Demand Still Strong for Modern Offices
March 1, 2013
Poland’s office market continues to thrive despite a general economic slowdown. In Warsaw alone, the total supply of modern office space is close to 4 million square meters. And investors keep starting new projects.
According to real estate services company CBRE, in 2012, a total of 268,000 sq m of office space in 27 new buildings was delivered to the Warsaw market. In 2013, more than 300,000 square meters of space is expected to be completed, and the same goes for 2014. In Warsaw, gross demand exceeded 600,000 square meters in 2012.
“Although one of the major demand drivers is cost reduction, in many cases new leases are being signed for larger office space,” says Joanna Mroczek, Director, Head of Consultancy & Research, CBRE in Poland. “Tenants are consolidating or moving some of their operations from other countries and therefore they need to expand. The market has matured and occupiers are more demanding, looking for modern, flexible, more customized offices. As the economic uncertainty persists, the most popular are cheaper business parks or locations on the fringe of the city center. There are less large renegotiations being observed, as companies find it more profitable to sign pre-lease agreements. In the future, we may also observe more pre-construction agreements as well as built-to-suit transactions, which are quite common on more mature markets.”
Warsaw is not the only city where the demand for modern office space is on the rise. “In many Polish conurbations such as Cracow, Wroc³aw or the Tricity area, the amount of office space leased in the first three quarters of 2012 exceeded the total leased in the whole of 2011,” says Mroczek. “This is connected mainly with the growth of the business process outsourcing sector (BPO), which already employs over 100,000 people in Poland. The most important BPO centers in our country are Warsaw, Cracow, Wroc³aw and £ód¼. The development of this sector is the main reason behind the growing demand for office space.”
In the whole of Poland the supply of new office space will be around 600,000 sq m this year. In Warsaw there is currently 700,000 sq m under construction, while in eight of the biggest regional cities the figure stands at 510,000 sq m, which accounts for 19 percent and 21 percent of the existing stock respectively. The vacancy rate looks set to rise in the major conurbations in the next two years, even though BPO tenants plan to employ more people. This results from the relative glut of speculatively built office space, which does not have pre-let agreements signed before construction starts. Taking into account the existing vacancy rate and the amount of office space under construction, the easiest places to find office space in regional conurbations are £ód¼, the Tricity and Wroc³aw.
According to real estate services company Jones Lang LaSalle, in the fourth quarter of 2012, tenants leased a total of 153,200 sq m of office space in Warsaw (35 percent pre-lets, 23 percent renewals). The largest pre-let deals in Q4 included: Frontex (14,600 sq m, Warsaw Spire), BO¦ Bank (8,940 sq m, Feniks office building) and BPS Bank (8,920 sq m, Grzybowska 81). Q4 2012 also saw some lease renewals, including Salans (2,800 sq m, Rondo 1) and PPD (2,800 sq m, Trinity Park III).
That modern office space continues to enjoy great interest is illustrated by the fact that tenants have already pre-leased more than 14,000 sq m of space in the Warsaw Spire complex being developed in Warsaw. The complex will comprise a 220-meter tower and two neighboring 55-meter buildings. The Warsaw Spire is the largest office building currently under construction in Europe. The total office space available in the Warsaw Spire complex will be 100,000 sq m, an area equivalent to more than 14 soccer pitches. There will be approximately 60,000 sq m of office space on 49 floors in the main building. The two lower, 15-story buildings will each offer around 20,000 sq m of space. The developer and general contractor behind this zl.1 billion project is Ghelamco Poland. The first tenant for the complex is Frontex, the European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union, which has leased 14,600 sq m of space in building B in the complex. The lease contract is for 10 years.
In the major office markets in Poland excluding Warsaw (Cracow, Wroc³aw, Tricity, Katowice, Poznań, £ód¼, Szczecin and Lublin), the annual gross take-up reached almost 370,000 sq m, up 25 percent year-on-year; the net take-up of 304,700 sq m was up by 15 percent compared to 2011. Cracow and Wroc³aw took a clear lead in respect of occupier activity over the whole year; however, in Q4 2012 tenants in the Wroc³aw and Katowice markets were most active. The largest deals in Q4 included: Hewlett Packard (a renewal of 6,700 sq m, Globis, Wroc³aw); BNY Mellon (a pre-let of 6,230 sq m, Aquarius Business House, Wroc³aw); an undisclosed company from the financial sector (a new deal of 5,000 sq m, Silver Forum, Wroc³aw), Capgemini (a pre-let of 3,600 sq m, Millenium Tower IV, Wroc³aw), Asseco (a new deal for 2,800 sq m, the Arge building, Cracow) and SWS BPO Poland (a pre-let of 2,100 sq m, Green Horizon, £ód¼). In the whole of 2012, more than 35 percent of the transactions concluded were pre-lets.
The volume of new completions in Warsaw doubled in comparison to the previous year: 2012 saw 268,000 sq m of new completions. In other major Polish cities, new supply also doubled compared with 2011 (257,000 sq m vs. 113,000 sq m). Q4 2012 brought almost 120,000 sq m of new office space to the market outside of Warsaw, of which 53 percent was in Wroc³aw (including 15,000 sq m in Aquarius Business House phase I; 5,000 sq m in D³ugosza Business Park; and 5,000 sq m in Rac³awicka Center) and Poznań (14,600 sq m in Klaster Grunwaldzka – Pixel and 11,600 sq m in Andersia Business Center). Other new major additions to the market included Green Horizon phase I (16,500 sq m) in £ód¼, Bonarka 4 Business C (8,200 sq m) in Cracow and Brama Portowa II (6,700 sq m) in Szczecin.
Due to the high volume of new supply, approximately 8.8 percent of the modern office stock in Warsaw was vacant at the end of 2012. The amount of vacant space increased by around 100,000 sq m within just one year. At the end of 2012, the vacancy rates in Lublin, £ód¼ and the Tricity area remained stable, with downward pressures in relation to the previous quarter recorded in Katowice and Cracow. Other major office markets in Poland outside Warsaw showed an increase in vacancy rates on a quarterly basis as a result of completing projects for which tenants are still being sought.
Prime office space fetched between 22 and 25 euros per sq m per month in Warsaw city center throughout 2012 and 15 euros per sq m per month in non-central locations such as Mokotów. Outside the capital, rents in prime office buildings range from 11-13 euros per square meter per month in £ód¼ to 16 euros per square meter per month in Poznań. Jones Lang LaSalle expects that in 2013 some slight downward pressure on rents is possible on some markets outside the capital. A.R.
Jaros³aw Zagórski, Commercial and Business Development Director at Ghelamco Poland:
In the face of the uncertain economic situation in Europe, the Polish commercial real estate market has been one of the most dynamic in the region in recent years. At the moment, a relative improvement can be observed in business sentiment in eurozone countries, which further strengthens the already good condition of Poland’s real estate market, both in the capital and in regional cities. Forecasts for 2013 are consequently optimistic. However, in the long term, the condition of the Polish office market will increasingly depend on what happens in the European economy in 2014 and 2015. If business optimism continues in Europe, Poland’s commercial real estate sector will continue to be active.
In the coming years Ghelamco Poland plans to deliver a further 400,000 sq m of modern office space. In 2013, we will focus mainly on developing the Warsaw Spire complex and on projects outside the city center: Marynarska 12 and £opuszańska Business Park. In addition, we are pressing ahead with well-advanced talks on the sale of the Senator building and the Mokotów Nova business park.