The year 2004 was a difficult one for the office market, particularly in the city center.

Total modern office stock now stands at 2,287,500 square meters, of which 946,000 sq m is within the city center and 1,341,500 sq m is located in the non-central market. This compares to a total office stock of 1,050,500 sq m only five years ago.

Approximately 145,000 sq m of new office accommodation was delivered to the market in 2004. Of this new office accommodation, 70 percent was located in the non-central market.

Some of the most significant developments to have been delivered to the market in 2004 were: Crown Tower and Crown Point (Ghelamco), Renaissance (Cogedim) and Athina Park (Echo Investment).

Total leasing for 2004 was 320,800 sq m. This figure includes pre-leases, new leases and renegotiations that were signed during 2004. In the non-central market, 213,620 sq m of leasing was recorded, compared with 107,150 sq m within the city center.

The overall vacancy rate has decreased to 11.8 percent, however, the sub-markets vary enormously with the city center recording a further increase of vacancy to the current 18.9 percent, while the non-central market vacancy has decreased to 6.7 percent.

A significant number of major pre-leases were signed in 2004 for accommodation that will be delivered to the market in 2005/06. The largest pre-leases were Ernst &Young (city center), Deloitte & Touche (city center), Allianz (non-central) and Polkomtel (non-central).

The Mokotów district remained one of the most popular office districts due to the critical mass already developed there, public transport infrastructure and amenities (Galeria Mokotów shopping center).

Prime headline rents have reached the level of 18-20 euros per sq m, however this level of rent is only achieved in a selected number of buildings. The average rent in the city center for new A-class office space is in the range of 16-18 euros per sq m. In addition, due to fierce competition in the city center, tenants are offered significant rent-free periods or contributions towards existing lease commitments; thus the net effective rent can be up to 25 percent lower.

In non-central locations, rents of 13-15 euros per sq m are being secured. Net effective rents are 10-15 percent lower.

Service charges for modern city center office buildings are 4-5 euros per sq m, while for non-central buildings the average is 3-4 euros per sq m.

Developers/landlords now provide basic office fixtures as standard for tenants including plasterboard partitioning and in some cases structured cabling. Tenants are still expected to contribute to above-standard items such as glass partitioning and designer reception desks, although this cost is often covered by the rent-free period.

Future trends
In 2005-06 a likely increase in speculative development in non-central locations such as Domaniewska and Żwirki i Wigury streets may take place.

There will be little new supply in the city center in 2005, however in 2006 both Rondo 1 and Złote Tarasy will be delivered to the market, which could result in a significant increase in the city center vacancy rate.

A large amount of second-hand modern office space will be delivered to the market over the next 12-24 months, examples of this being FIM Tower, which will be vacated by Polkomtel, or Europlex, vacated in turn by Allianz.

It is believed that prime rents will stabilize around 18-19 euros per sq m. However, net effective rents will remain significantly lower through 2005 and 2006. The level of leasing is expected to be in the range of 300,000-350,000 sq m for each of the next two years.

Warsaw may benefit from the increase in the number of companies looking at Poland as a potential location for offshoring service centers. The larger requirements are likely to focus on the secondary cities such as Cracow, Wrocław and Łódź. However, some of the smaller requirements will be focused on Warsaw due to existing levels of infrastructure.
Source: Jones Lang LaSalle Report