The supply of office space in Poland’s eight major regional markets amounts to 2.34 million sqm. There are currently 542,500 sqm of new office space under construction. Demand remained stable in H1 2014 at 185,000 sqm, according to the latest report by Colliers International “Polish office market in H1 2014 overview of regional markets”.
Colliers’ analysts have observed rapid development in regional markets. Krakow is seeing the highest number of office projects (169,700 sqm), with Wroclaw (136,000 sqm) in second place. According to the Tholons ranking, Krakow occupies 9th place among the most attractive cities in the world for investment in the outsourcing sector. In the first half of 2014, four projects were completed in Krakow: Alma Tower, Pascal, Biuromax and the Pałac Goetzów (Goetz Palace). In turn, the largest offices under construction in Wroclaw are: Dominikański (39,000 sqm), Times II (18,500 sqm) and West Gate (14,600 sqm).
“Currently, we are witnessing a lot of competition in the office market, which is placing pressure on landlords to reduce their rents. Tenants have a choice, and developers are aware of this. Despite this, we should not expect large reductions in rents, especially in case of prime office properties. The highest monthly rental base rates for a Class A office building are recorded in Krakow, Wroclaw and Tri-City, and the lowest are in Lublin,” said Ewa Grudzień, analyst at the Research and Consultancy Department at Colliers International.
Compared to Krakow and Wroclaw, the remaining regional cities recorded weaker construction activity. In Tri-City, there are 76,000 sqm under construction, in Poznan 70,000 sqm, Katowice 58,200 sqm, Lodz 30,000 sqm, Szczecin 17,200 sqm and in Lublin just over 3,000 sqm. In Gdansk, the fastest-growing office market in the Tri-City agglomeration, there are 57,000 sqm under construction.
At the end of H1 2014, the highest vacancy rate was recorded in Szczecin (25.5 percent); however, growing demand and slower supply dynamics mean that the vacancy rate will fall in the coming quarters. In Tri-City, where the overall vacancy rate stood at 13.7 percent, the highest number of empty offices was recorded in Gdansk (16.7 percent). A downward trend in the vacancy rate can be observed in Lublin (15.6 percent), Lodz (11 percent), Wroclaw (11.7 percent), and Poznan (10.4 percent). Markets with the lowest vacancy rates were Krakow (3.7 percent) and Katowice (6.7 percent).
The development of regional markets is also attracting investors. In the first half of 2014, investment transactions in Poland amounted to €1.4 billion. The office sector accounted for 52 percent of transactions, while 24.2 percent of these were in regional cities. “Rates of return in Warsaw are in the range 6-6.25 percent (for the best office property located in the centre). For comparison, in regional cities prime yields have fallen below 7 percent,” said Piotr Mirowski, partner and head of Investment Services in Poland at Colliers International.