Last year saw excellent results in the office sector in Poland. Demand was a record breaking 1.6 million sqm. Total stock exceeded 11 million sqm with regional markets accounting for 5.6 million sqm and outperforming Warsaw for the first time.
Advisory firm JLL summarizes the situation on the Polish office market at the end of 2019.
Office sector sees record demand
Tenant activity in 2019 hit a record-breaking 1.6 million sqm, with 693,000 sqm of this figure leased outside Warsaw. Such an excellent result is primarily due to the spectacular performance of Kraków, where 267,000 sqm was transacted. What’s more, demand in Katowice more than doubled 2018's total, which has prompted developers to start the construction of new buildings that will change the city’s skyline in the coming years.
The most notable deals outside Warsaw included a pre-let for 19,300 sqm by UBS in Fabryczna Office Park, a renewal for 17,100 sqm by Motorola Solutions Systems Polska in Green Office and a pre-let for 16,000 sqm by Sabre in Tischnera Office.
“What is also interesting is the change in the structure of demand. As in the case of Warsaw, pre-let volumes are also increasing on regional markets. Last year, its share in total demand grew by 70% y-t-y and totalled 213,000 sqm, approximately one third of total demand”, adds Karol Patynowski.
The most spectacular lease contracts in Poland were signed by mBank (45,600 sqm, Mennica Legacy Tower), Orange Polska (44,800 sqm, Miasteczko Orange) and T-Mobile (27,400 sqm in Marynarska 12). All three in Warsaw.
Flex spaces gain in popularity
Last year more than 28,000 sqm of office space was leased by flex operators in the major cities outside Warsaw, which is 20% increase on 2018. Growing confidence in this segment of the office market is illustrated by the Hungarian New Work contract in Hi Piotrkowska, which was also 2019's largest lease transaction on the Łódź market.
Another interesting transaction was Spaces’ decision to enter the Katowice market and lease the historic former seat of the Silesian Insurgents Association.
Demand – regional markets outperform Warsaw
Strong demand boosted developer activity. In 2019, more than 60 office developments entered markets outside of Warsaw, offering a total of 547,000 sqm.
At the end of 2019 the total office stock nationwide exceeded 11 million sqm, with regional markets accounting for 5.61 million sqm while 5.59 million sqm was located in Warsaw. This means that for the first time in the market's history, supply in major regional markets outperformed Warsaw. It demonstrates the diverse development of the office sector in Poland as well as its growing maturity.
The biggest office schemes delivered to the regional markets included phase two of Business Garden in Wrocław and Poznań, Alchemia IV - Neon in the Tri-City, Tischnera Office and V.Offices in Kraków, as well as Brama Miasta B in Łódź.
The office market in Poland expanded to the tune of 710,000 sq m of modern office space, with major markets outside Warsaw accounting for 547,000 sqm.
“Under-construction space in the major regional markets stands at 800,000 sqm and is mainly concentrated in Kraków, Katowice and the Tri-City. Katowice is outpacing traditionally larger markets in terms of construction activity due to the demand result in 2019. This is illustrated by TDJ Estate that has started the construction of the .KTW II, Echo Investment is developing the Face2Face Campus and TriGranit development has launched its Silesia for Business building”, adds Łukasz Dziedzic.
A little less space is currently under construction in Warsaw - 790,000 sqm.
Available office space and rents
The average vacancy rate in Poland is 8.7% and in Warsaw – 7,8%. Outside the capital market the Tri-City boasts the lowest vacancy rate (4.9%), meaning that there is a dearth of immediately available office space in the region. The highest rate is to be found in Wrocław (12.5%). The largest decreases in vacancy rate were registered in Lublin (6.2 p.p. y-o-y) and Katowice (3.2 p.p. y-o-y).
Due to increasing construction costs (both labour and materials), growth in rents were seen in a few of Poland’s major office markets. In 2019 a number of cities saw an uptick of prime headline rents: Kraków (13.5 EUR to 15.5 EUR / sqm / month), the Tri-City (13 EUR-14.5 EUR / sqm/ month), Łódź (12 EUR to 14 EUR / sqm / month), Katowice (13.6 EUR-14.5 EUR/ sqm/ month), Poznań (13.6-15 EUR / sqm/ month) and Wrocław (13.5-14.8 EUR/ sqm/ month). Currently the highest rents are quoted in Kraków. Some minor changes are expected over the next few quarters.
Prime rents in Warsaw are currently quoted at 18.0 EUR to 24.0 EUR / sqm / month, while prime assets in the best non-central areas lease stand at 11.0 EUR to 16.0 EUR / sqm / month.