Big shots and big banks: the tale of an ever-growing city
Major transactions concluded in H1 2019 in Warsaw translated into great results on the demand side – 406,000 sqm was leased by the end of June. Around 780,000 sqm of space is under construction, with vacancy rates decreasing, and rents going up, summarised advisory firm JLL on the Warsaw office market for H1 2019.
Demand – BIFS sector dominated in H1 2019
After a relatively slow start to the year, Warsaw’s office market saw outstanding activity in Q2 2019 with demand for modern offices hitting the 266,000 sqm mark, meaning H1 2019 came in with a total of 406,000 sqm. Such an excellent outcome was predominantly down to increased activity from financial and insurance companies. The largest lease agreements were signed by Getin Bank (18,500 sqm in The Warsaw Hub), Warta (17,600 sqm in Warsaw Unit), a confidential tenant (13,300 sqm in Marynarska 12), AXA (12,900 sqm in Warsaw Trade Tower) and Bank Gospodarstwa Krajowego (12,400 sqm in Varso).
“In recent months, there have been five significant lease transactions in Warsaw concluded by financial and insurance institutions, with four being signed in Warsaw’s city centre. There are several reasons for these transactions. Warsaw city centre is where large-scale developments are under construction, and it is where commuting is at its most convenient. In addition, the city's prestige means easier recruitment and better staff retention. Furthermore, companies entering the market like to start their operations in the centre of the capital,” said Anna Młyniec, Head of Office Agency and Tenent Representation, JLL.
In terms of the distribution of demand in Warsaw’s submarkets, the City Centre is the clear leader, with almost 126,000 sqm leased. Mokotów took second place (104,000 sqm), followed by the Central Business District (CBD), where demand totalled 62,000 sqm. Together, these three districts were responsible for almost three quarters of Warsaw's total demand for office space. The dwindling availability of existing lease options prompted large companies to increasingly consider pipeline developments. In H1 as much as 108,500 sqm came from pre-lets.
“Considering the transactions already signed in Q3 - such as the mBank's record contract for over 45,000 sqm. - as well as contracts due to be concluded in the coming months, we can expect another very good year on the Warsaw office market,” added Anna Młyniec.
Flex spaces on the crest of a wave
The expansion of flexible spaces providers in Warsaw also continues. Unique developments are a significant target for flex operators, which is illustrated by leases in ArtN by rent24 and City Office for a total of about 6,000 sqm, and in Central Point (by a confidential provider) for 6,000 sqm. Flex providers diversify their portfolio of locations - preferably choosing a centre, but also seeking options for development outside of it. A good example of this is the decision of Inoffice to open a new centre in Business Garden, while Regus opens its next location in Witosa Point.
Supply - developers continue apace
Robust demand for offices in Warsaw is driving the building frenzy in the capital. The new supply in the first half of 2019 was 80,500 sqm in ten buildings, and the total under-construction pipeline in the first half of 2019 includes 780,000 sqm to be completed by 2021. Notably, approximately 40 percent of this volume is already pre-leased. It proves that Warsaw is one of the most absorptive markets in Europe. The balance between supply and demand will not be affected,” said Mateusz Polkowski, Head of Research and Consulting, JLL.
The largest new openings in H1 2019 include Moje Miejsce B1 (almost 19,000 sqm by Echo Investment), Spark B (almost 16,000 sqm by Skanska Property Poland) and Vector+ (nearly 14,000 sqm by City Level).
Vacancy rate and rents
The vacancy rate decreased to 8.5 percent in Warsaw (5.6 percent in Central zones and 10.4 percent in non-central zones of the city), which is a fall of 2.6 p.p. y-o-y. This is the lowest vacancy rate since 2012 and the rate is forecast to decrease further.
Prime headline rents rose in the central areas of Warsaw, due to high demand, low vacancy rates and increasing construction costs. Prime rents are currently quoted at €17.0 to €24.0 sqm/month, while prime assets located in the best non-central areas lease for €11.0 to €15.0 sqm/month.