According to data from real estate services firm Cushman & Wakefield, occupier activity in Warsaw recovered during the second quarter of 2023, as evidenced by the number of office deals closed. In addition, despite tight economic conditions, developers launched new projects, pushing the office development pipeline up.
Total office leasing activity for the first half of 2023 hit 325,700 sqm, down by 32 percent year-on-year.
“The downturn in leasing activity was due to a high base effect as the first quarter of 2022 saw five large-scale companies lease a total of more than 110,000 sqm of office space. The occupational market is, however, recovering, as evidenced by the number of lease transactions executed in the first half of 2023, which was down only 3 percent year-on-year but up by 6 percent compared to the pre-pandemic figure,” comments Ewa Derlatka-Chilewicz, Head of Research at Cushman & Wakefield.
The largest transactions of the first half of 2023 included the renewal of Accenture’s lease of 8,800 sqm in Proximo II, DPD’s lease of 8,700 sqm in its new headquarters and the renegotiation of Lionbridge’s lease of 7,100 sqm in Taifun.
“In the first half of 2023, the structure of demand was dominated by relocations which accounted for approximately 61 percent of all deals. Renegotiations and expansions made up 35 percent and 4 percent of the leasing activity, respectively,” says Jan Szulborski, Office Market Expert, Cushman & Wakefield.
In the second quarter of 2023, three new office projects with a combined area of 18,700 sqm in non-central locations were delivered to the Warsaw market, bringing the total stock to 6.25 million sqm. The largest office completion of the first half of the year was the next phase of The Park (11,000 sqm), developed by White Star Real Estate.
“Cushman & Wakefield estimates that in the second half of the year, the Warsaw office market will expand by around 47,500 sqm across four office projects, bringing 2023’s total new supply to approximately 66,000 sqm. As a result, this year’s development activity will hit its lowest in nearly 25 years. However, despite an unfavourable economic environment, Warsaw’s office development pipeline increased by almost 60,000 sqm to nearly 221,000 sqm. This includes Upper One, an office and hotel complex which is being developed in the vicinity of ONZ Roundabout. Looking ahead, more projects are expected to be launched in the centre of Warsaw,” says Anna Górska-Kwiatkowska, Head of Leasing Services, Cushman & Wakefield.
In June 2023, office availability amounted to 714,400 sqm, marking a decrease of 33,300 sqm from a year ago. In the second quarter of 2023, Warsaw’s vacancy rate stood at 11.4 percent, down by 0.5 pp year-on-year and 0.2 pp quarter-on-quarter.
With new office supply expected to be limited in 2023-2025, the city’s vacancy rate will remain on a downward path, allowing the Warsaw market to absorb the surplus office space from existing stock, which occurred due to the temporarily weaker demand in 2020-2021, says Cushman & Wakefield.
“The rate of absorption will be the fastest in the central zone and modern office buildings featuring ESG solutions that are increasingly sought after by tenants,” adds Jan Szulborski.
In the first half of 2023, prime office rents in Warsaw remained unchanged since the end of 2022 and stood at €22.00-26.00/sqm/month in the Centre and at €13.50-16.50/sqm/month in non-central locations.
Cushman & Wakefield has observed that projects in the pipeline are experiencing the strongest upward pressure on rents due to their significant exposure to rising construction and fit-out costs.
“The pricing policy of landlords for existing office stock will largely depend on such factors as the location, age, quality and occupancy levels of their building portfolios,” concludes Ewa Derlatka-Chilewicz.
