According to “Office Occupier: Office Market in Warsaw, Q1-Q4 2021”, a report published by real estate advisory firm Newmark Polska, despite many challenges that the office market faced in 2021, the closing months of the year brought the long-awaited stabilization. Occupier activity in the fourth quarter bounced back to pre-pandemic levels and the city’s vacancy rate remained high, albeit relatively stable. Meanwhile, developers were slowly restarting planned projects.
Leasing activity in 2021 came to close to 646,500 sqm, of which 250,800 sqm (almost 40 percent) was transacted in Q4 2021. Last year’s total take-up was up by 7.4 percent compared to 2020. Central locations accounted for almost 60 percent of registered transactions (385,000 sqm). In addition, five out of six deals for more than 10,000 sqm were also concluded in the capital’s central locations.
“The challenges that both office tenants and landlords in Warsaw had to overcome in 2021 included not only the rise of the hybrid work model and soaring construction costs and service charges but also the need to ensure compliance with hygiene protocols. Occupier demand strongly accelerated in Q4 2021, bouncing back to pre-pandemic levels. We are also seeing an increased appetite for premium quality and high tech offices,” says Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska.
The development pipeline in Warsaw remains relatively constrained compared to the pre-pandemic volumes of between 700,000 and 800,000 sqm. At the end of Q4 2021, approximately 375,000 sqm was under construction, of which 40 percent was secured under pre-lets or letters of intent. The subdued developer activity is also likely to result in a supply gap between H2 2023 and 2024. The choice and availability of large modern spaces have already become limited.
Developers continue to closely monitor and analyze both the economic situation and office requirements reported by tenants, though, in the forthcoming month’s construction start of new office developments in Warsaw is expected.
At the end of Q4 2021, Warsaw’s total office stock stood at more than 6.15 million sqm following the delivery of over 324,600 sqm of modern office space. Non-central locations, including Mokotów with its 1.45 million sqm of office space, account for 56 percent of the capital’s office stock, equating to 3.47 million sqm. Though, in terms of the size of office stock, the Mokotów office zone was overtaken in late 2020 by the City Centre zone.
In 2021, close to 78 percent of the new office supply was delivered in central locations (255,000 sqm), especially in the City Centre West office subzone (184,300 sqm). The current trend of supply distribution is expected to continue throughout 2022 as almost 70 percent of the office stock under construction is being developed in central locations.
The largest completions in 2021 included Warsaw UNIT (56,400 sqm, City Centre West), Skyliner (44,700 sqm, City Centre West) and Generation Park Y (44,200 sqm, City Centre West). The biggest project completed in Q4 2021 was Central Point (18,000 sqm, the Central Business District).
The proportion of renegotiations and renewals has been steadily rising since the outbreak of the pandemic. In 2021, they accounted for almost 45 percent of the total take-up, representing an increase of 8 pp in 2020 and 11 pp compared to 2019. New leases (incl. owner-occupier) made up 37 percent, while the remaining 18 percent was spread across pre-lets (12 percent) and expansions (6 percent). Office take-up continued to come predominantly from the following three sectors: services (16 percent), financial (16 percent) and IT (14.5 percent).
The strongest leasing activity in 2021 was recorded in the City Centre (229,900 sqm, of which close to 66 percent was in the City Centre West), the Central Business District (155,100 sqm) and Mokotów (124,500 sqm, of which more than 78 percent was transacted in Służewiec). Of all the office zones, Jerozolimskie Corridor reported the highest proportion of renegotiations (62 percent), followed by the central locations, which accounted for more than 42 percent of the total take-up.
At the end of Q4 2021, Warsaw’s vacancy rate hit 12.7 percent, up by 0.2 pp over the quarter and 2.8 pp year-on-year. At the end of Q4 2021, the vacancy rate in central locations stood at 12.9 percent compared to 12.4 percent in non-central locations. The highest vacancy rates were recorded in Mokotów (17.5 percent), including the Służewiec office subzone (20.1 percent). The lowest was in Ursynów, Wilanów (3.9 percent), the North (5.3 percent) and Puławska Corridor (6.5 percent). Office availability is expected to decline over the coming quarters, among other things, due to the decreasing volumes of new supply.
Prime office rents remained flat across Warsaw in 2021. Landlords are, however, steadily scaling back lease incentives, especially in new office buildings in CBD or City Centre due to the shrinking availability of offices sized over 5,000 sqm.