This year’s first quarter was marked by a high level of activity from tenants in the IT sector. The next few months may bring an acceleration in activity from companies in the business services sector.
Advisory firm JLL summarizes the situation on the Polish office market at the end of Q1 2020.
IT drives demand
Demand in the first quarter of 2020 was nearly 360,000 sqm, with markets outside Warsaw[1] accounting for more than 220,000 sqm. Kraków accounted for 28% of demand, followed by Wrocław - 22%, and the Tri-City – 15%. These three markets also saw a spectacular expansion of one of the leading technology company worldwide, which has leased nearly 37,000 sqm in total.
In the first quarter of this year, eight out of ten of the largest transactions outside Warsaw were signed by tenants from the IT sector, and the demand generated by this type of companies accounted for nearly 60% of total tenant activity on regional markets. In the following months, some transactions may be put back, but it is worth noting that there may be an increase in interest from companies in the BPO / SSC sector. In the past years, we have proven many times that the Polish market guarantees business continuity and cost optimization. These two aspects are now even more important and the inflow of investments from the business service sector means stable demand for offices
Pre-letting totalled nearly 82,000 sqm. The two largest transactions signed in this period were a pre-let for 16,300 sqm by Fujitsu Technology Solutions in Fuzja in Łódź, and a pre-let for 14,500 sqm by a tenant from the IT sector in Tertium Business Park C in Kraków.
Flexibility above all
The first quarter of the year strengthened the position of flexible workspace operators on regional markets, especially in the Tri-City. This region claimed all of the new transactions signed in the flex segment, totaling nearly 8,000 sqm. The biggest one was New Work’s contract, a first for the company in Gdańsk, in Alchemia IV Neon (4,500 sqm).
We expect that in the long-term, interest in this type of offices will increase. The flexibility offered by operators, whether at the level of the contract itself or readiness to quickly welcome a new tenant, will be particularly important in times of increasing economic uncertainty. It is therefore possible that even more companies will be open to combining traditional leases with flexes
Supply still growing
In the first quarter, 86,500 sqm was delivered to the Polish market, including nearly 80,000 sqm in the largest regional markets. Total office space supply is already 11.1 million sqm, with the country’s regions accounting for 5.5 million sqm.
Nearly 1.6 million sqm remains under construction, with 850,000 sqm in the regions. Developers in the Tri-City - where office supply will reach one million sqm after completion of all ongoing projects - are the most active, along with Katowice and Kraków. We are currently not observing a slowdown on the side of the developer, and any delays may be due to the limited availability of employees, the functioning of public offices or supply chain disruptions
The biggest office projects completed during the first quarter in Poland included another phase of the High5ive complex in Kraków – building 4 (23,500 sqm, Skanska Property Poland), the first phase of Face2Face in Katowice (19,600 sqm by Echo Investment), and Giant Office in Poznań (15,300 sqm by Giant Invest).
Office investment market
From January to March, 11 office transactions with a total value of almost EUR 620 million were finalized all over Poland, exceeding the record-breaking result from 2006. The biggest transaction concluded was the sale by Skanska of two buildings of the High5ive complex, located in the very centre of Kraków.
Vacancy rates and rents
The overall vacancy rate in Poland stands at 8.4%. In Warsaw 7.5% of existing office supply is vacant, while outside of the capital - 9.4%. The lowest (4.1%) vacancy rate among the eight regional markets can be found in the Tri-City, and the highest (12.9%) – in Poznań.
Currently the highest prime headline rents can be found in Kraków (13.5 – 15 EUR / sqm / month), and the lowest in Lublin (10.5 – 11.5 EUR / sqm / month). Prime rents in the central areas of Warsaw are currently quoted at 18 to 24 EUR / sqm / month, while prime assets located in the best non-central areas are up to 16 EUR / sqm/ month.
More details in the report "Regional Office Markets 2020".
[1] Kraków, Wrocław, the Tri-City, Katowice, Poznań, Łódź, Lublin, Szczecin