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Warsaw office market: New supply to rise, flexible spaces gain traction

REAL ESTATEWarsaw office market: New supply to rise, flexible spaces gain traction

In 2023, the Warsaw office market recorded the lowest ever level of new supply, amounting to just 60.9 thousand sq. m. Savills advisory company experts note an increased activity of developers in the capital’s market, which intensified in the second half of last year and was a response to the ongoing effect of supply shortage in Warsaw. In the most optimistic scenario, between 2024-2026, about 445 thousand sq. m. of new office space may hit the market.

According to the latest Savills report, the total resources of modern office space in Warsaw at the end of December 2023 amounted to 6.23 million sq.m. Nearly 265 000 sq.m. is under construction, which represents a 43% year-on-year increase. Last year, developers started implementing six new projects with a total area of nearly 140 000 sq.m., only one of which is located outside the central zones. Among the largest projects, which will be completed within the next two years, are The Bridge (Ghelamco Poland, 47,000 sq.m.), Studio A (Skanska, 24,000 sq.m.) and Office House, the first building in the Towarowa 22 complex (Echo Investment, 31,100 sq.m.).

Savills experts note that large companies looking for offices in central locations and a high standard may struggle to find available space. There are only two projects completed after 2020 in central zones with available rental space exceeding 5000 sq.m. office space. The situation is similar for buildings to be completed by the end of 2024, where the pre-lease level is already around 40%, and only three projects have free spaces above 5000 sq.m.

“Major tenants, who can delay their move until 2025 or 2026, will have more choice, and the lower level of commercialization of these buildings may potentially create an opportunity to obtain attractive rental terms. However, there is a risk that the expected recovery in new supply may flatten due to higher financing costs, combined with more stringent requirements from financing institutions. In this scenario, tenants may experience prolonged supply shortages in the following years” – comments Daniel Czarnecki, Director of Office Space, Owner Representation, Savills.

In 2023, we observed the increasing importance of flexible office spaces in Warsaw. At the end of the year, there were 88 serviced and co-working offices in the capital, offering over 196,000 sq.m. of space. Six new locations were opened last year, which increased the flex space resources by over 18,700 sq.m. The largest of them, Mindspace in the Skyliner building, offers 4400 sq.m. of flexible space. In the plans for the first half of 2024, openings of another 4200 sq.m. in two locations: Business Link in Studio B and Brain Embassy in Adgar Wave are planned.

Demand for office space in the capital in 2023 reached 748,800 sq.m., which means a 13% year-on-year decrease, and the share of renegotiations was 43%. New lease agreements accounted for 44% of total demand, pre-lease for 9%, and expansions 4%. The largest shares in demand were tenants from the business services sector (19%), production (14%) and IT (11%).

“We expect a major role in the office property market in 2024 for so-called ‘green leases’ which are becoming increasingly common in Western European markets. As a result of these provisions, tenants will be able to manage their office in a more conscious way, enabling them to strive for corporate-level climate neutrality. On the other hand, property owners will be able to obtain better financing conditions, and potentially higher rents resulting from the clause will translate into more effective building management and its standard” – adds Daniel Czarnecki.

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