The International consulting company Cushman & Wakefield has summarized the situation in the Warsaw office market. At the end of the third quarter, the demand level in Warsaw was similar to that of 2023 in both the amount of rented space and the number of transactions conducted. At the same time, the ongoing stagnation in developer activity, falling vacancy rates, especially in central locations, and the shrinking availability of investment land could encourage investors to undertake redevelopment projects.
SUPPLY: limitation of developer activity may last until 2026
At the end of the third quarter of 2024, the total office space in Warsaw reached 6.26 million m². Projects completed during the QIII of 2024 include the Viridis B investment (Polkomtel – 7000 m²) and Bohema Office D, E (2600 m² and 1700 m²).
Currently, there are 207,000 m² under construction in seven investments planned to be completed in the coming years, which is considerably lower than the average size of supply commissioned for use between 2012-2023. Cushman & Wakefield estimates that Warsaw’s office market will increase by approximately 103 000 m² this year through nine projects, comments Ewa Derlatka-Chilewicz, Head of Research Poland, Cushman & Wakefield.
The high cost of obtaining financing and the gradually improving activity of institutional investors in the investment market strongly influence the ongoing stagnation in the implementation of new office investments in Warsaw, probably lasting until the end of 2026. However, most projects that could commence in the next 12-24 months will be located in the most attractive locations allowing developers to maximize return on investment.
DEMAND: Warsaw’s center consistently attracts major tenants
Total tenant activity in the first three quarters of 2024 reached over 492 000 m², which was at the same level as in 2023. This is a result of the gradual stabilization of the rental sector and a visible trend towards optimizing the office space occupied by tenants currently in the market. Demand was also similar year-on-year in terms of the number of contracts concluded, which was 537 transactions. A relatively high volume of finalized deals indicates high liquidity in the capital’s rental market. We forecast a stable tenant activity in the coming quarters,” adds Jan Szulborski, Business Development & Insight Manager, Cushman & Wakefield.
In the period from January to September 2024, new contracts predominated in the demand structure in Warsaw, accounting for about 44% of all concluded contracts. Land occupied by the owner accounted for an additional 7% of the rental area. The share of renegotiations remained high, accounting for 42% while expansions generated about 7% of the transaction volume.
The last quarter was favorable in Warsaw in terms of transaction volume and larger deals. In transactions exceeding 3,000 m², renegotiations remain the dominant trend. However, there is certainly a positive breakthrough in the increased volume of new pre-let agreements which were signed in Warsaw’s center in the previous quarter,” comments Paulina Kopińska, Partner, Head of Warsaw Office Agency, Cushman & Wakefield.
The major transactions of the third quarter of 2024 included a pre-lease agreement by Santander Bank in The Bridge building (24,500 m²), a pre-let agreement signed by an undisclosed customer from the media industry in the Office House building (10,100 m²), and the occupancy of a total of 8,000 m² by the owner in the Domaniewska Office Park Beta building.
VACANCY RATE: Space availability maintains a downward trend
The vacancy rate in Warsaw was 10.7% in the third quarter of 2024, up by 0.1% compared to the same period in 2023, and 0.2% lower than the previous quarter.
The current vacancy rate translates into nearly 671,000 m² of available space, which represents a decrease of approximately 10,000 m² compared to the previous quarter. With the expected limitation of new supply between 2024-2026, we will observe further compression of the vacancy rate, allowing the Warsaw market to absorb the excess of available office space in the existing stock,” comments Jan Szulborski. The vacancy structure varies depending on the location. Currently, the highest vacancy remains in non-central zones (12.3%) and remains at the same level compared to 2021-2023. In the central zone, the availability of space in September 2024 was 8.9%, 4.0% lower than at the end of 2021.
RENTAL RATES: location, quality, and level of occupancy determine the rate increase
The rent increase pressure felt over the past 24 months in the wider market was driven by record-high lease indexation to the Harmonized Index of Consumer prices (HICP, which was 8.4% year-on-year in 2022 and 6.2% in 2023 in the Eurozone.
In the third quarter of 2024, the rents for the best office spaces in Warsaw reached 22.00-26.00 EUR/ m²/ month in the city center and 13.50-16.50 EUR/ m²/ month in non-central locations, unchanged compared to the end of 2023.
Source: https://ceo.com.pl/warszawski-rynek-biurowy-na-koniec-iii-kwartalu-2024-r-41327
