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Warsaw Office Market: High Demand Meets Limited Supply

REAL ESTATEWarsaw Office Market: High Demand Meets Limited Supply

In 2023, the demand for office space in Warsaw was only slightly lower than the record set in 2022, according to an analysis by Walter Herz. A total of 750,000 square meters of space was contracted. During this time, 60,000 square meters was put into use, and about 260,000 square meters is still under construction, of which a quarter could come into use this year. However, developers have kept their activity low for several years, causing each new office space to be rented quickly and rental rates to increase.

“This year will certainly be interesting for the Warsaw office market. At the moment, we have the least construction since 2010. Meanwhile, last year the demand for new spaces was only slightly lower than in the record-breaking 2022. What we are confident of is the further decline in vacancies in the strict center. We have issued the fewest building permits in many years, three last year, and zero WZ [zoning conditions], so in fact in the next two-three years the amount of available space in the center will be less than the demand from customers,” says Mateusz Strzelecki, partner and head of tenant service at Walter Herz.

According to Walter Herz’s forecasts, about 750,000 square meters of office space were contracted in the Warsaw market last year. Especially the last quarter of 2023 was intensive – rental contracts were signed covering about 250,000 square meters of office space, while in other quarters it was 160-170 thousand square meters. This is clearly more tenant activity than in 2020 or 2021.

However, the trend on the supply side is the opposite. The last few years have brought a significant slowdown in developer activity. Last year about 60,000 square meters of new space came to the market, of which 40,000 in the last three months. This year, according to company announcements, about 80,000 square meters will be completed, and about 260,000 square meters is still under construction.

“Most construction is currently taking place in Wola. It will soon exceed the magical boundary of 2 million square meters of office space available for customers. For comparison, in Krakow, Wroclaw, or Tricity, we have less than 2 million square metres per city, so Warsaw’s Wola is the size of many regional markets,” emphasizes Mateusz Strzelecki.

The developer’s activity depends on the macroeconomic situation, the possibilities of financing new projects and the demand for new offices. In regional markets, tenants are cautious about relocations because of the high cost of office arrangements and the increase in hybrid work has led to a reduction in office space by 25-30 percent on average. This year, experts expect a further decline in demand in the regions.

As Strzelecki highlights, the interest of organizations looks somewhat different. Warsaw is mostly headquarters. Regional markets, such as Krakow, Wroclaw, Tricity, Poznan, and Katowice, which is rapidly developing, are mainly home to GBSs or shared services.

The lack of free space in the Warsaw market resulted in a few percent increase in average rental rates last year. This trend may continue this year due to the expected further decline in the vacancy rate. In addition, the costs of office arrangement are also rising. This reduces the ordered area, and on the other hand, lengthens the contracts.

“Standard contracts in new buildings are now seven years,” says Mateusz Strzelecki. “At present, the fit-outs we execute in Warsaw, also considering the design of these spaces, cost about 1,000 euros per square meter. In regional markets, we also notice significant increases.”

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