High developer capacity in regional cities
The total supply of modern office space in Poland amounted to almost 12.73 million sqm at the end of Q1 2023. On a stand-alone basis, Warsaw is the undisputed leader compared to other cities in terms of office space. Nevertheless, regional markets are gradually developing, and in 2022 the total supply in regional cities exceeded the supply in the capital for the first time in market development history. Among regional cities, the largest resources are available to Kraków (1.75 million sqm of office space), Wrocław (1.31 million sqm), and The Tri-City (1.02 million sqm).
In Q1 2023, developers delivered over 68,000 sqm of new office space to the Polish office market. The Kraków market has been enriched by two new buildings: Ocean Office Park B (28,600 sqm) and Fabryczna Office Park B5 (14,000 sqm). In Wrocław, Centrum Południe 3 (20,850 sqm) was completed, while in Gdynia, the construction of the Officer facility (4,700 sqm) was completed. On the capital market, from January to March 2023, no new office buildings were commissioned, which confirms the announced supply gap.
High interest of tenants and the stable vacancy rate
In Q1 2023, demand for office space was recorded at approximately 330,000 sqm. The signed lease transactions were distributed proportionally to the Warsaw market (48% of demand) and regional markets (52%). Although the volume of lease transactions was lower than in the corresponding quarter of the previous year (a decrease of 22%), tenants' current activity remains relatively high.
"The demand for office space in Warsaw is high. A large percentage of inquiries comes from Ukrainian companies that have moved their operations to Poland. Despite the limited availability of attractive office space in Warsaw, shorter lease agreements are still popular – clients even ask for annual contracts. For tenants looking for a new office, its’ location is invariably important, both in the context of general transport accessibility, e.g., in terms of proximity to the subway and the time of employees' commuting to the workplace," comments Bartosz Oleksak, Senior Negotiator, Office Agency, AXI IMMO.
The vacancy rate in Warsaw remains stable at 11.6% (unchanged compared to the previous quarter), which translates into approx. 725,000 sqm available to let. The greater availability of office space is characterized by locations outside the city centre (12.7%), while the vacancy rate in central zones is currently 10.2%. At the end of Q1 2023, the average vacancy rate for regional cities was higher than in the capital and amounted to 15.9%.
"In addition to companies from Ukraine, law firms, accounting and tax companies, and IT companies are also very active in searching for office space. They are currently developing most dynamically. Due to the nature of the business, most of these clients are interested in an office located in the city centre," adds Jakub Potocki, Senior Negotiator, Office Agency, AXI IMMO.
ESG and comfort
As the pandemic situation stabilized, many employers began to encourage their employees to return to the office, most often implementing a hybrid work model.
"The introduction of the hybrid work model has a two-fold impact on office demand. On the one hand, companies are considering optimizing office space by reducing it, which would reduce rental costs and bring savings. On the other hand, a smaller number of employees present in the office at the same time allows to limit individual workplaces and use the freed space to create a space for joint work or space for relaxation, which often increases the comfort and efficiency of work", says Jakub Potocki.
"Awareness of ESG among tenants is increasing. Companies attach importance to the quality of occupied office space, which affects the comfort of work and is one of the incentives for employees to return to the office. Almost all customers are now asking about the efficiency of the air exchange system in the office because it has a real impact on the comfort of work," adds Bartosz Oleksak.
Service charges definitely up
Last year brought a significant increase in the cost of office rent, mainly due to the rise in service charges. It is estimated that at the end of Q1 2023, rates for the so-called service charge in Warsaw increased by approx. 20% y/y.