The report “At a Glance. Warsaw Office Market” prepared by BNP Paribas Real Estate Poland summarizes the beginning of 2024. The Warsaw office market is evolving, with a significant decrease in the availability of new office space compared to recent years. The first quarter is marked by a slowdown in the increase of service charges, extension of lease agreements, and modernization of old office buildings.
Experts from the “At a Glance. Warsaw Office Market” report predict a continuation of the low level of new office space delivery throughout 2024. In the first quarter of this year, 48,700 sqm was delivered to the capital market, but only 67,000 sqm is under construction with a completion date by the end of the year. The clear decline in developer activity results from several factors, including rising maintenance costs due to high interest rates and the hybrid work model established during the pandemic.
The low supply level translates into longer lease periods for tenants.
– “There is an increasing number of renegotiations and contract extensions in existing locations on the Warsaw office market. High fit-out costs and the need to comply with ESG requirements are extending lease periods. More and more agreements are being signed for 7-10 years,” highlights Małgorzata Fibakiewicz, Head of Office Leasing, BNP Paribas Real Estate Poland.
Slowing Growth of Service Charges
In 2023, record inflation levels combined with rising electricity and gas costs significantly impacted office property maintenance costs. Increasing demands to maintain ecological and technological standards also affect service charges. According to the BNP Paribas Real Estate Poland report, monthly service charge advances in 2023 rose by about 25% compared to the previous year, a record in this segment of commercial real estate.
– “After the first three months of 2024, we can see that service charge rates are growing much slower than last year, partly due to stabilized electricity prices. However, these costs still pose a significant burden for tenants, prompting property owners to seek ways to optimize operational costs,” emphasizes Małgorzata Karczewska, Senior Consultant, Office Leasing, BNP Paribas Real Estate Poland.
In the second half of 2023, rents in prime locations with the highest standards also increased. Currently, average rates in the Central Business District range from 22.5 to 26 euros per sqm per month. In the largest non-central area, Służewiec, they remain at 13-15 euros per sqm per month.
Diversity in Vacancy Rates and New Constructions
Regarding vacancy rates, at the end of Q1 2024, it was 11%, a decrease of 0.6 percentage points compared to the same period last year. Across Warsaw, nearly 690,000 sqm of office space is available for rent, with more vacancies outside the city center. The vacancy rate in older buildings is also rising due to many tenants relocating to new office buildings and optimizing leased space due to the hybrid work model.
Experts from BNP Paribas Real Estate Poland note that the current construction of new office buildings is more evenly distributed between the city center and non-central office areas. By the end of 2026, 280,000 sqm of new office space is planned for delivery, with 62,000 sqm involving the modernization of older office buildings.
New Life for Old Office Buildings
Currently, three buildings are undergoing renovation: V-Tower (formerly Warta Tower), University Business Center II, and G5 Prime Offices (formerly Grójecka 5). From January to March this year, four projects were delivered: Lixa E & D, the Makro Cash and Carry building, and Saski Crescent. The latter was also modernized over the past year to enhance usability and environmental efficiency.
– “The Polish commercial real estate market is currently facing a wave of modernization of older buildings. This applies to the mature office and retail segments, as well as the youngest segment – warehouses. The average age of an office building in Poland is 10-15 years, while in Western Europe, the average is 40-50 years. Thus, Polish properties are relatively young. However, current EU requirements are so stringent that buildings constructed just 2-3 years ago may already need necessary adjustments,” underscores Klaudia Okoń, Senior Consultant, Business Intelligence Hub & Consultancy, BNP Paribas Real Estate Poland.
