2023 with the so-called supply gap period

Warsaw’s office market in 2023 entered the long-announced period of the so-called supply gap. Developer activity throughout last year totalled 61,000 sqm. The sector’s total stock is around 6.23 million sqm now. The top three office buildings delivered include Lakeside (22,700 sqm, Atenor Grupa) and Studio B (17,900 sqm, Skanska), while White Star decided to expand The Park complex with the B9 building (11,000 sqm).

As of the end of 2023, about 290,000 sqm of office space was under construction in the capital. Investors and developers are intensifying their activities in the Daszyński Roundabout area, where nearly 70% of the new supply is being built. Among the largest projects under construction are The Bridge (47,000 sqm, Ghelamco), Office House in the Towarowa 22 mixed-use complex (31,100 sqm, Echo Investment), and The Form (28,000 sqm, Lincoln Property).

Bartosz Oleksak, Associate Director, Office Agency, AXI IMMO, explains: “In the context of new supply in Warsaw, we have been observing significant difficulties in acquiring attractive plots in central locations for years. For this reason, developers’ plans have begun to include proposals to demolish older and inefficient buildings and replace them with new projects. One example is the Upper One office building, which is being built on the site of Atrium International”.

Beyond Służewiec, vacancy rate below 10%

At the end of 2023, the average vacancy rate in Warsaw stood at 10.4% (-0.2 p.p. q/q and -1.2 p.p. y/y), translating into about 647,000 sqm of available space. Apart from Służewiec, which inflates the statistics with a ratio of 20.1%, the remaining office zones in the capital have less than 10% vacant offices.

Emilia Trofimiuk, Research Manager, Research Department, AXI IMMO, adds, “In Q4 2023, the vacancy rate in central zones continued the downward trend observed since Q3 2021. Compared to the previous quarter, the share of vacant space at the end of 2023 decreased by 0.6 percentage points. In contrast, office zones outside the centre saw a slight quarterly increase in the vacancy rate from 11.8% in Q3 2023 to 11.9% at the end of the year“.

Lower take-up, but better than during the pandemic

Total take-up volume on the Warsaw office market in 2023 was nearly 750,000 sqm (-13% y/y), while so-called net take-up (new contracts and expansions) estimates were about 430,000 sqm (-9% y/y). Comparing the nearly 750,000 sqm obtained in 2023, this was 16% and 24% higher than the volumes obtained in 2021 and 2020, respectively. Structurally, in gross take-up, new contracts (including pre-leases) were signed most often (50.5%), renegotiations (42.7%), and expansions (3.9%). Space developed for own use accounted for about 2.9%. Among the largest lease transactions in 2023 were the renegotiation of 12,900 sqm by GDDiK at Green Corner B, Lux Med’s new contract of 12,000 sqm at Lakeside, and Accenture’s renegotiation of 8,800 sqm at the Proximo II building.

Jakub Potocki, Associate Director, Office Agency, AXI IMMO, comments: “Throughout 2023, we observed a positive trend, in which tenants maintained their high activity after the pandemic and the associated period of office optimization. The result of 750,000 sqm of leased space implies a kind of stabilization, which could be even higher if new attractive office buildings appear in the capital. The large renegotiation rate may also indicate that some companies have decided to give themselves more time and wait until the next 3 to 5 years before choosing a better office location with a higher standard“.

In both central locations and non-central areas, rental rates remained stable. In the most prestigious office buildings in the CBD (Central Business District), offers ranged from EUR 19.00 to EUR 27.50/sqm/month, while in some non-central locations, the starting rents started at about EUR 10.00/sqm/month. On the other hand, depending on the standard and location of the building, service charge fees ranged from about PLN 14.00/sqm/month to PLN 39.00/sqm/month.

Office outlook

Bartosz Oleksak points out: “The Warsaw office market is going through a period of change, manifested by a decrease in new supply and entering a period of supply gap. Nevertheless, after the COVID-19 pandemic, developers remain active and have started construction of several interesting projects in the capital. We are seeing a lot of interest in developing the office infrastructure in the Center-West zone, especially around Daszynski Roundabout, which is becoming a key point to attract the attention of companies and investors. In addition, we expect that the limited new supply until 2024/2025 will affect the decrease in the volume of available space, which may, in turn, contribute to an increase in rents, especially in “prime” buildings“.

Jakub Potocki adds: “Investors and developers are increasingly focusing on upgrading older buildings to adapt to the changing needs of tenants and increase their attractiveness in the market. At the same time, sustainability (ESG) is also growing, becoming an increasingly important criterion for companies looking for new office space. In the context of these changes, there is also the possibility that inefficient and underutilized office buildings may be demolished or converted to adapt to new market trends”.