According to “Office Occupier – Warsaw Office Market”, a report published by real estate advisory firm Newmark Polska, tenants on the Warsaw office market continue to carefully review their needs, including potential office locations, while landlords are actively adapting the standard of office space to occupier requirements. New leases, including pre-lets, accounted for more than half of all deals recorded in the third quarter, but renegotiations still represented a large proportion of total take-up. At the same time, there is still a strong interest in ESG solutions and their implementation.
Warsaw’s total office stock currently stands at 6.21 million sqm as new supply remains constrained. Just under 20,300 sqm was delivered in the period January-September 2023; of that total, more than 90 percent came on stream in the second quarter and the remaining 10 percent (S-Bridge Office Park II, 1,900 sqm) in the third quarter. According to analysts from Newmark Polska, the annual development pipeline scheduled for completion in 2023 will be below 60,000 sqm, the lowest volume the Warsaw office market has ever seen.
“Developers continue to closely monitor and analyse the market, especially office requirements reported by tenants and their needs related to the popularity of hybrid working,” says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska. “In addition, developer activity has remained significantly subdued for nearly two years due to relatively high construction costs. At the end of September 2023, Warsaw’s development pipeline was just over 250,000 sqm, down by more than 7 percent on the second quarter but up almost 27 percent year-on-year” added Newmark Polska expert.
Leasing activity in the year to date has remained stable at around 165,000 sqm per quarter on average, with the total for the period from January to September amounting to nearly 496,600 sqm. Take-up for the third quarter hit 174,000 sqm (35 percent of the total leasing volume since the start of the year), up by 5.4 percent over the three months to June, marking the best quarterly result in the capital in 2023. Occupier activity continued to focus on central office locations, especially the City Centre West.
With office fit-out costs remaining high and limited availability of office space in buildings completed post-2013 (only 5.6 percent of more than 2.5 million sqm), renegotiations continue to account for a large proportion of total take-up. In the third quarter of 2023, they made up 42.8 percent of the leasing volume compared to the average of 38.0 percent for the first three quarters. The remaining 57.2 percent was spread across new leases (41.4 percent), pre-lets (11.4 percent), expansions and owner-occupier transactions (2.2 percent each). The most active tenants on the Warsaw office market in the period between January and end-September 2023 were companies from such sectors as business services (19.4 percent), manufacturing (11.5 percent) and IT (11.2 percent).
“There is growing occupier demand for offices featuring technological and environmental solutions that improve energy efficiency or cost optimisation and support the ESG agenda. Landlords are in turn increasingly choosing to upgrade office buildings to meet the rising expectations of tenants,” says Anna Szymańska, Head of the Office Department at Newmark Polska.
At the end of September 2023, Warsaw’s vacancy rate was 10.6 percent, down by 0.8 pp over the quarter and by 1.5 pp year-on-year. During the first three quarters of 2023, office availability shrank by nearly 42,500 sqm in the city centre and by more than 26,000 sqm in non-central locations.
Prime office rents remained unchanged over the quarter at €22-26/sqm/month in the city centre and at €16-18/sqm/month in non-central locations. Rental growth is, however, likely to be driven in the future by growing requirements for the deployment of ESG solutions, especially those related to environmental measures.