700,000 sqm leased in the first half of 2019 with major transactions just around the corner
The Polish office market in H1 2019 saw companies from the business services sector continue to drive office demand outside Warsaw, flexible spaces becoming increasingly popular, and continued positive investment sentiment on the supply side, summarised JLL on the Polish office market for H1 2019.
Demand in the first half of 2019 was more than 710,000 sq m, with markets outside Warsaw accounting for nearly 306,000 sqm. Kraków generated 44% of this volume, 15% came from Wrocław, and 11 percent from Tri-City. The most notable transactions in H1 2019 included a pre-let by Sabre for almost 16,000 sqm in the Tischnera Office in Kraków, a 11,200 sqm renewal by Akamai in the the Vinci Office Building in Kraków, and 10,800 sq m in the shape of a renewal and expansion by Nordea in Olivia Star in Gdańsk.
"A good economic climate in Poland is currently translating into ambitious investment plans, which in turn has a positive impact on office market development. A very good result on the demand side is once again due to the business services sector, which in H1 2019 was responsible for 43 percent of the leased space outside Warsaw. There were also changes in the structure of demand on the regional markets. In the first six months of the year, nearly 40 percent of total transaction volume – 116,500 sqm - were pre-lets, which is close to the result for the whole of 2018," said Karol Patynowski, Director of Regional Markets, JLL.
The largest lease agreement of the first half of this year was signed by Getin Bank. The company has leased 18,500 sq m in The Warsaw Hub. In fact, tenants from the financial and insurance sector dominated the capital in H1 2019.
The segment of flexible spaces is growing, and this does not only apply to Warsaw. In the first half of 2019, flex providers leased nearly 20,900 sqm (with Kraków accounting for 12,900 sqm) on the markets outside Warsaw. This result represents 87 percent of the total volume from last year. During this time, such companies as Rise (9,200 sqm in four contracts) and New Work (6,900 sqm in two transactions) were the most active flex providers.
Developers are very active throughout the country, which is reflected in the growing supply in Warsaw. This is also the case on the country's regional markets, where H1 2019 saw 32 office buildings completed with a total area of more than 240,000 sqm.
“At the end of the first half of 2019, the total modern office stock exceeded 10.8 million sqm, and was relatively equally distributed between Warsaw and the main regional markets - 5.5 and 5.3 million sqm respectively. Under-construction stock in Poland totals 1.6 million sqm, with Warsaw accounting for approximately 780,000 sqm, and 800,000 sqm for markets outside the capital," said Łukasz Dziedzic, Senior Research Analyst, JLL.
The biggest office projects completed during H1 2019 included the five buildings of Business Garden (Vastint, Poznań), Nowy Rynek B (Skanska Property Poland, Poznań), Brama Miasta B (Skanska Property Poland, Łódź), V.Offices (AFI Europe, Kraków), Moje Miejsce B1 (Echo Investment, Warsaw), and Spark B (Skanska Property Poland, Warsaw).
The overall vacancy rate in Poland stands at 9.0 percent, a slight decrease on Q1 2019. In Warsaw 8.5 percent of existing office supply is vacant, and the largest regional cities – 9.4 percent. On five major markets in Poland, declines in vacancy rates were recorded year-on-year. The biggest deceases were found in Lublin (-9.1 pp.), Katowice (-3.4 pp) and Szczecin (-1.6 pp). The largest increase was in Poznań (4.4 pp.) and Łódź (3.5 pp).
Due to increasing construction costs (both labour and materials), an increase in rents was noted in a few of Poland’s major office markets. In H1 2019, a few cities saw an uptick of prime headline rents: Kraków (now leasing at €13.5 to €15.5 sqm/month), Katowice (now leasing at €13.6 to €14.5 sqm/month), Poznań (€13.6 to €15 sqm/ month), Łódź (€12 to €14 sqm/ month) and Wrocław (€13.5 to €14.8 sqm/month).
Prime headline rents in the central areas of Warsaw 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.