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The Warsaw Voice » Real Estate » February 27, 2015
The Real Estate Voice
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New Offices Still in Demand
February 27, 2015   
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Last year was unique on the Polish office market in a number of ways. In all, the market saw the signing of leases for more than 1 million square meters of office space (in terms of total demand) in 2014. Significant tenant activity was accompanied by a high level of developer activity. Office space grew by about 600,000 sq m to almost 7.4 million sq m in 2014, and a further 1.4 million sq m is currently under construction. Poland continues to be the biggest office market in Central and Eastern Europe.

Office space in Warsaw

The total supply of office space in Warsaw exceeds 4.39 million sq m, of which more than 1.3 million sq m is in the city center in the broad sense and 1.2 million sq m is in the Mokotów district. The market gained 277,000 sq m of office space in 2014.

As Central and Eastern Europe’s biggest business hub, Warsaw still attracts substantial tenant interest. In 2014, leases for a total of 612,000 sq m were signed in Warsaw. The public sector generated 13 percent of total demand for office space in Warsaw last year, becoming a major player on the local office market. The city’s biggest lease last year was signed by Raiffeisen Polbank (19,500 sq m in the Prime Corporate Center). The Mokotów district accounted for the biggest chunk of leases signed in the city last year (28 percent).

At the end of the year, 13.3 percent of Warsaw’s office space was vacant, and the vacancy rate rose due to a high volume of new supply.

Rents for prime office space in Warsaw remain relatively stable, but in view of the expected new supply they are likely to subside in the near future. At present the highest rents in the city center range from 22 to 24 euros per sq m per month, compared with 11 to 18.5 euros outside the center.

Other office markets

Last year was also lively for the main office markets outside Warsaw, chiefly Cracow, Wrocław, the “Tricity” area, Katowice, Poznań, ŁódĽ, Szczecin and Lublin in descending order. Over 323,000 sq m was completed on markets outside Warsaw, of which the biggest new supply was in Cracow, the Gdańsk-Sopot-Gdynia Tricity area, and Katowice. The Cracow market gained 92,400 sq m last year, the Tricity gained 69,200 sq m, and Katowice saw 60,100 sq m in new supply. The three biggest projects completed in 2014 were Kapelanka A&B (28,700 sq m) in Cracow, Green Day (15,500 sq m) in Wrocław, and the Centrum Biurowe Neptun office center (15,300 sq m) in the Tricity. Developers are not slowing down: 630,000 sq m of new office space is under construction outside Warsaw, the most in Cracow and Wrocław (160,000 sq m each).

The high level of developer activity was combined with substantial tenant interest. Outside Warsaw, leases for about 445,000 sq m were signed last year (23-percent growth in year-on-year terms). The volume of leased space in Cracow, Wrocław and ŁódĽ was the highest ever, at 144,000, 97,000 and 44,000 sq m respectively. The biggest leases in 2014 were signed by companies such as Infosys in ŁódĽ (renewal and expansion of the Green Horizon project—21,000 sq m, the biggest lease nationwide last year), HP GBC in Wrocław (pre-lease of 16,400 sq m in the Dominikański project, and a renewal for 10,700 sq m in the Renoma project) and Nokia Networks in Wrocław (pre-lease of 14,000 sq m in the West Gate project). Business services companies are still the main tenants for new office space on the biggest office markets outside Warsaw. Last year foreign-owned service centers signed leases for 268,000 sq m outside Warsaw, accounting for about 60.5 percent of total demand. The biggest share of leases signed by this sector, in terms of total demand for office space last year, was in Wrocław (81.5 percent), followed by Cracow (69 percent) and ŁódĽ (over 65 percent). But it was in Cracow that foreign companies from the business service sector leased the most space, at 100,000 sq m, followed by Wrocław with almost 78,000 sq m and ŁódĽ with 30,000 sq m.

The single biggest lease was signed by Infosys BPO Poland. This was not just the biggest contract signed by a foreign-owned business process outsourcing center last year but also the biggest lease on the Polish market as a whole.
Among the main office markets outside Warsaw, the lowest vacancy rate is still in Cracow, at 6 percent, while the highest is in Szczecin, at 15.8 percent.

The highest transaction rents in the regional cities ranged from 11-12 euros per sq m per month in Lublin to 14-15 euros in Poznań.

Forecast

We expect another intense year on the Polish office market. Developers continue to display a high level of activity, and in 2015 the Warsaw market alone is likely to grow by around 320,000 sq m of new office space. Projects planned for completion in 2015 include Postępu 14, Domaniewska Office Hub, Astrum Business Park, and Royal Wilanów. Office markets outside Warsaw look set to gain 450,000 sq m of new office space, and tenant activity outside Warsaw is expected to continue to run at a high level. Business process outsourcing centers will likely remain a key driver of office markets outside Warsaw.

Anna Bartoszewicz-Wnuk, head of research and consulting, JLL.



Competition Stiffens
Anna Dużyńska, Letting Director at Capital Park Group

The market for office real estate is an increasingly competitive one. A JLL report shows that in 2014, new office stock in Poland grew by 600,000 sq m, and another 700,000 sq m could be delivered still this year. At the same time, tenant activity is visibly higher. Now that competition is rising, developers need to pursue ideas that allow them to stand out, especially because rents have remained unchanged at between 11 and 24 euros per sq m in Warsaw and between 11 and 15 euros per sq m in regional cities. To this end, all of Capital Park’s projects are being developed on an “office plus” basis, a concept based on changes we have seen take place in the lifestyles of big city dwellers. Due to the accelerating pace of life and increasing professional duties, city people no longer treat office space solely as a place to work, but as space where they spend a lion’s share of their day. “Office plus” offers more than comfortable office space, delivering comprehensive services employees need. They can find stores, restaurants, massage studios, service shops and so on, all in a single location. Office buildings designed in “office plus” format also take into account their location and usher in environmentally friendly technology.

Our efforts have proven to be effective so far, allowing us to see the future in bright colors. For example, most of the space in our Eurocentrum Office Complex was rented out by the day the complex opened and we have been approached with a growing number of inquiries about our Royal Wilanów project. This is a unique office and retail complex fully integrated with public areas in Wilanów, which is a green district. We have also received many queries about our post-industrial renovation project at the former Norblin factory in Warsaw.


Tenants Calling the Shots
Jarosław Prawicki, Sales and Marketing Director, UBM Polska

We need to differentiate between two markets: the Warsaw market and the market in regional cities. Warsaw is a mature market and as such, it should develop more harmoniously. Regional markets are dependent on new investors (mainly in the BPO sector) and the growth of local office markets will depend on how successful cities are in drawing such investors.

The Warsaw market has been growing at a fairly decent rate, even though it is tenants who call the shots at present. High developer activity has increased the amount of space available, causing the vacancy rate to grow and exerting downward pressure on rents. The trend will continue over the next year or two, but rents are unlikely to decline dramatically. Once they reach a certain level, developers will cut down on new projects and the market will regain its balance.

We will be interested to see how demand for offices in Warsaw varies from district to district. Developers have been very active in recent years in the Służewiec office neighborhood, which combined with the unwieldy transportation grid in the area could now make it hard to lease space, producing a higher vacancy rate. The market in the city center will, in turn, change due to very busy developers in the Wola district. With so much space hitting the market in Wola, rents in downtown Warsaw cannot remain unaffected and they are likely to decrease. Seeing how office space in Wola can be rented at lower prices than in the very city center, many companies will consider doing just that.
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