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The Warsaw Voice » Special Sections » March 3, 2014
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Record Demand for Offices
March 3, 2014   
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The Polish office market is booming. Office buildings with a combined area of almost 1 million square meters are under construction throughout the country, with further projects in the pipeline.

Warsaw is the largest office market not only in Poland but across Central and Eastern Europe—in terms of the volume of lease transactions, the existing stock and the planned supply of new space. According to a report by consulting firm CBRE, the total modern office stock in Warsaw now amounts to over 4.1 million sq m, 30 percent of which is in the city center. Currently, there is over 600,000 sq m under construction in 41 office schemes, putting Warsaw among the top five European cities (behind Paris, London and Moscow) with the highest office development activity.

Łukasz Kałędkiewicz, Director of the Office Agency at CBRE in Poland, said, “The increasing activity from office developers is strongly linked to robust demand from tenants. With the exception of 2009, annual gross take-up in Warsaw has surged constantly for over a decade. In the last quarter of 2013 leasing activity in Warsaw reached 115,000 sq m. As a result, as much as 633,000 sq m was leased throughout 2013, translating into 4 percent annual growth. The number of ongoing leasing processes suggests that 2014 might bring another record in this regard.”

Gross demand for office space in 2013 was the highest in the history of the Warsaw market. Last year was also exceptional in terms of new supply.

Anna Młyniec, Head of Office Agency and Tenant Representation at Jones Lang LaSalle, said, “2013 was a record-breaking year on the Warsaw office market. The level of demand for office space in Warsaw outperformed the previous volume seen at the end of 2012. Record gross take-up for 2013 totaled 633,000 sq m, while the high level of net take-up—451,000 sq m—proves that companies are more keen than before to relocate and lease appropriate office space, in terms of both standard, size and price. 2013 also saw a 13-year high for new completions, reaching 300,000 sq m in such projects as Plac Unii, Konstruktorska Business Center, Miasteczko Orange, T-Mobile Office Park and Wola Center. This is expected to be followed by an even higher completion volume in 2014, with nearly 320,000 sq m to be delivered over the next 12 months to the Warsaw market. It is also worth mentioning that over 35 percent has already been secured with pre-lets.”

According to Jones Lang LaSalle , the largest deals in Q4 2013 included pre-let transactions signed by a client from the FMCG sector (10,100 sq m, Pacific Office Building), KPMG (8,300 sq m, Gdański Business Centre) and IBM (5,500 sq m, The Park A2). Significant renewals included IBM (5,300 sq m, Wi¶niowy Business Park), Budimex (6,200 sq m, Stawki 40) and Mondelez (3,600 sq m, Trinity Park III).

Higher vacancy rates, lower rents
As in previous years, renegotiations (lease renewals) accounted for 30 percent of all transactions in 2013 (approximately 180,000 sq m), while the value of new contracts (including pre-let agreements) amounted to 450,000 sq m and was more than 6 percent higher than in 2012. Due to strong supply, the vacancy rate rose throughout 2013 and reached 11.8 percent at the end of the year (an increase of nearly 3 percentage points compared with 2012).

Kamila Wykrota, Head of Consulting and Research at real estate services company DTZ, said, “The strong activity on the market for office space in 2013 was largely due to lower effective rents and tenants taking advantage of their good negotiating position rather than the result of a real need for extending the currently occupied area. Along with the expected improvement in the economy, the demand for office space should remain stable. However, due to a high level of new supply in the next two to three years, it is possible to expect that there will be continued strong competition among landlords, which in some locations will exert downward pressure on rents.”

According to the Prime Office Occupancy Costs report published twice a year by CBRE, Warsaw, with an average rent of 35.56 euros per sq m per month, ranks 63rd, two notches lower than in the first quarter of 2013. Konrad Heidinger, a consultant at CBRE’s Research Team in Poland, said, “The slight deterioration is caused mainly by a relatively high amount of office space under construction. It is expected that during the next two to three years prime office rents in the city should remain under downward pressure, but the potential decrease should not exceed 10 percent. Warsaw remains a very attractive office destination in Europe being increasingly compared to Western European cities, visibly standing out among the CEE capitals.”

London’s West End’s overall occupancy costs of 171.88 euros per sq m per month topped the “most expensive” list. Hong Kong-Central followed with total occupancy costs of 155.42 euros per sq m per month. Beijing’s Finance Street, Beijing’s Central Business District (CBD) and Hong Kong’s West Kowloon rounded out the top five, with 130.58 euros per sq m per month, 125.67 euros per sq m per month, and 113.08 euros per sq m per month respectively.

Warsaw is without a doubt one of the fastest developing capitals in Europe. The Warsaw Spire office complex being developed by Ghelamco will soon become one of the city’s landmarks. When completed, the complex will provide around 100,000 sq m of modern office space in a 220-meter 49-story tower building and two adjacent 55-meter 15-story buildings. The Warsaw Spire is also the largest office complex currently under construction in Europe.

Not only the capital
The office market boom is visible not only in Warsaw, but also in other big cities in Poland. This is in part because multinational corporations, looking for savings, have been opening offices in cities cheaper than Warsaw. Among the most attractive cities for developers are Wrocław, Cracow, the Gdańsk-Sopot-Gdynia “tri-city” and Katowice—urban centers with high growth potential. This is primarily due to the large number of residents, but also the development of the business services sector (BPO) in these regions.

Calculations by Jones Lang LaSalle show that in 2013 take-up in the major office markets in Poland (excluding Warsaw) reached 370,000 sq m, comparable to 2012. In Q4 2013, alone, leasing agreements for more than 88,000 sq m were signed. The tri-city area, Cracow and Wrocław took a clear lead in respect of occupier activity in Q4; whereas in the entire 2013, Cracow, Wrocław and Katowice recorded the highest take-up levels among the major office markets in Poland.

Major deals in Q4 included Thomson Reuters (a renewal of 9,000 sq m in Baltic Business Center in the tri-city), a tenant from the consulting sector (pre-letting of 6,770 sq m, Silesia Business Park A, Katowice), RWE (pre-let of 3,150 sq m, Bonarka4Business building E, Cracow) and DHL (renewal, 3,050 sq m, Targowa 35, ŁódĽ).
A.R.


Opinion
Hitting a New High

Łukasz Wyszyński, Letting Manager, Capital Park SA Group:
On the Polish commercial property market, 2013 was a record year, both for the office segment and new development projects.

Gross demand for office space in Warsaw exceeded 630,000 sq m, the highest figure ever. Lease agreements were signed last year for over 450,000 sq m, indicating that companies were more confident in making decisions to relocate to modern offices, raising their office standards, while at the same time keeping rents at an attractive level.

Last year was also special in terms of supply of new space, with developers putting over 300,000 sq m onto the Warsaw market. The total stock of modern office space now stands at more than 4,110,000 sq m. It is estimated that another 320,000 sq m will be added this year.

At Capital Park SA Group, we saw a significant increase in 2013 in activity on the office and retail lease market for our premises located throughout Poland. At present, we are in the process of leasing out two large projects in Warsaw, the Eurocentrum Office Complex and Royal Wilanów; and one project in Gdańsk, Piano House. We have noticed an improvement in sentiment among office tenants, which is especially visible in the IT and FMCG sectors. Apart from optimizing their space, such companies are also interested in expanding it.

Assuming that GDP growth is as high as projected, we should see increased demand from tenants in the years ahead as well.
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