2023 was marked in Poland by a shrinking office development pipeline amid a continued focus on the optimisation of office footprints and overall office running costs. It was also another year in which both tenants and developers faced relatively high office fit-out costs. In addition, high borrowing costs were a drag on expansion, with caution being a key theme characterising the Polish office market.
New office supply in Warsaw for the whole of 2023 is unlikely to surpass 70,000 sqm, the lowest level in the history of the Warsaw market, while regional cities continue to see more and more office completions. The volume of office stock under construction in Poland’s key regional city markets has notably declined – at the end of 2023 it will reach approximately 350,000 sqm, down by nearly 40 percent in 2022 and by almost 70 percent from nearly 1.1 million sqm in the peak year of 2017.
The Polish office market is expected to exceed the 13 million sqm mark in 2024, with regional cities surpassing Warsaw in terms of the total stock of modern office space. However, with 3.33 sqm per inhabitant, Warsaw leads the way for office space saturation, followed by Katowice (2.68 sqm per inhabitant), Krakow (2.21 sqm per inhabitant) and Wrocław (2.01 sqm per inhabitant). Saturation rates in other cities remain below 1.5 sqm per inhabitant, the lowest being in Szczecin and Lublin – 0.48 sqm and 0.67 sqm per inhabitant respectively.
Leasing activity remains at a relatively stable level. 2023’s total take-up in Poland’s nine key regional city office markets is expected to hit around 1.5 million sqm, which will be comparable with 2022’s volume. Due to the adaptation of offices to the requirements of hybrid working patterns, companies are no longer leasing extra space just in case while the ongoing optimisation has caused the average deal size to shrink. Occupier activity in 2024 will largely depend on the overall macroeconomic situation and corporate policies on expansion or cost-cutting.
In 2023, office vacancies in regional cities set a new high of over 1.1 million sqm in existing office buildings, while Warsaw saw its vacancy rate edge down, especially in prime locations. With development activity slowing down in the regions, regional city vacancy rates will enter a downward trajectory in 2024, but at different times during the year.
2024 is expected to see a continuation of and a stronger focus on optimisation, a flight to quality and ESG compliance. In addition to optimising offices, tenants will be increasingly targeting well-connected office buildings with high ESG credentials in prime locations providing easy access to numerous amenities and services both in a building and its vicinity. For many buildings that do not meet these standards, 2024 is likely to mark a turning point in their future role. It will be a year of refurbishments and repurposing of older office stock – time will tell.
Author: Anna Szymańska, Head of the Office Department at Newmark Polska