Supply: development activity slows down

At the end of the third quarter of 2023, the total office stock of Poland’s largest markets (Warsaw, Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) amounted to around 12.8 million sqm. The largest office projects completed in the year to date were Ocean Office Park II (28,600 sqm), which was added to Cavatina’s Ocean Office Park in Krakow, Ghelamco’s Craft in Katowice (26,700 sqm) and Skanska’s Nowy Rynek E in Poznań (25,100 sqm).

"Poland’s office development pipeline has shrunk considerably over the last three years. Although construction activity has bounced back to a degree with a handful of projects breaking ground, the downturn trend in office development continues both in the capital and in regional cities. In Warsaw, there is approximately 235,000 sqm under way while office stock under construction in regional cities stands at around 310,000 sqm. The slowdown in development activity is due to high office construction and fit-out costs and the overall economic downturn in Poland and globally", explains Ewa Derlatka-Chilewicz, Head of Research, Cushman & Wakefield.

Cushman & Wakefield estimates that the Warsaw office market will expand by around 68,000 sqm in 2023, which will mark the start of a supply slowdown that could last until 2025.

"New office supply on regional city markets is expected to total 305,000 sqm, more than 25% below the five-year average, with regional cities likely to experience a supply slowdown in 2024, about a year later than the Warsaw market", comments Vitalii Arkhypenko, Office Market Expert, Cushman & Wakefield.

Take-up: The large number of office leases highlights increased occupier demand

"Total leasing activity in Warsaw for the first three quarters of 2023 reached nearly 497,600 sqm, down by 18% from the same time in 2022. However, the number of office lease deals hit an all-time high and was up by 6% year-on-year and by 10% compared with 2019", adds Jan Szulborski, Office Market Expert, Cushman & Wakefield.

In the first three quarters of 2023, the structure of demand in the Polish capital was dominated by relocations which accounted for approximately 58% of all deals. Renegotiations and expansions made up 38% and 4% of the leasing activity respectively.

"Nominal leasing activity was stronger in regional cities - it hit just under 532,000 sqm, up by 19% year-on-year and by 3% compared with the same time in 2019. New leases accounted for 59% of the office leasing volume while renegotiations and expansions made up 35% and 6% respectively. As before, take-up in regional cities predominantly came from the IT and business services sectors. Absorption for regional cities (an indication of a real increase in overall office occupancy) was relatively low - it stood at around 75,500 sqm, the lowest in 13 years. This shows that despite a large volume of transactions, leasing activity largely focused on tenant rotation in currently leased offices and lease renegotiations, with few office expansions. Regional cities are seeing the structure of leases change over time, which in the long term will create value for investors seeking to acquire commercialised assets", comments Michał Galimski, Partner, Head of Regional Markets, Cushman & Wakefield.

Vacancy rate: The vacancy rate is close to an all-time high

At the end of the third quarter of 2023, Poland’s overall vacancy rate was 14.0%, down by 0.1 pp over the quarter but up by 0.3 pp year-on-year. Warsaw’s vacancy ratio stood at 10.6%, down by 0.7 pp compared to where it was in the previous quarter. All regional cities but Tricity, Łódź and Lublin recorded increases in vacancies, with the average regional vacancy rate at 17.3%. Office availability in all the surveyed markets amounted to 1.8 million sqm, a 3% increase compared with early 2023.

Rents: Only prime office rents are under upward pressure

In the third quarter of 2023, prime office rents in Warsaw remained unchanged since the end of 2022 and stood at €22.00-26.00/sqm/month in the Centre and at €13.50-16.50/sqm/month in non-central locations. Average prime office rents in central locations in regional cities were €12.50-16.50/sqm/month, with rental growth reported in the year to date mostly for new office completions and buildings that have historically been most sought after by tenants.

"Only a few buildings in regional cities are likely to see rental levels exceed €16.50 per sqm. These will first include office buildings in Krakow, in the vicinity of the Main Railway Station. While rental growth is expected to gradually gather pace for prime offices, locations that have been falling out of favour with tenants since 2020 are unlikely to be re-commercialised despite aggressive rent cuts. Fortunately, such locations are widely dispersed in the regional markets", concludes Michał Galimski, Partner, Head of Regional Markets, Cushman & Wakefield.