Recently, there has been significantly more activity in the Warsaw office market compared to regional markets, both in terms of demand and new investments. As to last year, the demand for office space in Warsaw has increased, while in the regions, overall demand has decreased. There are also more vacancies in the regional markets.
The demand for office space in Warsaw remains at a high and stable level. It has even been rising in recent months. It’s worth noting that in terms of office market absorption, Warsaw ranks among the top European cities. In contrast, office demand in Poland’s regional markets has declined compared to the previous year. Although office rents in major regional cities are nearly half the price of those in Warsaw, the vacancy rates in the regions are nearly twice as high as in the capital market.
The widespread optimization of workspace by companies is accompanied primarily by a demand for high-standard offices located in city centres. This is deepening the differences in office availability depending on location. Available office space is noticeably decreasing in central city areas, while it is increasing in areas farther from the city centres.
The national leasing structure shows an increase in lease renegotiations, which have recently dominated the Warsaw market. Through renegotiating, companies are seeking to avoid the costs associated with relocating and fitting out new spaces.
Office investments have stalled across Poland, with few new projects. Developers are analyzing the market’s absorption capacity for new supply. Beyond verifying actual demand for space in the context of hybrid work, the growth of office stock is being held back by land prices and the limited availability of centrally located plots, as well as higher costs of financing projects.
Developers are also being discouraged by lower investor activity in the transactional market. However, there are already signs of improvement in this area. This year, package deals have been recorded in the Warsaw office segment, while in the regions, prime properties have changed hands, indicating that investors are once again looking into office assets.
Regional demand down by several percent
In the first half of this year, total office demand in the eight largest cities outside Warsaw declined compared to the previous year, with just under 290,000 sqm of contracted space. In the second quarter, agreements were signed for 146,000 sqm, a result several percent lower than in the same quarter of 2023.
Office demand in the regions comes primarily from companies in the IT and business services sectors, as well as manufacturing firms. The most dynamic rental markets are in Krakow, Tricity, and Wroclaw.
In Krakow, demand for office space grew by several percent in the first half of this year compared to 2023. Tenants signed contracts for over 90,000 sqm, making Krakow the regional leader, generating one-third of the total transaction volume in regional cities.
In Wroclaw, 50,000 sqm of offices were contracted, while in Tricity, 56,000 sqm were leased. In Poznan, tenants leased over 30,000 sqm of space, and in Katowice, 25,000 sqm.
In the regions, nearly 18 percent of office space is available for immediate lease, while in Warsaw, the vacancy rate is just over 10 percent. Relatively large office availability is in Krakow and Katowice, where over 20 percent of space is awaiting tenants, and in Lodz, even over 23 percent. In Wroclaw, 18 percent of offices are vacant, 12 percent in Tricity, and 14 percent in Poznan.
Warsaw thrives on renegotiations
Office demand in Warsaw in the first half of 2024 was similar to last year in terms of both contracted space and the number of agreements, indicating market stabilization. By mid-year, contracts were signed for approximately 320,000 sqm of offices, mostly outside the city centre. In the second quarter of this year, demand for office space in the capital was about 30 percent higher than in the previous three months and also higher than the volume in the same quarter of the previous year.
The most active sectors renting office space in Warsaw are banking, manufacturing, media groups, as well as IT and business services companies. Institutional tenants and state entities are also more active due to unlocking decisions following the change of government. State-owned companies and public institutions are further facilitated by the increasingly common option of paying rent in Polish zloty, offered by building owners.
In Warsaw, lease renegotiations have begun to dominate, with their share regularly increasing in recent times. In the second quarter of this year, renegotiations dominated the leasing structure, driven by the high costs of finishing and furnishing new spaces.
Office construction slows down by three quarters compared to pre-pandemic levels
The growth of new office supply in Poland now exceeds just over a quarter of what was recorded before the pandemic. In the nine largest cities in Poland (Warsaw, Krakow, Wroclaw, the Tricity, Katowice, Poznan, Lodz, Lublin, and Szczecin), less than 500,000 sqm of office space is under construction. For comparison, five years ago, 1.9 million sqm of offices were being built in the country.
New projects have almost entirely halted in regional markets. In the first half of this year, construction began on one project in Wroclaw, which will offer a few thousand sqm of offices.
In Warsaw, the construction or modernization of over 90,000 sqm of office space in six buildings started during the same period. Overall, approximately 280,000 sqm of offices are under construction in the capital. New office buildings are mainly rising in the city centre (90 percent of the new space), reflecting strategic adjustments to the current preferences of tenants and company employees.
Projects such as The Bridge (47,000 sqm), Upper One (36,000 sqm), Skyliner II (24,000 sqm), Office House (31,000 sqm), Warta Tower (30,000 sqm), The Form (30,000 sqm) CD Projekt HQ, Studio II and Vena (15,4,000 sqm), as well as V Tower (33,7000 sqm), G5 Prime Offices (11,000 sqm), Lakeside II (18,000 sqm), former UBC II (after modernization) and others will add to Warsaw’s office stock after their construction is completed.
The office projects being initiated now are significantly smaller in size compared to those built a few years ago. Additionally, on the Warsaw market, we are seeing an increasing number of conversions of old office buildings, primarily into residential projects, PRS (Private Rented Sector), or student housing.
In the regions, the most construction is taking place in Krakow and Katowice
In regional cities, approximately 190,000 sqm of office space is currently under construction, with the largest developments taking place in Krakow, Katowice, Poznan, and Wroclaw. Nearly 70,000 sqm of office space under construction in Krakow gives it the top spot among regional cities. Katowice follows in second place, with 60,000 sqm under development. The largest projects in the Katowice agglomeration are Grundmanna Office Park (21,000 sqm) and Eco City Katowice (18,000 sqm).
In Poznan, around 58,000 sqm of office space is under construction, including the AND2 building (40,000 sqm). In Wroclaw, three office projects are under development, totalling approximately 40,000 sqm. In the Tricity area, 36,000 sqm of office space is under construction.
In the first half of the year, developers in Poland delivered just under 130,000 sqm of new office space. This new supply was almost equally divided between Warsaw and the largest regional markets. The leading regional markets in terms of new supply were Wroclaw and Krakow. Wroclaw dominated the other regions, accounting for more than half of the space delivered outside Warsaw (32,000 sqm.).
In Warsaw, new office buildings completed this year include Lixa D and E, and Vibe I. In Wroclaw, Quorum Office Park A (16,800 sqm.) and B10 were completed, while in Krakow, Brain Park C (13,000 sqm.) was finished.
Author Mateusz Strzelecki, Partner/Head of Tenant Representation at Walter Herz.
