According to international real estate advisor Savills, Kraków is the largest regional office market in Poland with modern office stock at 915,800 sqm at the end of 2016. The market is growing rapidly, since 2012 office space has increased by almost 70 percent. A record high 146,900 sqm was delivered to the market during 2016.
According to Savills, in 2017 modern office stock is expected to significantly exceed a million sqm, with another almost 300,000 sqm in the pipeline for 2018 – 2019. The largest project in the city currently under construction are: O3 Business Campus II&III (38,200 sqm) by Echo Investment, Enterprise Park E&F (26,400 sqm) by Avestus and High 5ive E&D (20,600 sqm) by Skanska.
“Kraków is not only the largest regional office market in Poland but also leading business services hub in Europe with great potential. In the years to come, the office market in the city will grow even more,” explained Tomasz Buras, Head of Poland at Savills.
The demand side of the market is in line with strong supply. In 2016 the highest level of letting activity ever recorded at 187,800 sqm was observed – the third year in a row of record high demand. Almost half of lease agreements was in the form of pre-lease i.e. signed in a building yet to be delivered to the market, further 25 percent of the total volume took the form of new leases and relocations.
During 2016 companies from the IT sector were the most active tenants as they leased 23 percent of the total take-up. The largest lease agreements in 2016 include: a pre-lease of AON Hewitt in Enterprise Park E (10,700 sqm); a pre-lease of Euroclear Bank in Bonarka for Business G (10,000 sqm) and an expansion (also pre-lease) of ABB in Axis (10,000 sqm). Net absorption in 2016 stood at 110,300 sqm, over 40 percent above the 2015 level.
The vacancy rate in Kraków was the second lowest compared with other regional markets. At the end of 2016 vacancy rate stood at 7.2 percent (66,200 sqm). The vacancy rate in 2017 is expected to remain low as over 40 percent of the 2017 pipeline is already pre-let.
Prime headline rents are now in the range of €13.00 – 14.50 per sqm/month. However, effective rents are 20 percent lower than headline rents as landlords offer incentives. Not only incentives such as rent-free periods and fit-out budget are offered but also some additional solutions and amenities to help companies retain employees e.g. concierge.
Headline rents are expected to remain stable, however as developer activity is very high landlords may increase incentives for tenants widening the gap between headline and effective rents.
“Kraków offers world-class offices, well-educated employees and high living standard,” concluded Dorota Ejsmont, Head of Landlord Representation Office Agency at Savills.
