Occupier activity in the Warsaw office market remained relatively strong throughout the second quarter of 2022, while office availability continued to decrease further, pointing to a continued downward trend in vacancy rates, reveals real estate advisory firm Newmark Polska in its latest report “Office Occupier – Warsaw Office Market”.
In the first half of 2022, gross office take-up came close to 480,000 sqm, of which over 44 percent, or 212,200 sqm, was transacted in the second quarter. This represents an impressive 92.7 percent year-on-year uplift on the leasing volume of almost 250,000 sqm posted in the first half of 2021. Occupier activity continued to focus on central locations where the leasing volume amounted to more than 343,700 sqm, accounting for nearly 72 percent of the total take-up. Despite the current geopolitical tensions, there is no sign of any marked slowdown in leasing activity or slower decision-making.
“With the rising level of a hybrid working model, companies are increasingly shifting their focus towards office reconfiguration to strengthen employee integration and collaboration in the workplace,” says Joanna Bartosiewicz, Senior Associate, Office Tenant Representation, Newmark Polska. “Given the current level of occupier activity and the expected limited new office supply shortly, we expect an increase in lease renewals whose share of the total take-up rose over the quarter from just over 27 percent in Q1 2022 to 48 percent at the end of June 2022.”
In total, renegotiations and lease renewals accounted for 36.5 percent of the leasing volume in the first half of 2022. The remaining 63.5 percent was spread across new deals (33 percent), pre-lets (15 percent), expansions (11 percent) and owner-occupier deals (4.5 percent). In H1 2022, office demand in the Warsaw office market came predominantly from two sectors: financial (31.5 percent) and IT (17.5 percent). The largest lease agreement in the second quarter of this year was a renegotiation of 21,000 sqm by Samsung Electronics Polska in Warsaw Spire C.
Warsaw’s total office stock currently stands at 6.27 million sqm. Only two office projects with a combined area of 35,600 sqm were completed in Q2 2022, bringing new deliveries in 2022 YTD to more than 129,000 sqm.
The largest office completions in the first half of the year included Forest Tower (51,500 sqm, Centre North, Q1), SKYSAWA I&II (a total of 31,300 sqm, the Central Business District, Q1 and Q2) and LIXA C (19,400 sqm, Centre West, Q1).
“The office development pipeline rose slightly over the quarter to close to 300,000 sqm at the end of June. It is also worth noting that following the expected delivery of Varso Tower and P180 in 2022, larger office projects are unlikely to be completed in the Warsaw market till the end of 2023 and late 2024 or early 2025,” says Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska.
At the end of June 2022, Warsaw’s vacancy rate hit 11.9 percent, down by 0.3 pp over the quarter and 0.6 pp year-on-year. The proportion of unoccupied office space in buildings completed post-2016 stands at 9.1 percent, well below the average for the capital, compared to 14.8 percent in office buildings delivered in 2010 or earlier. Looking ahead, office availability in Warsaw is expected to shrink further in the coming quarters.
Prime office rents remained under upward pressure at the end of Q2 2022, particularly in office buildings and locations attracting the strongest occupier interest. In addition, high office fit-out costs and supply chain disruptions have resulted in the significantly longer time needed to perform the entire fit-out work.