According to “Office Occupier: Office Market in Regions”, a report published by real estate advisory firm Newmark Polska, occupier activity in Poland’s regional city office markets remains stable, but tenants are increasingly shifting their focus towards making efficient use of office space and looking for better quality offices.
With office availability in existing buildings remaining high and estimated at more than 1 million sqm, developers are exhibiting caution with regard to commencing new projects. Importantly, high service charges are driving decisions to make upgrades to optimise utility consumption.
At the end of the second quarter of 2023, the combined office stock of Poland’s eight largest regional city markets (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) surpassed 6.5 million sqm. In the six months to the end of June 2023, more than 116,000 sqm of new office space was delivered across 10 projects; of that total, 41 percent (48,100 sqm) came on stream in the second quarter. The key completions included Ocean Office Park B (Krakow, Q1), Nowy Rynek E (Poznań, Q2) and Centrum Południe 3 (Wrocław, Q1). All these schemes accounted for more than 64 percent of the total new supply for the last six months.
Development activity remains moderate. At the end of the second quarter of 2023, there was approximately 500,000 sqm under construction, down by almost 5 percent on the first quarter of 2023 and by more than 11 percent from a year ago.
“With office availability remaining significantly high in existing buildings, developers frequently defer decisions to commence construction until they secure a major pre-let for a planned development despite having secured plots and ready-to-develop projects,” says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.
Leasing activity on the core regional city office markets in the second quarter of 2023 amounted to more than 166,000 sqm and was comparable to the first quarter leasing volume, which was close to 167,800 sqm. Gross take-up for the first half of the year hit 333,800 sqm, down by just under 3 percent year-on-year.
“Despite stability on the demand side, there is a continuing trend towards optimising office space efficiency, with most tenants signing new leases downsizing office footprints compared to what they previously leased or planned. The average lease size for the period January-June was approximately 930 sqm versus 1,100 sqm for the whole of 2022,” says Anna Osiecka, Associate Director, Office Tenant Representation, Newmark Polska.
New leases had a large share in the total take-up for the three months to June 2023 – together with pre-lets they accounted for more than 70% of all deals. Occupier focus has also shifted to energy and environmentally-efficient office buildings. During the first half of the year, new leases and relocations accounted for 55 percent of the leasing volume, with renegotiations taking 33 percent. The remaining 12 percent came from expansions (7 percent), pre-lets (3 percent) and owner-occupier transactions (2 percent).
The overall vacancy rate in the core regional city office markets rose again in the second quarter of 2023. At the end of June, it stood at 16.8%, up by 0.9 pp since the first quarter of 2023 and 1.6 pp year-on-year. The biggest upward movements in vacancy levels were in Katowice (+3.0 pp) and Łódź (+2.9 pp). The combined office availability in the eight key regional markets is close to a record 1.1 million square metres.
Prime office rents in buildings offering modern technology, ESG and energy-efficient solutions remain high, with premium-grade office buildings fetching EUR 16.00-17.00/sqm/month. Due to high service charges, tenants are increasingly opting to upgrade their offices to achieve meaningful savings.