The condition and mood of the office market in Warsaw and eight major regional markets (Kraków, Wrocław, Tricity, Poznań, Łódź, Katowice, Lublin and Szczecin) after the first half of 2021 registered a visible slowdown in supply and moderate demand. The market situation has been conducive to a rising level of immediately available space over the last few months, which is already over 1.5 million sqm and represents around 13 percent of its total stock. Nevertheless, developers, as well as tenants, remain active. This allows us to look at the coming months with moderate optimism and expect further signs of the predicted boom associated with workers’ return to offices. AXI IMMO summarises the first six months of the Polish office market in 2021.
In the first half of 2021, in the Polish office market, developers delivered 21 projects with a total area of approx. 352,500 sqm (Warsaw – 226,000 sqm in 10 projects, regional markets – 126,500 sqm in 11 projects), which increased the total stock to nearly 12.1m sqm. The undisputed leader is Warsaw (almost 6,100,000 sqm), followed by Kraków (1,599,200 sqm), Wrocław (1,242,600 sqm) and Tricity (924 000 sqm). The most significant projects completed by the end of June 2021 in Warsaw were Warsaw UNIT (57,000 sqm, Ghelamco Poland) and conducted by March – Skyliner (48,500 sqm, Karimpol) and Generation Park Y (44,300 sqm, Skanska). Those office buildings were developed at the Daszyńskiego Roundabout, which took over the title of the largest office district of the capital after Mokotów-Służewiec. In turn, among the largest office buildings delivered during the same period on regional markets were Nowy Rynek D (35,800 sqm, Skanska) in Poznań Palio Office Park A (16,500 sqm, Cavatina) in Gdańsk and Tertium Business Park III B (13,400 sqm, Buma) and Equal Business Park D (11,650 sqm, Cavatina) completed in Kraków.
“We expect that in the next few months in both Warsaw and the regions the number of new office buildings will stop for some time. On the other hand, some of the projects currently under construction, for which no pre-let agreements have been signed, will extend their occupancy periods as much as possible. The reasons for this can be found, among others, in the high financial costs connected with the maintenance of already built office buildings and the growing vacancy rate. However, reports of a slowdown in supply should be treated very carefully. Once the situation on the market stabilises, we may observe a swift absorption of space,” says Jakub Potocki, Senior Negotiator, Office Agency, AXI IMMO.
At the end of June 2021, the vacancy rate for the Polish office market stood at 13 percent, reflecting more than 1.5 million sqm vacant space. In Warsaw, the rate reached 12.5 percent (+1.1 bps q/q and +4.6 bps y/y) and represented approx. 760,000 sqm of vacant space. In turn, in the eight main regional markets, a total of 792,500 sqm of office space is available for lease. The vacancy rate stood at 13.4 percent (+0.8 bps q/q and 3.2 bps y/y), with the highest rate remaining in Łódź (18.3 percent) and the lowest in Szczecin (7.8 percent).
“The growing volume of vacancies may cause owners of slightly older or less attractive office buildings to consider modernising their space and adjusting it to a higher standard. We expect more individualised solutions, incentives to join the community or pointing to some uniqueness and history of the building itself or its surroundings as a way to refresh their offer,” comments Bartosz Oleksak, Senior Negotiator, Office Agency, AXI IMMO.
The total volume of tenant activity in the Polish office market in the first half of 2021 amounted to over 514,200 sqm. Registered demand in regional office markets was higher at the end of June 2021 (264,200 sqm) than in Warsaw (nearly 250,000 sqm). In the leasing structure in Q2 2021, renegotiations (47 percent) overtook new deals (45 percent) and expansions (8 percent).
“The high percentage of renegotiations and new deals indicates that there is still intense competition for lease signings on the Polish office market, both in Warsaw and the regions. It’s a very good signal for the whole sector. It allows us to believe that after the appropriate level of immunisation of society, the maintenance of proper security measures and a slightly changed work model, the lease market will open up even more strongly,” adds Bartosz Oleksak.
Poland’s office market’s most interesting and largest transactions were mainly signed between April and June 2021. Warsaw saw on the demand side the renegotiation of a lease for nearly 21,000 sqm by a confidential tenant in the Senator building, as well as, two pre-let agreements, i.e. the Warsaw City Hall will take 11,300 sqm in the Widok Towers building, while the Public Transport Authority (9,800 sqm) chose the PZO Factory on the right side of Warsaw as its following capital location. Regionally, the largest deals recorded were the renegotiation of a lease and expansion of Rockwell Automation (19,500 sqm) at A4 Business Park III in Katowice and two deals by confidential tenants in Kraków. The first, representing the banking sector, renewed its lease of 15,600 sqm in the Kapelanka 42a building, while the second, from the business services sector, renegotiated 12,800 sqm in the Kazimierz Office Center building.
“We may assume that the resultant changes in the office market will be introducing amendments to the Labour Code regulating remote work. Particularly interesting are the provisions concerning the installation of work tools and their repair, electricity or access to the network and the way of settling these costs. Movements of the largest corporations will also be of great importance for the office market, which will, in a way, show the direction for slightly smaller entities. It may be a test for remote working will again be offered as a privilege or a kind of benefit for many employers, rather than a permanent benefit. Therefore, we should calmly observe the changes and the hitherto castling of tenants,” concludes Jakub Potocki.