Despite a large amount of space currently under construction in the largest cities in the country, the offer of ready-to-use offices is shrinking. Record demand for modern space means that the number of pre-let contracts is growing
During the first three quarters of this year, tenants received around a dozen per cent more office space in the largest cities in the country, than during the same period last year. Over 1,2 million sq m of offices was contracted in eight main business centers in Poland. Such a good result was primarily achieved thanks to the regional markets, excluding Warsaw, where contracts were signed for a total of almost 520 thousand sq m. of offices, almost a quarter more than a year earlier, says Walter Herz.
Warsaw breaks new records
Third quarter of this year was the best for Warsaw, when the demand for offices reached the level of 285 thousand sq m. According to Walter Herz data, during the first nine months of this year the absorption of the capital market reached almost 690 thousand sq m. It is almost 10 per cent more than in the same time period in record-high demand in 2018, when 630 thousand sq m. of space was leased. This year, Warsaw saw further records, both in terms of the result obtained in the third quarter and in the first three quarters of this year.
– Demand significantly exceeds supply on the Warsaw market. This year, we could observe an increase in the share of pre-let contracts in the lease structure, which is caused by a shortage of available space in attractive business locations in the city. The contracts concluded in the first three quarters of the year regarding space under construction covered almost 30 per cent of the lease volume. Space in buildings under construction on the capital market is already half-contracted or reserved – informs Bartłomiej Zagrodnik, Managing Partner at Walter Herz.
– Another trend we can observe in Warsaw, is the growing interest in renting office space on the commercial market from the public sector entities and public administration units – adds Bartłomiej Zagrodnik.
In recent months in Warsaw, we have been dealing with contracts on an unprecedented scale. mBank signed a pre-lease agreement at Mennica Legacy Tower for 45.6 thousand sq m. of space, and Orange Polska renegotiated an agreement in Miasteczko Orange for 44.8 thousand sq m. of offices. In addition, T-Mobile renewed the lease agreement for 27.4 thousand sq m. in Marynarska 12 building.
Cracow with the highest demand in the regions
As usual, the best result in the regions in terms of demand belonged to Cracow. During the first three quarters of this year, almost half of space that was contracted in total on regional markets outside Warsaw, was leased on the Cracow market. According to Walter Herz reports, 235 thousand sq m. of office space went to tenants.
One of the largest transactions concluded this year in Cracow was the pre-let of UBS for 19.3 thousand sq m. of space in the Fabryczna Office Park complex, renewal of contract by Motorola Solutions Systems Polska for the lease of 17,1 thousand sq m. of offices in the Green Office building, pre-letting of 16 thousand sq m. of office space in Tischnera Office by Sabre company, Google’s contract in Quattro Business Park for 12.7 thousand sq m. of offices, Akamai’s contract for 11.5 thousand sq m. inVinci Office Building and Aileron’s contract in Podium Park for 10.3 thousand sq m.
In Wrocław, from January to the end of September 2019, however, only less than 70 thousand sq m. of office space was leased. In Łódź, the rental volume at that time amounted to almost 45 thousand sq m. Demand on the Łódź market was 30 per cent higher than a year ago.
Rapid expansion of the office segment on the regional markets
– In recent months, not only in Warsaw, but also on the regional markets we have seen a clear increase in the number of pre-let contracts. In the regions, the share of this type of contracts increased by one third compared to the previous year. In the largest cities, there is a shortage of ready-to-use spaces, which is why tenants decide to let in buildings under construction. They provide the largest selection of space. Almost 900 thousand sq m. of offices are under construction on the regional markets, outside Warsaw. Most space is under construction in the Tri-City, Cracow and Wrocław – informs Mateusz Strzelecki, Partner / Head of Regional Markets at Walter Herz.
He adds that the flexible work space segment is also rapidly growing in the regions. – During the first three quarters of this year, flex operators have leased less than 30 thousand sq m. of this type of offices in the largest cities outside Warsaw – says Mateusz Strzelecki.
Resources of the Polish office market already amount to 11 million sq m. of modern space, with almost 5.6 million sq m. on the Warsaw market. During the first nine months of this year, 145 thousand sq m. of space was commissioned in Warsaw. Nearly 800 thousand sq m. of offices are under construction in the agglomeration, including Varso complex with 110 thousand sq m. of space. Over half of the offices that are under construction in Warsaw, including several high-rise buildings, are emerging around the Daszyńskiego roundabout in Warsaw Wola district close to the city center.
This year, such facilities as Spark B, Vector +, The Park 6, Wola Retro, Moje Miejsce B1, Generation Park Z, Libra Business Centre A and Flanders Business Park C entered the capital market. In the fourth quarter, developers plan to hand over another 120 thousand sq m. of space. Mennica Legacy complex, among others, is to be completed and offer 65 thousand sq m. of space in two buildings.
The Tri-City, Cracow and Wrocław with the largest number of offices under construction
According to Walter Herz calculations, between the first and the third quarter of this year, 315 thousand sq m. of offices was commissioned in the largest cities in the country, outside Warsaw. The most new space appeared on the Cracow market, where supply in the office segment increased by over 90 thousand sq m. Poznań resources increased by 76 thousand sq m., mainly due to the completion of the second stage of Business Garden complex with 46 thousand sq m. of offices. Among the largest facilities completed this year was also the first stage of Brama Miasta in Łódź, V. Offices in Cracow, as well as Nowy Targ and Carbon Tower in Wrocław.
In the third quarter of this year, thanks to the completion of the construction of, among others, Imagine I&II, Avestus Real Estate, Stara Drukarnia, Business House II and Szkoła Grohmana, Łódź office resources exceeded half a million sq m. of space and already have 520 thousand sq m. of offices.
The largest amount of space in the regions is currently under construction on the Tri-City market, where over 200 thousand sq m. of offices is under construction, slightly more than in Cracow and Wrocław, where approximately 170 thousand sq m. of space is implemented. In the capital of Lower Silesia at the intersection of Powstańców Śląskich and Szczęśliwa streets, among others, Centrum Południe complex is under construction, with a total of about 85 thousand sq m. GLA on offer.
Vacant space and rents
According to Walter Herz, vacancy rate on most major office markets in the country, has been dropping regularly in recent months. The average vacancy rate is only 8.5 per cent. The largest number of vacant offices is in Łódź and Poznań – about 12 per cent, and the smallest in the Tri-City – less than 5 per cent. In Warsaw, on average, slightly over 8 per cent of offices are vacant. Only 5 per cent in the center, but for example, almost 14 per cent in Mokotów.
Rising construction costs have resulted in an increase in rental rates on several regional markets, where prices in high-class facilities range from €11/sq m./ month to €15.5/sq m./month.
In Warsaw, rents in the best buildings in the city center range from €17/sq m./month to €25/sq m./month. Outside the central area, offices cost from €11/sq m./month to €15/sq m./month.
A further decrease in vacancy rates is expected in the upcoming quarters. However, a slight increase in the ratio is possible in Warsaw in the second half of 2020, after the record amount of new space is commissioned.
