption and gradual absorption of vacant space suggest potential for market recovery in the longer term. The fate of further development rests on developers’ decisions regarding suspended projects and the market’s ability to adapt to changing work models.
Source: https://managerplus.pl/trojmiejski-rynek-biurowy-redukcja-powierzchni-i-rosnacy-wskaznik-pustostanow-26204
