Despite a supply gap and a low level of new completions (18,700 sqm in H1), there is a lot of optimism in the capital’s office market. Over 230,000 sqm is scheduled to be delivered in the next three years, which will significantly increase the amount of office space available to let. On the demand side meanwhile, we observe a relatively high occupier demand, whereby 2/3 of all agreements signed in H1 were new leases. AXI IMMO presents market data for the first half of 2023 in its report “Office Market in Warsaw H1 2023”.
Developers completed 18,700 sqm of space in H1 2023. Total modern office stock in Warsaw amounts to over 6.25 million sqm. The largest of the schemes completed in the first half of the year is building B9 (11,000 sqm) within The Park Warsaw complex. The central zones (City Centre and the Central Business District – CBD) account for 44 percent of total office stock in Warsaw, while non-central zones account for the remaining 56 percent. The largest non-central zone is Służewiec (17 percent of the stock).
As of the end of June 2023, around 230,000 sqm of office space was under construction. In addition, there is the Saski Crescent which is currently in renovation and will add another 15,500 sqm when delivered. Among the most awaited projects in the pipeline for 2024-2025 are The Bridge (Ghelamco, 47,000 sqm), Building B within the mixed-use Towarowa 22 scheme (Echo Investment, 31,100 sqm) and The Form (Lincoln Property & Enern, 28,000 sqm).
New completions have not translated into an increase in vacant space. The average vacancy rate stood at 11.4 percent as of the end of June 2023 (-20 bps q/q and -50 bps y/y). It continues to remain higher outside of the centre (12.7 percent) compared to the central zones (9.9 percent).
Emilia Trofimiuk, Research Manager, Research Department, AXI IMMO, says: “Over the last two years, i.e. since Q2 2021, we have observed a gradual decrease in the vacancy rate in the central zones, by 390 bps. Meanwhile, in non-central zones, the vacancy rate ranged between 11.4 percent and 13 percent as at the end of June 2023, averaging 130 bps higher compared to two years prior.”
The largest amount of vacant space is available in Służewiec (about 220,000 sqm; 20.6 percent). On the other hand, the amount of vacant space in the Centre and the CBD stood at around 150,000 sqm (8.5 percent) and about120,000 sqm (12.4 percent), respectively.
Jakub Potocki, Associate Director, Office Agency, AXI IMMO, explains: “Despite a relatively large amount of space available in the central zones, we can see from the number of letters of intent signed and the space they concern that the office offers is becoming limited for many occupiers. We often observe that an occupier is able to realistically choose from just two to three offers that match their needs. Due to high demand, especially for modern office space located in the centre, landlords have a relatively high degree of bargaining power. As a result, it has become difficult to negotiate the rent and other costs down or obtain attractive incentives such as rent-free periods or increased fit-out contributions. In this landlord market, an attractive office space will be secured by a firm that decides to sign the lease first.”
Take-up in the Warsaw office market reached nearly 326,000 sqm (-33 percent y/y) in H1 2023, with 167,000 sqm leased in Q2 (+5 percent q/q). New leases (including pre-lets) accounted for 60.2 percent of take-up, followed by renewals (35.4 percent) and expansions (4.4 percent). The Centre and the CBD zones attracted 58 percent of total leasing activity in H1. The most important examples of occupier activity are a lease renewal by Accenture (8,800 sqm at Proximo II) and a lease renewal by Lionbridge Poland (7,100 sqm at the Taifun building). In addition, DPD moved into their new HQs with 8,700 sqm of office space.
Bartosz Oleksak, Associate Director, Office Agency, AXI IMMO, says: “Invariably over the years occupiers have sought modern space that is attractive for employees. Hence why after the transition to a hybrid model of working we spend even more time discussing fit-out contributions by landlords during renegotiations and during the process of signing a new lease. As occupier expectations with respect to the standard of their office increase, we expect more decisions by landlords to modernize their buildings.”
At the end of Q2 2023 asking rents on the Warsaw office market remained stable compared to the previous quarter. Asking rents stood at EUR 18.00 to EUR 27.50/ sqm/ month in prime office buildings in the central zones and started from EUR 10.00/ sqm/ month outside of the centre. Service charges ranged from PLN 12.00 to PLN 39.00/ sqm/ month.