Regional development activity pushes average vacancy rates up

Wioleta Wojtczak Savills
Wioleta Wojtczak, Head of Research, Savills

New office supply in the first three months of 2023 totalled 68,100 sq m and was delivered in three cities only: Krakow, Wrocław and Tricity. According to international real estate advisory firm Savills, at the end of March over 1 million sq m of office space was vacant, equating to the average vacancy rate of close to 16%.

At the end of Q1 2023, total office stock in Poland’s core regional cities (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin and Szczecin) stood at 6.47 million sq m, says Savills. According to Market in Minutes: Office Market in Regional Cities, the latest report from the international real estate adviser, Poland has three regional cities with over a million square metres of modern office space each: Krakow (1.75 million sq m), Wrocław (1.31 million sq m) and Tricity (1.02 million sq m), and another three with over 0.6 million sq m each: Katowice (725,800 sq m), Łódź (631,900 sq m) and Poznań (623,100 sq m).

The regional city markets reported four office completions in the first quarter of the year with a combined area of 68,100 sq m. The new space was delivered in Krakow’s Ocean Office Park B (18,600 sq m) and Fabryczna Office Park B5 (14,000 sq m), Centrum Południe 3 in Wrocław (20,800 sq m) and Officer in Tricity (4,700 sq m).

At the end of March 2023, the highest development pipeline of 149,500 sq m was in Wrocław and comprised seven projects, the largest being Cavatina’s Quorum Office Park B (53,200 sq m). Katowice also had seven office projects underway with a combined area of 129,000 sq m, the biggest being Grundmanna Office Park (48,000 sq m), developed by Cavatina. Poznań came third with 86,200 sq m under construction across five projects, the largest being Andersia Silver (37,800 sq m) of the Von der Heyden Group.

“According to Savills, office take-up on the regional city office markets hit 175,000 sq m in the first quarter of 2023, representing an increase of 13% compared to the same time in 2022. At the end of March 2023, net absorption in the largest regional cities reached 23,500 sq m, with the highest of close to 11,000 sq m recorded in Krakow. The average vacancy rate for the surveyed cities edged up both year-on-year and quarter-on-quarter to close to 16%,” comments Wioleta Wojtczak, Head of Research, Savills.

Following a period of no movement in regional office rents, several cities saw rental growth in the first quarter of 2023. Office rents in Krakow rose to EUR 13.90-16.00 per sq m per month in recent months while rental rates in Poznań also increased in late 2022 and currently stand at EUR 12.50-16.00 per sq m per month. Rents in Wrocław and Katowice are EUR 13.75-15.50 per sq m per month and EUR 13.00-15.00 per sq m per month, respectively. Office buildings in Łódź fetch rents ranging between EUR 12.00-15.00 per sq m per month.

According to Savills forecasts, service charges are expected to increase substantially within the office market in the near future. This growth will be driven by high inflation which has led to a rise in utility and property maintenance costs. Savills estimates that property maintenance costs (such as security and cleaning services) are likely to rise by over 10%, with the costs of spare parts and repair services going up by up to 20%.