Development of the BSS sector in Poland drives the growth of office space regional markets

Krzysztof Misiak, Partner, Head of Regional Cities, Cushman & Wakefield
Krzysztof Misiak, Partner, Head of Regional Cities, Cushman & Wakefield

The international consulting company Cushman & Wakefield has synopsized the first six months of the year on regional office space markets in its report “MarketBeat: Office Space Regions. Summary 1H 2018”.

  • Over a million square meters – the total office real estate market in Wrocław;
  • Over 950 000 square meters – the total projected volume in 84 office space projects in Poland to enter the market by 2020;
  • 70% – share of BSS lessees in regional markets;
  • 76 000 square meters – the sum total of the five largest transactions on regional markets (the banking sector).

In the first half of 2018, the total volume of modern office space at the main regional markets (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Szczecin and Lublin) exceeded 4 637m square meters. Analysts of Cushman & Wakefield, a global real estate services firm, report a high absorption level caused by intensified lessee activity in 2017 and pre-rental agreements of office real estate which is to enter the market this year. As a result, despite a large spike in office space supply, the vacancy rate has gone down.

Krzysztof Misiak, Partner, Head of Regional Cities, Cushman & Wakefield
Krzysztof Misiak, Partner, Head of Regional Cities, Cushman & Wakefield

“The growth of Polish regional office markets shows no sign of abating. Poland already has two regional cities (Krakow and Wrocław) whose total office stock exceeds the one million sq m mark each. The larger market size means less reliance on external demand and attracts investment funds to acquire completed and leased office buildings, which is a catalyst for more office development. With talents well dispersed across the country and a dozen strong cities, opportunities with regard to expansion of the service sector and the modern office market in Poland are still plentiful. We should acknowledge the fact that it is not only the largest cities that will benefit from this process,” said Krzysztof Misiak, Partner, Head of Regional Cities, Office Agency, Cushman & Wakefield.

The demand for office space in Poland’s eight major regional office real property markets totalled 261 900 square meters in the first half of 2018 and decreased by 19% as compared to the figure for the corresponding period of 2017 which was record-high in terms of lessee activity. Over a half of all lease transactions were executed in Kraków (30%) and Wrocław (22%). Relatively high lessee activity was also reported in Poznań, Łódź and Katowice. In terms of demand mix in the first half of 2018, the predominant transactions were new agreements (54%), followed by renegotiations (19%) and expansions (16%). Space occupied by building owners contributed 11% of the total lessee activity. One of the largest tenants in this group is the BZ WBK bank which opened its office in Wrocław.

The net absorption rate in all the regional markets reached 258 500 square meters (boosting an increase of 20% y/y and being higher than a three-year average by nearly 40%), with the highest percentage increase of the net absorption rate reported in Wrocław and in the Tri-City.

In the first half of 2018, the new office space available for rental in regional markets totalled 256 500 square meters (growth by 40% y/y), with largest spaces made available in Wrocław (103 800 sq.m), Kraków (59 700 sq.m) and the Tri-City (49 200 sq.m). The largest completed projects included the Olivia Star in Tricity (45 700 sq.m), the Sagittarius in Wrocław (24 900 sq.m), O3 Business Campus III in Kraków (19 200 sq.m) and the Spokojna 2 building in Lublin (18 500 sq.m).

All in all, 84 buildings with a total area in excess of 950 000 square meters are still under construction in the regional markets. Property developers are the most active in Kraków (281 700 sq.m), Wrocław (240 000 sq.m) and Tricity (158 000 sq.m).

The vacancy rate for the whole regional office space market during the reporting period totalled 9.3% (down by 0.20 pp y/y). The least volume of vacancies was reported in the Tri-City (6.7%), and the highest in Katowice (10.8%) and Lublin (19.7%). The high vacancy rate in Lublin was caused by the completion of two office projects that increased the office space on this market by over 20%.

In the first half of 2018, the rent remained stable in most of the analysed locations and ranged between 12 to 14.5 euro per square meter a month.