Fewer new investments, but stable office tenant activity in the regional markets at the end of Q4 2023.
The volume of office space under construction in the eight largest regional markets in Poland, although larger than in Warsaw, is significantly decreasing. These conclusions come from the “At a Glance – the office space market in regional cities in the fourth quarter 2023” report prepared by BNP Paribas Real Estate Poland experts. At the end of December 2023, a record vacancy rate was also observed.
Cautious Investments
At the end of the last quarter of 2023, the aggregate resources of modern office space in the eight largest regional markets outside Warsaw (Krakow, Wroclaw, Tricity, Katowice, Poznan, Lodz, Lublin, Szczecin) amounted to nearly 6.67 million sq meters. Last year, developers provided the regional office market with 21 new buildings, which together brought nearly 280,000 sq m of new rental space. Blue-chip investments in 2023 include Ocean Park B and Kreo in Krakow, Craft in Katowice, and the New Market E in Poznan. The fourth quarter saw the largest investments in Krakow (Mogilska 35 Office, The Park Krakow II) and in Poznan (new Tetos company headquarters).
Despite the prospect of more new space being released for use in regional cities than in the capital, the volume of office space under construction at the end of December 2023 is 40% smaller compared to the same period in 2022. As developers announce, 367,000 sq m will be delivered in the eight main office markets in Poland in 2024-2026, while in Warsaw only 238,000 sq m of new office space.
BNP Paribas Real Estate Poland experts see the situation as dynamic and the start of new investments may accelerate due to the lower supply of office space. However, the decreasing volume of space under construction is one of the most important factors shaping the office market in regional cities throughout 2023.
Smaller Office Spaces, More Amenities
Over the past 2-3 years, most companies have reduced their office space by about 20-30% compared to agreements concluded before the pandemic. This is a consequence of a hybrid work model, which many companies have embraced.
“Office spaces have undergone a revolution. Companies, to encourage employees to return to the office, attach more weight to amenities that support the employee’s well-being. Spaces for relaxation, access to fresh air or quiet spaces for reflection are just a few. In addition, the gastronomic offer, fitness, medical center in the office building or free meals – such services are expected by employees returning to offices” – says Agnieszka Witkowska, Consultant, Tenant Representation, Office Sector BNP Paribas Real Estate Poland.
By the end of 2023, record levels of vacancies in existing buildings were noticed in the eight main regional markets. Approximately 17.5% of office space was available for immediate rental, which represents a quarterly increase of 0.2 percentage points and an annual increase of as much as 2.2 percentage points. The highest vacancy rate was noted in Katowice (21.5%), the lowest in Szczecin (4.8%).
“The trend of renting space in reserve is behind us. Optimization of the occupied space translates into a reduction in the average leased area, which at the end of the year was 938 sq m, compared to 966 sq m a year earlier. Lessee activity in 2024 will depend on general macroeconomic situations and further expansion plans of individual companies. Additionally, many organizations will endeavor to comply with ESG standards,” emphasizes Dorota Mielke, Deputy Director, Office Leasing Division BNP Paribas Real Estate Poland.
The report summarizing office spaces in regions in the fourth quarter of 2023 shows that gross demand between October and late December was 219.1K sq m, 11% higher than the total volume of lease transactions recorded a quarter earlier. Most offices were rented in Krakow (80.2K sq m), Wrocław (43.3K sq m) and Poznan (27.7K sq m).
Analyzing results for the entire year, it can be seen that tenant activity remains at a steady level. Throughout 2023, agreements for over 750,000 sq m were signed, which represents an increase of 20% compared to the previous year.
