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The Warsaw Voice » Special Sections » September 29, 2014
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Office Market Still Booming
September 29, 2014   
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The Polish office market continues to boom. More than 1.1 million square meters of office space is under construction nationwide.

According to real estate services company Colliers International, at the end of June, the total modern office stock on nine key markets in Poland amounted to 6.6 million sq m. In the first six months of this year, developers completed 305,000 square meters of new offices. More than 60 percent of the new supply was delivered in Warsaw (190,300 sq m). Among regional markets the greatest increase in modern office space was recorded in the Gdańsk-Sopot-Gdynia Tri-City area (37,000 sq m), followed by Wroc³aw (23,100 sq m) and Cracow (20,000 sq m).

In Warsaw, 190,300 sq m of modern office space hit the market in the first half of this year, bringing the total volume of modern office space in Warsaw to 4.3 million sq m. An additional 43 office projects are under construction with a total space of 633,000 sq m, 42 percent of which is located in the city center. More than 190,000 sq m has been completed in 18 buildings since the beginning of 2014, with an additional 375,000 sq m scheduled for completion by the end of 2017.

According to property consultants CBRE, the volume of lease transactions in Warsaw in the first half of 2014 amounted to 260,100 sq m, about 22 percent less than in the same period last year. New lease agreements covered over 119,000 sq m of space, while renegotiations involved just over 95,000 sq m. Finally, pre-lease agreements were signed for 17,300 sq m. Non-central locations accounted for 197,900 sq m of all lease agreements, while the city center accounted for 62,200 sq m. CBRE analysts predict tenant activity will increase in the second half of the year with the leasing level expected to reach 2013 volumes.

Konrad Heidinger, senior consultant in CBRE’s consultancy and research department, said, “Although tenant activity in Warsaw is high, the vacancy rate will grow due to a significant number of new office projects. This upward trend has been visible for the last three years and will continue in the coming years. The current vacancy rate is 13.4 percent and is forecast to reach 19 percent by mid-2016. Naturally, this high vacancy rate is reflected in the decline of rents. The highest monthly rents in 2014 equaled 25.50 euros per sq m in the city center and 15 euros per sq m outside of it.”

The largest transactions to date in 2014 include the renewal of Netia’s lease agreement for 13,229 sq m in Marynarska Business Park; PWC’s agreement for 10,800 sq m in the IBC building (CBRE advised in both transactions); and a contract for 12,560 sq m at 12 Marynarska St. signed with Citibank.

Joanna Mroczek, director of CBRE’s consultancy and research department, said, “An interesting trend on the Warsaw office market is the relatively large number of buildings that are undergoing renovation in order to offer higher technical standards. The level of interest in such buildings among tenants will show if a thorough renovation of a building is enough to effectively compete with new projects or whether it would be a better option to replace old buildings with new-generation schemes.”

Regional markets thrive

In Cracow, the second most populous city in Poland, the supply of office space ran at 526,500 sq m at the end of the second quarter of this year. In the first half of the year four new projects hit the market, Alma Tower (11,000 sq m), Pascal (5,200 sq m), Biuromax (2,200 sq m) and Pa³ac Goetzów (1,600 sq m). More than 160,000 sq m is under construction, including 95,000 sq m with planned completion by the end of this year.

In Wroc³aw, the supply of office space increased by 5 percent to 482,000 sq m in the first half of the year, according to Colliers International. A total of 23,100 sq m in four projects was delivered to the market;136,000 sq m of new office space is currently under construction. Activity on the rental market in the first and second quarters totaled 27,800 sq m; new agreements represented 65 percent of the volume.

In the Gdańsk-Sopot-Gdynia Tri-City area in northern Poland, the total supply of office space in the three cities stood at 387,100 sq m at the end of June. New supply delivered to the market in the first half of 2014 totaled 37,000 sq m. Three projects were completed, Centrum Biurowe Neptun (15,300 sq m), Olivia Four (14,700 sq m), and BPH Office Park C (7,000 sq m), all located in Gdańsk. More than 63,000 sq m of office space is under construction. The volume of transactions recorded from January to June was 27,200 sq m, which marked a 45-percent drop from the same period of 2013.

The supply of office space on the Poznań office market increased slightly (by 2,700 sq m), totaling 268,600 sq m at the end of June. Almost 70,000 sq m of modern office space is currently under construction, including 41,000 sq m being built as part of the Business Garden complex. Demand ran at 12,300 sq m in the first half of the year.

In £ód¼, the supply of office space remained unchanged at 239,000 sq m in the first half of the year, according to Colliers. The volume of transactions totaled 17,600 sq m, of which more than 80 percent (14,200 sq m) was leased in the second quarter. In Katowice developers delivered 16,200 sq m to the market from January and June. Two office buildings were completed, A4 Business Park I (8,700 sq m) and GPP Business Park II (7,500 sq m). A further 58,200 sq m is under construction. Tenant activity reached 25,100 sq m in the first half of the year, a level similar to that noted in the first half of 2013 (27,500 sq m).

In Szczecin, one facility was delivered to the market (the 64,000-sq-m Piastów Office Center II), and the total supply of office space in the city increased to 99,200 sq m. A further 15,600 sq m is currently under construction.

Lublin is the smallest regional market in Poland, with a stock of 98,300 sq m. In the first half of this year, 8,800 sq m in three projects was put on the market there. The biggest new development was a third building (4,000 sq m) within the North Office Park complex.

Optimistic forecasts

Experts estimate that 396,000 sq m of modern office space will hit the market across Poland by the end of this year. The most new space will be completed in Warsaw (152,000 sq m), followed by Cracow (95,000 sq m), Wroc³aw (48,300 sq m) and Katowice (46,700 sq m). According to international property consultants JLL, over 1.1 million sq m of office space is currently being built in Poland.

The vacancy rate, which stood at 11.8 percent at the end of 2013, increased slightly in the first half of 2014. At the moment, 13.4 percent of modern office space in Warsaw is vacant (13.6 percent in the city center and 13.3 percent in non-central areas). That means 574,400 sq m of offices are without tenants in the Polish capital.

The vacancy rates outside Warsaw are relatively stable. The lowest vacancy rate is still recorded in Cracow (at 4.5 percent), while the highest rate is in Szczecin (24.4 percent). The biggest decline in the last six months was noted in £ód¼ (to 9.2 percent, from 13.4 percent).

According to JLL, prime headline rents in the center of Warsaw ranged from 22 to 24 euros per sq m per month at the end of the second quarter of 2014, and in the most popular locations outside the center (such as the Mokotów district) they ran from 14.50 to 14.75 euros. Prime headline rents in other major cities ranged from 11 to 12 euros per sq m per month in Lublin to 14-15 euros in Wroc³aw and Poznań.

Average rents are still the highest in Cracow (at 13.70-14 euros) and Katowice (12.50-13.75 euros), while the lowest average rents are noted in Lublin (10 euros).

Mateusz Polkowski, a director in the market research and consulting department of JLL, said, “We expect that the terms of lease on most office markets in Poland will remain favorable to tenants. The market situation will be particularly well balanced in cities where there is high demand and a relatively low vacancy rate.”
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