Over 1.1 million sqm is currently under construction in Poland. The most active markets in terms of office space in the pipeline are Warsaw, Kraków, Wrocław and Tri-City. Refurbishment trends are gaining pace in Warsaw, summarized JLL in its latest report on Q2 2014, analyzing key trends on Poland’s office market.
Mateusz Polkowski, Associate Director, Research and Consultancy, JLL, said: “Construction activity in Warsaw remains high. Currently, around 579,000 sqm is under active construction, and an additional 62,000 sqm is under refurbishment. Remodeled and renovated buildings account for around 10 percent of the developed office space in Poland’s capital city. We think that the trend of older buildings being refurbished and tailored to market needs and expectations will continue. In 2014, a total of ca 350,000 sqm of new offices will be completed, including the above-mentioned refurbishments. The Warsaw market will roughly maintain its current pace in 2015 and 2016 with ca 300,000 sqm of new supply being completed for each of these two years. The volume of new office projects will be reflected in the continued upward pressure on the vacancy rates. We expect that in 2016 the total office stock in Warsaw will hit 5 million sqm.”
In H1, tenant demand in Warsaw stood at 258,900 sqm, of which 129,500 sqm was accounted for by transactions concluded in Q2. The leading district was Mokotów, with 44,700 sqm of modern office space leased in Q2 (95,900 sqm in H1 representing 37 percent share of all take-up). New deals and renewals are still taking a clear lead, with a 50 percent and 35 percent share, respectively. The biggest deals in Q2 included: PwC (10,800 sqm renewal in International Business Center), Citibank (7,900 sqm expansion in Marynarska 12), and Regional and District Court (new deal for 6,000 sqm in Płocka 9/11).
In H1, 189,000 sqm of modern office space was leased in office markets outside Warsaw (90,600 sqm in Q2 alone). The biggest transactions in Q2 were signed by UPC (renewal of 6,500 sqm in Green Park, Katowice), IT company (5,600 sqm expansion in Enterprise Park C, Kraków) and a bank (renewal of almost 5,000 sqm in Silver Forum, Wrocław). The largest change was observed in Łódź, where gross take-up amounted to 14,200 sqm. As the gross take-up in Łódź over the last two years has hovered around an average of 5,800 sqm per quarter, this means that H1 2014 demand has already hit 85 percent of 2013’s total. In Q2 the most active market in terms of tenant demand was Katowice (22,000 sqm of leased space).
In H1, 190,300 sqm of office space was commissioned in Warsaw. In Q2 alone, around 106,000 sqm was delivered to the market, with the largest office building completions being Eurocentrum Office Complex I (38,700 sqm), GreenWings (10,800 sqm) and Gdański Business Center 1-A (29,600 sqm). Non-Central stock exceeded 3 million sqm of existing modern office space.
H1 2014 brought 123,100 sqm of new office space to the market outside Warsaw (68,000 sqm in Q2). The leading cities were Katowice (which accounted for 24 percent of all completions), Tri-City and Kraków (each with 20 percent). In Q2, major new deliveries included Olivia Four in Gdańsk (12,500 sqm), Alma Tower in Kraków (10,400 sqm) and GPP Business Park II in Katowice (7,500 sqm). Łódź was the only city with no new completions.
Currently, 531,400 sqm of office space is under active construction in Poland’s major cities. Kraków, Wrocław and the Tri-City account for 67 percent of all projects. Kraków is taking a clear lead in this respect, with 136,500 sqm of office space under construction, 64 percent of which will be delivered by the end of 2014. Moreover, almost 44 percent of all space under construction in Kraków is secured by pre-let agreements, outperforming other major cities, where between 18.5 percent and 25.5 percent is pre-let (the exception being Szczecin, with 8.5 percent). In total, over 1.1 million sqm is under construction across Poland.
The vacancy rate in Warsaw went up slightly comparing to the end of 2013 when it stood at 11,8 percent. At the moment 13.4 percent (574,400 sqm) of Warsaw’s modern office stock remains vacant (13.6 percent in Central Warsaw, 13.3 percent in Non-Central locations).
Quarterly vacancy rates were stable at the end of H1 2014 in major cities outside Warsaw. The lowest vacancy rate is still found in Kraków (4.5 percent) and the highest in Szczecin (24.4 percent). The largest decrease compared to the end of 2013 was recorded in Łódź (from 13.4 percent to 9.2 percent).
Prime headline rents in Warsaw City Centre range between €22 and €24 / sqm / month. In Q2, tenants leased office spaces in the best Non-Central locations for €14.50 to €14.75 / sqm / month.
Prime headline rents in the major cities outside Warsaw currently range from €11 to €12 / sqm / month in Lublin to €14 to €15 / sqm / month in Wrocław and Poznań. The average headlines rents remain highest in Kraków (€13.7 to €14 / sqm / month) and Katowice (€12.5 to €13.75 / sqm / month), lowest in Lublin (€10 / sqm/ month).
“We expect that the vast majority of office markets in Poland will remain favorable to tenants. The situation will be more balanced in those markets characterized by stable demand for office space and relatively low vacancy rates,” Mateusz Polkowski summarized.