In the third quarter of 2023, the total office stock in Warsaw was 6.2 million sqm following the completion of S-Bridge Office, which delivered 1,900 sqm to the market. The combined new office supply for the first three quarters of 2023 amounted to 20,300 sqm, which came on stream through four projects and marked the lowest volume of new deliveries since records began.
Cushman & Wakefield estimates that the development pipeline represents a potential 237,500 sqm of new office space, of which 47,300 sqm is scheduled for completion by the end of this year through three projects.
"Given the volume of office space expected to come onto the market in the fourth quarter, 2023’s total development activity will fall to its lowest in nearly 25 years. This slowdown has been caused, among other things, by a decline in the number of new projects breaking ground due to subdued occupier demand for office space in the years 2020-2021 and rising financing, construction and fit-out costs. Looking ahead, we expect the number of new starts will remain relatively small in the coming years, with the supply gap likely to last until 2025", says Ewa Derlatka-Chilewicz, Head of Research, Cushman & Wakefield.
Take-up: a record number of transactions
Total leasing activity for the first three quarters of 2023 amounted to almost 497,000 sqm, a decrease of 18% from the same time in 2022. This downturn was due to both a high base effect and the growing trend towards adaptation of office space to the hybrid working model.
"In the period between January and September 2023, the Warsaw office market saw a record number of 593 transactions take place, up by 6% year-on-year and by 10% compared to the office take-up in the peak year of 2019. The structure of demand in the first three quarters of 2023 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", comments Jan Szulborski, Market Analyst, Cushman & Wakefield.
The largest transactions of the nine months to September 2023 included the renewal of Accenture’s lease of 8,800 sqm in Proximo II, DPD’s lease of 8,700 sqm in its new headquarters, the renegotiation of Lionbridge’s lease of 7,100 sqm in Taifun, and a pre-let signed by ING Hubs Poland for 7,000 sqm in The Form.
Vacancy rate: the closer to the city centre, the lower the office availability
In September 2023, office availability amounted to approximately 657,000 sqm, a decrease of close to 113,000 sqm from a year ago. In the third quarter of 2023, Warsaw’s vacancy rate stood at 10.6%, down by 1.5 pp year-on-year and 0.7 pp quarter-on-quarter.
"In our opinion, the limited office supply scheduled for completion in 2023-2025 will push vacancy rates further down, enabling the Warsaw market to absorb the office space surplus of 2020-2022 over the coming quarters. The pace of decline in office availability will, however, depend on the attractiveness of individual locations", adds Jan Szulborski.
The vacancy rate for office buildings in the vicinity of Daszyńskiego Roundabout stands at 7.5%, down by 9.8 pp from its historic peak in the second quarter of 2021, while that for Służewiec has, for the last three years, remained largely unchanged at around 20%.
Rents: rental growth varies, among other things, by location
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.
"Cushman & Wakefield has observed that projects underway are experiencing the strongest upward pressure on rents due to their significant exposure to rising construction and fit-out costs. The pricing policy of landlords for existing office stock will largely depend on such factors as the location, age, quality and occupancy levels of their buildings", concludes Grzegorz Dyląg, Partner, Head of Asset Services Business Space, Asset Services EMEA, Cushman & Wakefield.