There were approx. 774 600 sqm of office space under construction on Warsaw’s market at the end of Q3 2019, as much as 88% of which is located in the Centre zone. This was also the part of the capital with the highest concentration of new space delivered to the market, which was due to — among others — completion of three new schemes: Generation Park Z (17 300 sqm), the second phase of the Spark complex (15 700 sqm) and the boutique office space situated in the renovated tenement house at Poznańska 37 (3 000 sqm). The second leading zone in terms of volume of new space was the Jerozolimskie Corridor (nearly 30 000 sqm) with four schemes delivered to the market in the Włochy district. The largest scheme to have been delivered was the Wola Retro office complex (24 500 sqm) located at ul. Skierniewicka in the West zone. Attention should also be brought to the office market on the east bank of the Vistula River. It is growing steadily, mainly as a result of work being completed on successive phases of Centrum Praskie Koneser. Construction of new metro stations on the Praga bank is a sound foundation for development of this part of the city and establishment of new office locations. A significantly higher volume of new space is to be delivered in 2020 and 2021, provided there will be no delays and subsequent late completions and deliveries as regards the given schemes.
“The Centre zone and its Centre West sub-zone continue to attract unflagging interest from both developers and tenants. The area around Rondo Daszyńskiego is evolving into the capital’s main office hub. When visiting that particular part of the city, it is difficult not to feel as if one was standing in the middle of an enormous construction site. The Warsaw Hub, Warsaw Unit, Skyliner, Mennica Legacy Tower, Browary Warszawskie and the Chmielna 89 high-rise tower are some of the projects currently under development there. Construction of the schemes named above goes hand in hand with an intensive commercialisation process accompanied by spectacular lease transactions concluded in respect of large spaces. The high level of interest shown by both sides of the market led to a further drop in vacancy rate, which at the end of Q3 in the Centre zone stood at a mere 5.5% “ - Mikołaj Laskowski, Head of Office Agency at BNP Paribas Real Estate Poland
The high level of demand and the limited new supply resulted in decreased vacancy rate, which stood at 8.2% for Warsaw as a whole, representing a drop by 1.8 p.p. compared to the corresponding period last year. The lowest vacancy rate was recorded in the Centre zone, approx. 5.5%, while the average for the areas outside of the city centre stood at approx. 10%. The highest vacancy rate was recorded in Mokotów (13.7%), which was caused mainly by the high volume of vacant space in the Służewiec sub-zone (18.3%). However, it should be pointed out that the situation in Służewiec has been improving and the result recorded at the end of Q3 was still lower by 1.9 p.p. compared to the corresponding period last year. The relatively insignificant increase in new space and expected continued high level of interest from tenants may result in a further drop in vacancy rate.
Gross demand recorded for Q3 of this year reached a high level of a total of 284 000 sqm of modern office space, which led to an increase in the overall result for the first three quarters of the year now standing at more than 689 000 sqm. This represents a 10% increase compared to the result achieved in the corresponding period last year, which means that another record-breaking year in terms of the level of demand can be expected.
“One of the main growth drivers was the July transaction concluded by mBank for the space in the Mennica Legacy Tower high-rise office building, which was the largest lease to have been signed in the history of Poland’s office market (45 600 sqm). Two other significant transactions were concluded in the same period, i.e. two lease renewals for large spaces signed by Orange ( 44 800 sqm) and T-Mobile (27 400 sqm)” - Patrycja Dzikowska, Head of Research & Consultancy, BNP Paribas Real Estate Poland
Importantly, approx. 40% of net demand comes from leases concluded in respect of space in office buildings still under construction (the so-called pre-let agreements).
“The largest volume of this type of transactions was recorded in the Centre West sub-zone, where they accounted for as much as 84% of the total volume of leases signed there” - Patrycja Dzikowska, Head of Research & Consultancy, BNP Paribas Real Estate Poland
Headline rents for prime assets in the city centre have been rising progressively since the beginning of the year and at the end of September they ranged between EUR 22.0 and 24.0 per sqm per month. According to experts at BNP Paribas Real Estate Poland, this refers particularly to new buildings whose owners have to balance the recently recorded significant increase in office construction and fit-out costs. The expected drop in vacancy rate and the limited volume of new space delivered this year translate into a strengthened negotiating position of landlords, which means that the market will achieve the tenant – landlord equilibrium once again. However, the situation on the market might change following the expected delivery of a considerable volume of space in 2020 and 2021.
Source: BNP Paribas Real Estate
