The Polish office market in H1 2019 saw companies from the business services sector continue to drive office demand outside Warsaw, flexible spaces becoming increasingly popular, and continued positive investment sentiment on the supply side.
Advisory firm JLL summarizes the Polish office market for H1 2019.
Demand - the services sector once again leads the way
Demand in the first half of 2019 was more than 710,000 sq m, with markets outside Warsaw[1] accounting for nearly 306,000 sq m. Kraków generated 44% of this volume, 15% came from Wrocław, and 11% from Tri-City. The most notable transactions in H1 2019 included a pre-let by Sabre for almost 16,000 sq m in the Tischnera Office in Kraków, a 11,200 sq m renewal by Akamai in the the Vinci Office Building in Kraków, and 10,800 sq m in the shape of a renewal and expansion by Nordea in Olivia Star in Gdańsk.
A good economic climate in Poland is currently translating into ambitious investment plans, which in turn has a positive impact on office market development. A very good result on the demand side is once again due to the business services sector, which in H1 2019 was responsible for 43% of the leased space outside Warsaw. There were also changes in the structure of demand on the regional markets. In the first six months of the year, nearly 40% of total transaction volume – 116,500 sq m - were pre-lets, which is close to the result for the whole of 2018
The largest lease agreement of the first half of this year was signed by Getin Bank. The company has leased 18,500 sq m in The Warsaw Hub. In fact, tenants from the financial and insurance sector dominated the capital in H1 2019.
Regions really like flex spaces
The segment of flexible spaces is growing, and this does not only apply to Warsaw. In the first half of 2019, flex providers leased nearly 20,900 sq m (with Kraków accounting for 12,900 sq m) on the markets outside Warsaw. This result represents 87% of the total volume from last year. During this time, such companies as Rise (9,200 sq m in four contracts) and New Work (6,900 sq m in two transactions) were the most active flex providers.
Office supply is growing
Developers are very active throughout the country, which is reflected in the growing supply in Warsaw. This is also the case on the country's regional markets, where H1 2019 saw 32 office buildings completed with a total area of more than 240,000 sq m.
“At the end of the first half of 2019, the total modern office stock exceeded 10.8 million sq m, and was relatively equally distributed between Warsaw and the main regional markets - 5.5 and 5.3 million sq m respectively. Under-construction stock in Poland totals 1.6 million sq m, with Warsaw accounting for approximately 780,000 sq m, and 800,000 sq m for markets outside the capital”, says Łukasz Dziedzic, Senior Research Analyst, JLL.
At the end of the first half of 2019, the total modern office stock exceeded 10.8 million sq m, and was relatively equally distributed between Warsaw and the main regional markets - 5.5 and 5.3 million sq m respectively. Under-construction stock in Poland totals 1.6 million sq m, with Warsaw accounting for approximately 780,000 sq m, and 800,000 sq m for markets outside the capital
The biggest office projects completed during H1 2019 included the five buildings of Business Garden (Vastint, Poznań), Nowy Rynek B (Skanska Property Poland, Poznań), Brama Miasta B (Skanska Property Poland, Łódź), V.Offices (AFI Europe, Kraków), Moje Miejsce B1 (Echo Investment, Warsaw), and Spark B (Skanska Property Poland, Warsaw).
Vacancy rate and rents
The overall vacancy rate in Poland stands at 9.0%, a slight decrease on Q1 2019. In Warsaw 8.5% of existing office supply is vacant, and the largest regional cities – 9.4%. On five major markets in Poland, declines in vacancy rates were recorded year-on-year. The biggest deceases were found in Lublin (-9.1 pp.), Katowice (-3.4 pp) and Szczecin (-1.6 pp). The largest increase was in Poznań (4.4 pp.) and Łódź (3.5 pp).
Due to increasing construction costs (both labour and materials), an increase in rents was noted in a few of Poland’s major office markets. In H1 2019, a few cities saw an uptick of prime headline rents: Kraków (now leasing at €13.5 to €15.5 / sq m / month), Katowice (now leasing at €13.6 to €14.5 / sq m/ month), Poznań (€13.6 to €15 / sq m/ month), Łódź (€12 to €14 / sq m/ month) and Wrocław (€13.5 to €14.8 / sq m/ month).
Prime headline rents in the central areas of Warsaw are currently quoted at €17.0 to €24.0 / sq m / month, while prime assets located in the best non-central areas lease for €11.0 to €15.0 / sq m / month.
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[1] Kraków, Wrocław, the Tri-City, Górnośląsko-Zagłębiowska Metropolis - cities with more than 100,000 inhabitants (Bytom, Chorzów, Dąbrowa Górnicza, Gliwice, Katowice, Ruda Śląska, Sosnowiec, Tychy and Zabrze), Poznań, Łódź, Lublin, Szczecin