According to the report by advisory company Newmark Polska “Office Occupier – Warsaw Office Market”, last year in the Warsaw office market was marked by stable demand, moderate developers’ activity, and further adaptation of tenants to changing work models. Other significant factors shaping the capital’s market included the increase in demand for sustainable and technologically advanced offices, which resulted in a growing number of office building modernizations.
At the end of the fourth quarter of 2023, the resources of modern office space in Warsaw amounted to 6.23 million sqm. Throughout 2023, developers put into use nearly 61,000 sqm of offices, which is the lowest result of new supply in the history of the Warsaw office market. 67% of this volume fell in the fourth quarter, during which the two largest office projects of the past year were completed: Lakeside (22,700 sqm, Mokotów) and Studio B (17,900 sqm, Western Center).
The activity of developers in the capital remained at a moderate level. Factors such as lengthy decision-making procedures, seeking savings on the tenant’s side, or high construction costs prompted developers to review their plans for the next years, and the initiation of new investments this year will depend, among other things, on the possibility of signing pre-let agreements.
“At the end of December 2023, there were nearly 281,000 sqm under construction, including nearly 46,000 sqm in office buildings undergoing a thorough modernization. The decisions of office building owners on the modernization of further facilities will be influenced by the growing interest of office tenants in offices offering technological and environmental solutions, which enable the achievement of energy efficiency and cost optimization, and support the implementation of ESG goals,” says Agnieszka Giermakowska, Director of Market Research and Consulting, ESG Leader, Newmark Polska.
Last year, tenant activity reached its highest level in the fourth quarter, during which lease agreements were signed for over 255,600 sqm, which represented 34% of the total demand recorded in 2023. The gross demand in 2023 totaled nearly 749,000 sqm and was nearly 13% lower than the previous year.
“The highest demand from tenants consistently came from central office locations, particularly the Western Center subzone, which rented nearly 167,800 sqm. The most active tenants in the Warsaw office market last year were companies from the business services sector (19.2%), production (14.3%) and IT (10.9%). The introduction of the hybrid work model resulted in a reduction in the size of rented offices by an average of 20-30%. This trend will also continue this year.” says Anna Szymańska, Director of Office Space Department at Newmark Polska.
Last year, like in 2022, there was a high level of tenant activity in renegotiating and renewing lease agreements, which accounted for 42.7% of the total lease volume last year, with the highest figure in the fourth quarter (49%). This shows that renegotiations are increasingly seen as a cost-effective solution that allows for simultaneous reduction of space and its adaptation to current tenant needs. The remaining 57.3% consisted of new agreements (41.9%), pre-lease agreements (8.6%), expansions (3.9%) and transactions for own use (2.9%).
At the end of December 2023, the vacancy rate in Warsaw was 10.4%, which is a decrease of 0.2 pp compared to the previous quarter and 1.2 pp year-on-year. The biggest annual decrease was observed in the Mokotów zone (-6.2 pp, excluding Służewiec), in COB (-4.8 pp), and the biggest increase – in the Ursynów, Wilanów zone (+ 3.3 pp). In 2024 we expect a continuation of the downward trend in the vacancy rate, especially in the zones most preferred by tenants.
Monthly rental rates in the best office buildings are currently 22-26 euros per sqm in the center and 16-18 euros per sqm in locations outside the center. Stable demand for prime properties offering intelligent solutions and ESG scope puts pressure on further rent increases, while older office buildings are increasingly having to compete on price.
