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Savills sums up the first symptoms of COVID-19 impacts on the Warsaw office market

The coronavirus pandemic has had a relatively benign effect on the Q1 2020 Warsaw office market figures, according to the latest Savills research. However, tenants already started to optimize costs which soon may increase the number of lease renewals and subleases. Companies will look for more flexible lease terms and cost-effective locations.

According to Savills, only one new office building was completed in Q1 2020 in Warsaw – the first building of the Varso Place complex with an office (6,700 sqm), retail (1,600 sqm) and hotel part (hotel Nyx). This increased the total Warsaw office stock to 5.59 million sqm.

Almost 792,000 sqm of office space remains under construction across Warsaw, with over 421,000 sqm expected to be delivered throughout the remaining three quarters of 2020. Most of the new supply (70 percent) planned for this year constitute of large scale projects, which are currently on the final straight and are in over 85% preleased or secured with the LOI (Letter of Intent). However, construction works and labour issues may cause some delays, especially when it comes to new developments which start may be postponed.

“The Coronavirus pandemic has already forced a number of companies to revise their office space needs. Some of them may start to consider sublease of their current office space or renegotiating terms of preleased agreements. Tenants will be looking to reduce costs, for example by combining traditional offices with coworking space or by implementing hot-desking and home office. Furthermore, as part of the cost optimization process, some companies may start looking for locations with more attractive rents, such as e.g. Służewiec,” says Monika Wakulska, Associate Director, Landlord Representation, Office Agency, Savills.

Occupier activity in Q1 2020 was moderate. Approx. 138,900 sqm of office space was leased in Warsaw, which is almost the same as the result in the same quarter last year. Non-central locations have surpassed the central ones. Służewiec along with the City Centre West subzones stood out as best performing subzones with almost the same amount of space leased in both of them in Q1 (37,200 sqm and 37,100 sqm respectively). Demand was driven mainly by the banking and financial services sector (23 percent), services (crossed 22 percent) and IT sector (12.5 percent).

“In the upcoming months, the demand for office space is expected to decline. Ongoing rental processes will continue, but new ones are hardly being started at present, as tenants are trying to postpone decisions regarding letting the space where possible. Tenants who were previously looking for space are now more likely to choose the path of contract renewal. Also, whenever possible, companies will opt for the more flexible lease agreements in the future, enabling them to dynamically reduce or to increase space when needed,” adds Monika Wakulska.

Warsaw currently has a low vacancy rate of 7.5% (30 bps lower when compared quarter on quarter and 160 bps lower when compared with Q1 2019). As stated in “Office market in Warsaw” research by Savills, in CBD and City Centre prime rents remain unchanged compared to the previous quarter and range from EUR 22.50 per sqm/month up to EUR 25.50 per sqm/month in top floors in tower buildings. In Służewiec, the largest non-central office zone, rents have remained stable and range between EUR 13.00 and 15.00 per sqm/month.

“Despite stable prime headline rents growing EUR/PLN exchange rate starts to be one of the major concerns of the tenants. The expected slowdown in demand for office space, at least in a short-term, may result in the increase of the vacancy rate in the forthcoming quarters,” sums up Monika Wakulska.

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