According to DTZ’s latest report – Property Times Office Warsaw – total office stock has reached 4.36 million sqm at the end of Q3 2014. After a strong 2013, when almost 300,000 sqm of modern office space was completed, the annual supply in 2014 is likely to be even higher.
In the first three quarters of this year as much as 250,000 sqm of office space was delivered to the market and a further 70,000 sqm is expected for Q4 2014. As a result, the annual level of supply in 2014 may reach 320,000 sqm, which will be the highest value recorded on the market since 2000. With almost 700,000 sqm of modern office space currently under construction, the amount of new completions in 2015 and 2016 will reach levels similar as over the last two years (around 300,000 sqm annually).
Total volume of lease transactions recorded from January till the end of September 2014 reached 422,000 sqm, which represents a decrease of 18 percent in comparison to the corresponding period of 2013. However, the demand for office space reflected in the net absorption, remained relatively stable. Tenants, similarly to the last four years, often decided to stay in their current locations and as a result renewals and renegotiations accounted for a large part of the total take-up (34 percent). Pre-lets were not as common as during 2011-2013 as a consequence of increasing availability of space in existing buildings.
Due to the high level of new supply recorded during the last three years, the vacancy rate in Warsaw increased to 13.8 percent, which is the highest value observed on the market since 2003. It should be mentioned that the majority of unoccupied space is located within older, worse quality buildings, which require refurbishment or in newly delivered large-scale projects. As a result of growing availability, rental levels decreased slightly (on average by €0.5-1 per sqm per month) compared to the values quoted at the beginning of 2014. Currently prime headline rents in the city centre reach €22-25 while in non central subzones they are at a level of €14-15.5 per sqm per month.
High level of new office supply scheduled for completion over the next two years will most likely result in a further growth of vacancy rate. However, already from 2015 we should observe stronger leasing activity, which to a large extent is due to the cyclical character of the market. The majority of 5- and 10-year lease agreements conducted in the periods of large take-up (2006-2008 and 2011-2013) will expire between 2016 and 2018 creating strong demand for office space and resulting in drop of availability ratios, said Katarzyna Lipka, Associate Director in Consulting & Research, DTZ.
At the same, DTZ expects further consolidations as well as continuation of space optimisation trend, which is connected with many tenants taking advantage of new workplace solutions. This may lead to the actual reduction of office area occupied by some companies and as a result, slow down the absorption process of available space, added Lipka.