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Warsaw Office Market Q1 2024: Remodeling, Tight Vacancy, and Tenant Demand for Smaller Spaces

REAL ESTATEWarsaw Office Market Q1 2024: Remodeling, Tight Vacancy, and Tenant Demand for Smaller Spaces

Continued vacancy levels of 11% (+60 bps q/q and -60 bps y/y) and the accompanying process of redevelopment and modernisation of office buildings are among the main trends summarising Q1 2024 on the Warsaw office market. Despite challenges with the availability of vacant units in central locations, tenants signed contracts for just under 140,000 sq m (-11% y/y). Poland’s largest commercial real estate advisory firm presents the report ‘Office market in Warsaw in Q1 2024’.

In Q1 2024, four office developments of almost 50,000 sq m were completed in the capital. Permission for use was granted to Lixa E 16,900 sq m (Yareal), Saski Crescent (after modernisation) 15,500 sq m (CA Immo), Lixa D 9,300 sq m (Yareal) and Makro Cash and Carry 6,900 sq m (Makro Cash and Carry). However, approximately 260,000 sq m is under construction and will be delivered between 2024 and 2026. Significant projects in the pipeline include The Bridge 47,000 sq m (Ghelamco), Upper One 35,900 sq m (Strabag) and V Tower 33,700 sq m (Cornerstone).

Emilia Trofimiuk, Research Manager, Research Department, AXI IMMO, said: “The Warsaw office market is undergoing a remodelling process. We see examples, e.g. in Mokotów-Służewiec, when the function of the current office infrastructure is being changed for another one, usually residential. Another phenomenon is the extensive modernisation and remarketing of office properties. The Saski Crescent office building reopened in Q1 2024, and the V Tower or G5 Prime Offices, currently undergoing redevelopment, are the best examples of office buildings that will gain a new face after a change.”

At the end of March 2024, the average vacancy rate for the capital stood at 11% (+60 bps q/q and -60 bps y/y). The availability of vacant office units in the central zones (9.6%) is lower than outside the Centre (12.3%). Invariably, the Służewiec zone recorded the highest vacancy rate at 20%.

Bartosz Oleksak, Associate Director, Office Department, AXI IMMO, comments: “The punctual supply gap observed in the capital’s market and the changes related to new supply impact the prolonged tenant decision-making process. Nevertheless, many small and medium-sized companies in the market are actively seeking new space. The challenge remains their demand, which most often oscillates around 250 sq m under an annual contract. A temporary solution that we offer clients to wait until the expected modules are available is to locate them in service offices, flex spaces or coworking spaces.”

Warsaw office market amounted to just under 140,000 sq m (-11% y-o-y). (-11% y/y). Almost 75% of the contracts signed were concluded in the central zones (the Centre and the Central Business District), Służewiec and the Jerozolimskie Avenue corridor. In the take-up structure, new contracts (54%) were ahead of extensions (36%) and expansions (10%). There were no large-scale lease transactions in Q1 2024. The largest transactions oscillated around 6,000 – 7,000 sq m. At the end of March 2024, offer rents ranged from EUR 19.50 to EUR 27.50/sq m/month in the most prestigious office buildings in central locations in Warsaw, while the starting rates in non-central zones started at around EUR 10.00/sq m/month.

Jakub Potocki, Associate Director, Office Department, AXI IMMO, discusses: “One of the trends that has been with us since the pandemic is the process of optimising space and the desire to relocate to a more prestigious building or district. However, companies that have introduced the hybrid working model are constantly looking at the comfort of employees and adapting offices to their needs. Currently, the minimum fit-out cost for shell&core space remains in the range of EUR 700-800/sq m, with offers of over EUR 1,000/sq m also being found on the market.”

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