The spread of the hybrid model of working, fast-tracked digitalization of business processes, combined with increased awareness about the importance of employee well-being are the main trends that shaped the office market in Poland in 2020. An indirect effect of the Covid-19 pandemic was an increase in lease renegotiations, as well as a rise in the amount of space available on a sublet basis. AXI IMMO presents a preliminary analysis of the key trends in the Polish office market this year.
In April 2020, all companies were forced to take part in the global remote working test. In many Western European countries, this model is already well-known and has been in place for several years. But for many Polish companies, this marked the beginning of a new era of office working. HR departments had to rethink staffing strategies. The employment relationship has become based on trust, with employee supervision limited to online meetings. The new model has been an important test, which many organizations have passed. For some, however, it became evident that when the office environment is removed, motivation, productivity and quality of work decline.
“Time will show whether the Covid-19 pandemic will remain a milestone for the sector, permanently changing the perception of an office as a place to work. At present, drawing far-reaching conclusions seems hasty because the situation is changing quickly. What we may define today as a trend may turn out to be a temporary response to an evolving market situation. Things may change again in 6 months. Nevertheless, we need to remember that in the 5 years prior to the start of the pandemic, the Polish office market had changed and matured significantly. The recent changes might be a sign that the market is entering into the next stage of development, following in the footsteps of more mature office hubs,” says Martin Lipiński, Head of the Office Agency and Tenant Representation, AXI IMMO.
Due to the new market situation, some occupiers have re-assessed the amount and nature of its office space. Many have decided to introduce changes in that respect, and this is reflected in the data. Indeed, renegotiations were widespread in the first 9 months of 2020, accounting for 47.6 percent of take-up in Warsaw and 52 percent in the main regional markets. Companies have adopted two strategies – they either decided to stay in the current office and negotiate rent exemptions with landlords, or they offered the part of their office to external parties on a sublet basis. According to AXI IMMO’s estimates, subletting accounted for around 2 percent of total office stock both in Warsaw and in the regions thus far this year.
“Despite the turmoil in the office market, the current situation is beneficial for smaller companies that have until now rented offices in private premises or within houses and provides them with an opportunity to try out institutional-grade offices on a sublet basis. It is a way of testing, with limited commitment, how the company could operate alongside other prestigious occupiers and whether this model suits the employees,” adds Martin Lipiński.
When considering relocations, occupiers looked more favourably at coworking offices or serviced offices. Market uncertainty due to the pandemic and the difficulty of projecting the future attracted companies to the flexibility offered by such premises. Nevertheless, the pandemic did not stop several large lease agreements from closing. Indeed, a record large leasing transaction was signed in 2020 in Warsaw. It was a pre-let of 46,600 sqm by PZU in Generation Park Y. In the regions, the largest transaction was a renewal of a 30,000 sqm lease by the Nokia Siemens Network across two office buildings – West Gate and West Link in Wrocław.
“A trend that has so far only been mentioned in the context of larger tenants are so-called satellite offices. This concept allows different teams or departments to work in small offices located in different parts of the city. Such premises are typically well-located, with good access to public transport, and are often leased on a flexible basis. We expect that the first case studies showing this model implemented will come from even more mature markets such as London or Paris,” adds Martin Lipiński.
The situation triggered by the Covid-19 pandemic has influenced not only the way people think about the office. It also sparked a discussion on occupational health and safety. In order to ensure the highest sanitary standards, landlords introduced the latest technological solutions, including non-contact lifts, automatic parking systems, temperature scanners and automatic doors. Applications for booking a desk in a hot-desking system or reserve a conference room, or to order a meal from the canteen, have become widespread.
During the pandemic, some occupiers decided to move away from the concept of space optimization, which had been popular previously. In order to ensure health and safety, the number of sqm per employee has been increased. Emphasis on the comfort of employees has also been reflected in the way floors are arranged or redesigned. Currently, apart from an attractive interior and comfortable equipment, the office is also supposed to take care of our health. The growing awareness of well-being and caring for the comfort of employees are part of the new category of “WELL Building Standard” certification obtained by developers for new office buildings.
On the supply side, Warsaw and the regional markets have gone head-to-head in the last 12 months. Total stock in the capital remains broadly on a par with the combined stock of the eight main regional markets. It is highly probable that by the end of 2020, the Polish office total stock will reach 12 million sqm, and will exceed this barrier after the completion of key developments in 2021. Warsaw is expected to exceed the barrier of 6 million sqm by then. AXI expects the second largest Polish office market – Kraków – to break through the 1.5 million sqm barrier and Wrocław to grow to 1.3 million sqm. The new supply will significantly contribute to the increase in availability. The vacancy rate stood at 11 percent of the stock at the end of Q3 and is likely to increase further in 2021. This will put pressure on property owners to lower rental rates.
