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Optimism on the Warsaw office market

Since the beginning of the year, fifteen office buildings with a total area of 205,000 sqm have been delivered to the market. In line with developers’ schedules, about 104,000 sqm is planned to be completed by the end of 2017 and, if deadlines are met, new supply at the end of 2017 will be comparable to the annual average new supply noted from 2012-2016 (305,000 sqm). Over 80 percent of the new supply completed was in non-central locations. In Q3 2017, three office buildings were delivered: West Station II (35,000 sqm, HB Reavis), D48 (23,400 sqm, Penta Investments) and Wronia 31 (14,000 sqm, Ghelamco Poland). In the same time period, construction of five new office buildings totalling 140,000 sqm commenced. As a result, at the end of September 2017, there was around 820,000 sqm of office space under construction. Such a large volume has not been recorded in the Warsaw office market before.

Over 70 percent of new supply under construction is situated in central locations. Dynamic development is observed especially in the vicinity of the Daszynski roundabout, where about 255,000 sqm is under construction, constituting nearly 31 percent of the total office space under construction in Warsaw. The largest projects under construction in this area include; Skyliner (43,600 sqm, Karimpol Polska), the Generation Park complex (buildings Y – 42,000 sqm, X – 20,300 sqm, Skanska Property Poland), Spinnaker Tower (40,000 sqm, Ghelamco Poland) or Warsaw HUB (76,000 sqm, Ghelamco Poland).

Strong take-up is still observed in the Warsaw office market, with the level in the first three quarters of 2017, reaching almost 590,000 sqm. This result was only 17 percent lower than the average annual demand registered from 2012-2016. Between January and September 2017, the strongest leasing activity was recorded in central locations, in the Służewiec area and along the Jerozolimskie Corridor. New lease agreements in existing buildings accounted for 45 percent of the take-up volume while pre-lease transactions represented 17 percent of all agreements. The remaining take-up volume consisted of renewals – 25 percent and expansions – 13 percent. The largest lease agreements included the renewal of the Millenium Bank lease agreement in Harmony Office Center (18,300 sqm), the pre-let agreement of Citi Service Center Poland in Generation Park X (13,600 sqm), the renewal and expansion of AstraZeneca in Postępu 14 (13,200 sqm) and a new lease for Nokia in Domaniewska Office Hub (6,200 sqm).

Since the beginning of the year, a decrease in vacancy rate has been observed in Warsaw, which was at the level of 12,9 percent (672,000 sqm of available office space) at the end of Q3 2017. After a few years of steady increase in vacancy rate, we can now observe a clear inversion of this trend. When compared to the previous quarter, the vacancy rate in Warsaw decreased by 1 pp. (a 0.3 pp. decrease in central locations). In relation to the analogical period of 2016 , the vacancy rate decreased by 1.7 pp. (3.1 pp in central locations). The vast majority of vacant space was offered in central locations – 220,000 sqm and in the Służewiec area – 211,000 sqm. The decline of the vacancy rate was influenced by significant net absorption, which exceeded 251,000 sqm after three quarters of 2017 and was for 17 percent higher than annual average net absorption registered in 2012-2016. This confirms the growing demand for office space in Warsaw. In consequence, taking into consideration the strong take-up and developers’ plans concerning new projects, a further decrease of vacancy rate is expected in the forthcoming quarters.

At the end of Q3 2017, asking rents in most locations in the Warsaw office market have remained stable. At the end of September, the asking rents in prime buildings in the Central Business District ranged between EUR 20-23 per sqm per month, while asking rents in other central locations varied from EUR 13 to EUR 21 per sqm per month. The asking rents in buildings outside the city centre were quoted between EUR 10.5-16.5 per sqm per month. Effective rents remained lower than the asking level by 15-25 percent.

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