JLL has released its latest report summarising Q1 and analysing key trends on the office market in Warsaw and other major Polish cities.
Tomasz Czuba, Head of Office Agency, JLL, said: “The Warsaw office market continues to see healthy levels of occupier demand. In Q1 2014 alone, approximately 136,400 sqm was leased, with Mokotów taking a clear lead with a 37 percent share of gross take-up volume. Pre-letting activity, however, was flat when compared to previous quarters, with only an 8 percent share in gross take-up. This may be due to the higher availability of existing vacant office space on the market. Nevertheless, we expect some large pre-lets to be closed in the upcoming quarters. In our opinion, demand in Warsaw will remain sound, thanks to solid economic fundamentals and very positive GDP projections for 2014-2015.”
98,500 sqm was leased in major office markets in Poland (excluding Warsaw) in Q1 2014, comparable to Q1 2013 (the net take-up of 81,200 sqm was down by 9 percent). Krakow, Wroclaw and Katowice took a clear lead in respect of occupier activity in Q1. New deals constituted 50 percent of signed contracts (pre-lets – almost 30 percent).
In Q1 2014, ca 84,300 sqm was delivered to the market, including Atrium 1 (16,200 sqm), Park Rozwoju I (16,000 sqm), Gdański Business Center (15,000 sqm) or The Park B2 (10,000 sqm), to name just a few. Total completion volume is expected to reach ca. 320,000 sqm this year and will outperform 2013 in this respect. It is estimated that 26 percent of office space scheduled for Q2–Q4 2014 has been pre-leased already. Developer activity in Warsaw remains high, with more than 611,000 sqm of modern office space under active construction.
Q1 2014 brought 60,500 sqm of new office space outside Warsaw, of which 40 percent was in the Tri-City (two office buildings: 15,300 sqm in Centrum Biurowe Neptun and 8,800 sqm in BPH Office Park C) and 26 percent in Wroclaw (15,500 sqm in Green Day). Other major new additions to the market include A4 Business Park phase I (8,700 sqm) in Katowice and Pascal (5,350 sqm) in Krakow. As a whole, 2014 is expected to see a 22 percent increase on 2013’s new supply volume (342,000 sqm vs. 280,000 sqm). Interestingly, by the end of 2014 Wroclaw and Krakow will each exceed 600,000 sqm of modern office stock. Currently, 570,000 sqm of office space is under construction in Poland’s major cities – the majority of which is found in Krakow, Wroclaw and the Tri-City.
The vacancy rate in Q1 2014 remained stable when compared to the end of 2013. At the end of March 2014, approximately 12.2 percent of the modern office stock in Warsaw was vacant (13.2 percent in the CBD, 9.5 percent in the City Centre Fringe and 12.7 percent in Non-Central locations). Due to the large pipeline volume, the market is expected to see a slight upward pressure on these numbers in 2014.
As of end of Q1 2014, vacancy rates remained stable in Krakow, Wroclaw and Łódź, whilst a slight increase was seen in the Tri-City (13.9 percent vs. 12.5 percent in Q4 2013). Other major office markets have seen a decrease in vacancy levels. There is no uniform picture regarding vacancy rate expectations in Q2–Q4 2014.
Prime headline rents in Warsaw remained relatively stable when compared to the end of 2013. Prime office space in Warsaw City Centre leases at between €22 and €24 /sqm/month. The best Non-Central locations, such as Mokotów, are being leased at €14.50 to €14.75 /sqm/month. Due to an increase forecast in vacancy rates, there will be further downward pressure on rents, especially on effective rents.
Prime headline rents currently range from €11 to €12 /sqm/month in Lublin up to €14.5 to €15.5 /sqm/month in Wroclaw. Some slight downward rental pressures may be seen on selected markets in Q2–Q4 2014.