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The Warsaw Voice » Real Estate » September 30, 2011
The Real Estate Voice
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Modern Offices Still in Demand
September 30, 2011   
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Although there is currently no problem with renting an office in Poland’s largest cities, new office buildings are still being built. The industry’s encouraging prospects are due to growing demand for modern office space.

In recent years Poland has strengthened its position as a desirable location to invest and do business. This means greater demand for new office space among foreign investors and consequently a boom in the real estate sector.

“The market for investment in commercial real estate is directly dependent on the overall economic situation,” says Piotr Maciąg, Commercial Real Estate Market Director at Unidevelopment. “After a period of stagnation in 2008/2009 in the wake of the crisis, we are seeing clear signs of recovery. Although there are disturbing signals about the state of the economy in other countries, the situation in Poland is stable, which leads to increased interest among institutional clients in office space. This is evidenced by data gathered by organizations analyzing the Polish market. According to this data, in the first half of this year, over 100,000 sq m more space was leased than in the corresponding period of 2010.”

The office market in Poland, and particularly in Warsaw, is clearly speeding up. The demand for office space is growing, while vacancy rates are rapidly falling in a number of popular locations, according to CB Richard Ellis’ Q1 2011 Poland and Warsaw MarketView report.

Joanna Mroczek, director of the Research and Consultancy Department at CB Richard Ellis in Poland, says that demand for modern office space is growing while the vacancy rate is decreasing. “Total take-up in 2011 is expected to be at a similar level or even higher than in 2010,” says Mroczek. “Prime rents in Warsaw are showing an upward trend—24-26 euros per sq m per month in the city center, and 15-16 euros per sq m per month in non-central areas. However, there are no sharp changes and the increase has been rather gradual.”

Predictably, most modern office buildings are being constructed in Warsaw. According to Paulina Misiak of Cushman & Wakefield, the supply of modern office space in Warsaw has increased 1,400 percent compared with 1991, from 250,000 sq m to 3.5 million sq m. There are over 375 modern office buildings in Warsaw, Misiak says. “The office space delivered in the last 10 years is among the most modern of its kind in Europe both in terms of its standards and technical solutions,” she adds. “Examples include the Rondo 1 and Metropolitan buildings. Separate offices and endless corridors have been replaced by open-plan space and the reception desk instead of the office of the company’s president is now the company’s hallmark.”

New projects
In the next 12 months, few projects will be completed, but the completion of a significant number of major office developments is planned in 2013 (such as Warsaw Spire, with an area of 100,000 sq m). Currently, around 400,000 sq m of offices are under construction, of which over 30 percent has been pre-leased.

The trends on the office market in Poland show that the greatest recovery and potential have been visible on the Warsaw market.

“Although areas with significant potential also include Cracow, Wrocław, the Tricity, Katowice, Poznań and Łódź, the situation in each of these cities should be considered on an individual basis,” says Maciąg.

“It often depends on one or two large projects. The biggest companies usually view these cities as potential locations for space intended for business process outsourcing (BPO). In most cases, central offices still tend to be located in the capital.”

Revival on regional markets
Recently there has been a lot of activity on regional markets as well. “We have been observing increasing revival in regional cities—a third of the transactions in which we have participated took place outside of Warsaw,” says Cushman & Wakefield’s Misiak.

Prime office stock in Cracow stands at around 500,000 sq m. “In the first half of 2011, about 24,000 sq m hit the market through schemes such as Bonarka 4 Business (phase 1) and Green Office (building B),” reads the Marketbeat Autumn 2011 report from Cushman & Wakefield. “Around 61,500 sq m is under construction, of which more than 30 percent will be delivered before the end of 2011. It should be noted that about 80 percent is being built on a speculative basis—without pre-let agreements. Take-up in the first half of 2011 stood at 55,370 sq m, with renegotiations and new agreements representing around 46 percent. The largest transaction was the renewal of a lease of 16,100 sq m in the Kraków Business Park by Shell. New completions pushed vacancy rates up slightly, and by the end of the first half of 2011 the rate had risen to 10.4 percent. Asking rents remain at 13-15 euros/sq m/month.”

According to Cushman & Wakefield analysts, with 395,000 sq m of office stock, Wrocław is the second-largest and at the same time the fastest-growing regional office market. In the first half of the year, about 5,980 sq m of space came onto the market, including the Grabiszyńska Office Center, which is being refurbished. A relatively large amount of office space, 74,360 sq m, is under construction, most of this on a speculative basis. Increasing development activity on the Wrocław office market is the result of sustained occupier interest and the lowest vacancy rate in Poland, Cushman & Wakefield says. The leasing transaction volume in the first half of the year was 17,670 sq m, with new agreements making up 85 percent of the total, whereas prelets accounted for about 57 percent of take-up. The largest transaction was IBM’s lease of 8,000 sq m in the Wojdyła Business Park. The vacancy rate in the first half of the year increased slightly to 4 percent, as new completions hit the market. Asking rents are 13-15 euros/sq m/month.

The report shows that developers have also been busy in the Tricity area. The completion of the Allcon Park in the first half of 2011 brought the Tricity’s total office stock to 311,600 sq m. About 41,500 sq m of office space is under construction, of which 60 percent is scheduled for delivery before the end of 2011. Key projects under construction are the Olivia Business Center (TPS), the Opera Office (Euro Styl), and the BCB Business Park (Bałtyckie Centrum Biznesu). In the first half of 2011, about 11,640 sq m was leased, with new contracts accounting for 77 percent of this total. One of the largest transactions was Jeppesen Poland’s lease of 2,568 sq m in the Arkońska Business Park. In the last six months, the vacancy rate decreased by 2.2 percentage points to 15 percent. Rents remain at 13-15 euros/sq m/month.

Modern office buildings are also being constructed in other large cities in Poland such as Katowice, Poznań and Łódź. Prime office stock in Katowice is estimated to total around 267,500 sq m. In the first half of 2011, only the 4,800 sq m of the completed Steel Office (Opal) project came on stream. Some 13,670 sq m is under construction in four projects, of which about 46 percent will hit the market by the end of 2011. The Silesia Business Park I (Skanska Property Poland) and Piaskowa Business Center (Secus Property SA) have building permits for a total of 20,622 sq m. The transaction volume in the first half of 2011 totaled 23,790 sq m; new agreements made up 52 percent of this total. The largest transaction in the first half of 2011 was the renewal of Capgemini’s lease of 5,700 sq m in Altus. Limited supply and growing occupier interest pushed vacancy rates down to 15.2 percent at the end of the first half of 2011, from 17.3 percent at the end of 2010. Asking rents remain at 12-15 euros/sq m/month.

According to the Marketbeat report, at the end of the first half of 2011, Poznań’s total office stock stood at 250,120 sq m. The 4,170-sq-m Murawa Office Park (Aiga Investments) was completed. About 26,320 sq m is under construction, of which 38 percent will be delivered to the market by the end of 2011. The largest construction starts are Malta Office Park III (Echo Investment SA), Okrąglak (Immobel), and Andersia Business Center (Von der Heyden Group). In the first half of 2011, some 30,700 sq m was leased, with new agreements representing about 85 percent of the total. Renegotiations accounted for about 11 percent. The largest transaction made in the past six months was Allegro’s lease of 14,600 sq m in the Cluster Grunwaldzka (Pixel building), currently under construction. In the first half of the year, asking rents remained at 14-16 euros/sq m/month. The vacancy rate decreased by about three percentage points to 11.7 percent.

With 233,550 sq m of office space, Łódź is the sixth-largest regional office market. Some 35,500 sq m is under construction, including the Teofilów Business Park (10,000 sq m) and the first phase of the Green Horizon (18,000 sq m). The leasing transaction volume in the first half of 2011 totaled around 21,780 sq m, of which the majority (96 percent) was new agreements. Prelets made up about 52 percent of total take-up. The largest transaction was Infosys BPO Poland’s lease of 11,500 sq m in Green Horizon, developed by Skanska Property Poland. The vacancy rate is falling, reflecting limited supply and stable demand. In the first half of 2011, the rate was 19.7 percent. Asking rents range between 12-14 euros/sq m/month.


Commentary
Warsaw Still the Most Attractive Market

Jarosław Zagórski, Commercial & Business Development Director, Ghelamco Poland

Poland is among the most attractive economic regions of Central and Eastern Europe. For many years Warsaw has been the strongest market in the country. The office market in the capital continues to record the biggest interest from customers. According to a report by the Warsaw Research Forum, modern office space leases in Warsaw in the first half of 2011 reached 322,200 sq m, rising by 46 percent from the same period last year. In the second quarter, leases for space not exceeding 1,000 sq m clearly prevailed. Ghelamco signed four major contracts with new tenants during this time. PKN Orlen and the Rabobank Group leased office space in the prestigious Senator office building. Cargill and Hyundai Motor Europe leased premises for their new headquarters in the Nova Mokotów building. The new tenants signed contracts for 1,600 and 1,000 sq m of modern A-Class office space respectively.

As for the vacancy rate, it has fallen in 2011. In part, this has been due to limited supply and increased demand in 2010. According to analysts, in the second quarter of 2011, the vacancy rate was 6.2 percent. A further drop in the vacancy rate should be expected due to limited supply in the future. Over the next few months, further projects, chiefly those outside the city center, will contribute to the Warsaw real estate market. In the third quarter, phase one of the Mokotów Nova project delivered 25,000 sq m of office space to the market.
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