According to “Office Occupier: Office Market in Regions”, a report published by real estate advisory firm Newmark Polska, occupier demand remained relatively strong in Poland’s regional city office markets throughout the second quarter of this year amid gradually shrinking office availability. However, persistently high construction costs and rising financing costs continued to limit developer activity on the regional office markets.
Office lettings in the first six months of 2022 totalled almost 343,000 sqm, the highest result for the first half of a year in the history of the regional office markets (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin). Close to half of the office take-up came from the business services and IT sectors – 24.8 percent and 22.1 percent, respectively. Manufacturing came third, accounting for 13.1 percent of the total leasing volume.
“Occupier activity is growing by the quarter. In Q2 2022, leasing transactions in the major regional office markets reached close to 190,000 sqm, representing an increase of almost 24 percent on the previous quarter and of over 12 percent year-on-year. Similarly, as with Warsaw, the regional city office markets also reported increases in lease renegotiations and renewals. Such deals accounted for 35 percent of the total regional take-up in Q2 2022, up by 18 pp on Q1 2022, and for 27.0 percent in the first six months. New leases made up 48.4 percent, while the remaining 24.6 percent was spread across pre-lets (12.4 percent), expansions (6.9 percent) and owner-occupier deals (5.3 percent),” says Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska.
At the end of Q2 2022, the combined office stock of Poland’s eight largest regional city office markets surpassed 6.34 million sqm. The pace of office completions slowed significantly in the second quarter of the year following the record-breaking delivery of over 243,500 sqm in the first three months. The new supply in the second quarter comprised just over 68,000 sqm delivered in 10 buildings. The largest completions in H1 2022 included buildings A1 and A2 of the Global Office Park in Katowice (55,200 sqm, Q1), .KTW II in Katowice (39,900 sqm, Q1), Midpoint71 in Wrocław (36,200 sqm, Q1), buildings C and D of Fuzja in Łódź (18,700 sqm, Q2), Format in Tricity (16,000 sqm, Q1) and CZ Office Park D in Lublin (15,000 sqm, Q1).
At the end of Q2 2022, Poland already had three regional office markets with more than a million square metres of office space each – Tricity joined the ranks of Krakow and Wrocław. At the other end of the spectrum, Lublin and Szczecin offer a combined area of close to 410,000 sqm. The remaining cities (Poznań, Katowice and Łódź) account for more than 31 percent of the total regional city office stock.
“The office development pipeline in Poland’s major regional cities shrank for another consecutive quarter. At the end of Q2 2022, stock under construction comprised close to 560,000 sqm, down by 10 percent on the previous quarter and by over 30 percent year-on-year. The number of new projects breaking ground is falling due to both persistently high construction costs and rising financing costs,” adds Agnieszka Giermakowska.
At the end of Q2 2022, the overall vacancy rate in major regional office markets stood at 15.2 percent, down by 0.3 pp on Q1 2022, but up by 1.7 pp year-on-year. Vacancy rates rose in Szczecin, Tricity, Krakow and Łódź, but edged down in Katowice, Lublin and Wrocław, with Poznań’s rate remaining unchanged. The combined office availability in the eight regional cities amounted to over 961,000 sqm, with the largest volumes of unoccupied space in Krakow and Wrocław.
All the regional city office markets in Poland continue to experience upward pressure on rents as developers and landlords are scaling down lease incentives, especially in prime buildings and locations with limited office availability.