According to “Office Occupier – Office Market in Regions”, a report published by real estate advisory firm Newmark Polska, in the third quarter of 2023, office take-up in Poland’s regional city office markets reached nearly 200,000 sqm, while the development pipeline was below 400,000 sqm. High vacancy rates in existing office buildings mean that tenants have a wide choice of options. Both developers and tenants remain focused on ESG, functionality, flexibility and optimisation of office usage and lease costs.
At the end of the third quarter of 2023, the combined office stock of Poland’s eight largest regional city markets (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, Szczecin) exceeded 6.6 million sqm. In the nine months to end-September 2023, nearly 236,000 sqm of new office space was delivered across 16 projects; of that total, almost 51 percent (119,700 sqm) came on stream in the third quarter. The largest office completions included Ocean Office Park B (Krakow, Q1), Craft (Katowice, Q3), Nowy Rynek E (Poznań, Q2) and Kreo (Krakow, Q3). By the end of 2023, the developers plan to deliver nearly 150,000 sqm of office space, indicating that the new supply will reach its highest this year in the fourth quarter.
The overall commenced office space has dipped below 400,000 sqm for the first time in over 10 years. At the end of the third quarter of 2023, there was approximately 380,000 sqm under construction, down by more than 17 percent over the quarter and nearly 35 percent year-on-year.
“Despite having substantial land banks, many developers frequently defer decisions to commence construction until they secure a major pre-let for a planned development. In addition, more than a million square metres of vacant office space in existing buildings also act as a drag on development activity,” says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.
Leasing activity in the third quarter hit its highest this year, with more than 198,400 sqm transacted, accounting for over 37 percent of the total office take-up for the period between January and end-September 2023. Gross take-up for the first three quarters of 2023 reached almost 532,000 sqm, an increase of 18.5 percent year-on-year. Taking into account the five-year average of the leasing volume for the fourth quarter (approximately 185,000 sqm), total take-up for the whole of 2023 is expected to be close to the historic peak recorded in 2019.
“Despite the growing occupier demand, there is still a strong trend towards optimising office usage. Tenants continue to carefully analyse their needs, looking for energy and environmentally efficient office buildings, with leasing processes becoming protracted,” says Anna Szymańska, Head of the Office Department at Newmark Polska.
New leases accounted for 49 percent of total take-up for the first three quarters of 2023, followed by renegotiations and renewals which contributed 35 percent. The remaining 16 percent came from expansions and owner-occupier deals (6% each) and pre-lets (4 percent).
The overall vacancy rate in the main regional city office markets has been on an upward trajectory since the second quarter of 2022. At the end of the third quarter of 2023, it stood at 17.3 percent, up by 0.5 pp over the quarter and by 2.1 pp year-on-year. Four regional markets saw their vacancy rates surpass 15 percent, with one reporting a vacancy rate below 10 percent. The combined office availability on the eight key regional markets amounts to more than 1.1 million sqm, the highest volume since data analysis began.
Prime office rents in the core regional city markets remain high at €16.00-17.00/sqm/month. In addition, with substantial volumes of office space available in buildings – both existing and under construction, rental rates are expected to hold firm shortly. It is worth noting, however, that office landlords offering modern technological and ESG solutions are unlikely to give ground in rent negotiations.