2014 was a tenant friendly year on the Warsaw office market
At the end of 2014, the total stock of office space in Warsaw amounted to nearly 4,400,000 sqm. This means that developer activity has not slowed down, and a high volume of vacancies puts tenants in a favourable negotiating position. CBRE presents the relevant indices and trends relating to the office market in Warsaw for 2014 in its “Warsaw Office MarketView Q4 2014”.
276,900 sqm of office space was delivered to the Warsaw office market in 2014, the majority of which (close to 70 percent) was completed outside of the central zone.
The schemes completed in 2014 that deserve a mention include developments such as: Eurocentrum Office Complex I (38,700 sqm) and Gdański Business Center I (47,200 sqm). At the moment there is more than 786,000 sqm of office space remaining under construction, while developer activity if focused mainly on the City Centre around the second metro line currently under development and the neighbouring Wola district.
612,400 sqm of office space was leased in 2014, out of which as much as 190,700 sqm was leased during the last three months of the year. The last quarter of 2014 was the second best quarter in the history of the Warsaw office market, with stronger tenant activity observed only in the first quarter of 2011. However, despite a great last quarter, the volume of space leased throughout 2014 was at a level lower than in 2013.
Joanna Mroczek, Director, Marketing and Research, CBRE, commented: “For the first time in several years the total volume of leased office space in Warsaw was lower than in the previous years, which is the result of slow tenant activity in the crisis year of 2009. We are expecting to see increased tenant activity in the coming months. Businesses are now seeing the opportunities currently available on the market, they are seeking better quality offices in more attractive locations. The buildings that tenants would be interested in have to take into consideration their business development plans and fit in with their organizational business objectives. The greatest business activity can be noted within the BPO/SCC sector, the dynamic development of which could have been observed over the past few years. Warsaw, despite the highest cost per employee, offers a wide selection of locations and attractive rents outside the core of the city centre. Nevertheless, the greatest challenge faced by the Warsaw office market is absorption of newly developed office space. We are observing expansion of businesses from within the TECH sector, public institutions, as well as health services. Taking into account the growing demand for office space on the part of businesses from within the BPO, finance and insurance sectors, we are expecting the new trend to be consolidation of their office space, which is going to be one of the key changes to affect the situation on the Warsaw office market.”
Effective rents in the best office locations within the core of Warsaw’s centre have dropped down to €25/sqm/m. In 2014, tenants showed the greatest interest in locations outside of the city centre, with 73 percent of all market transactions concluded on the market last year relating to those locations. The major factor determining tenant interest in such locations are attractive rents offered by building owners, which rents remain at a level of €14 – 15 /sqm/m. Taking into account the relatively high volume of office space in the city centre to be completed within the next two years, a gradual drop in office rents in this location is expected, which in turn would mean that a wider group of tenants could afford leasing an office in Warsaw’s Śródmieście.
The largest transactions in 2014 that are worth a mention include the pre-lease of 19,000 sqm of space by Raiffeisen Bank in Prime Corporate Center, the renegotiation of 17,500 sqm in a Poleczki Business Park building by ARiMR, as well as the lease agreement entered into by the Grupa PKP companies for approximately 15,000 sqm in the West Station building currently under development near Dworzec Zachodni.
The vacancy rate by quarter has dropped in Warsaw for the first time in two years and amounted to 13.3 percent as at the end of 2014. This was first and foremost the consequence of a relatively low volume of office space completed in the last quarter of last year. The current year should, however, bring a further increase in the vacancy rate, largely due to the relatively high volume of office space in Warsaw developed on a speculative basis. This increase in the vacancy rate is set to continue up until at least mid-2016.