Wrocław office market buoyant– developers respond to tenants’ demand

In the last five years, 32 office buildings have been completed and total office stock in Wrocław has increased by 59%. The business services sector remains a key driver of office market development, with a 41% share in the city's occupied stock.

Wrocław, 30 September 2014  – International advisory company JLL has published its "Wrocław Office and Labour Market” report analyzing the city's investment attractiveness regarding access to modern office space, and educated, qualified workforce. The research was prepared in cooperation with Hays Poland.

Katarzyna Krokosińska, Senior Consultant, Office Agency and Tenant Representation, JLL, said: “Wrocław has a number of features that are very attractive for the business services sector including highly qualified and linguistically-efficient staff, location, transport network and office infrastructure. Other factors that are proving important for the sector are the pro-investment policies of government and local institutions, as well as the high quality of life that the city has to offer. Therefore, it is no coincidence that in Tholons ranking regarding the world's top outsourcing locations Wrocław has made the biggest leap. It has moved up 10 positions and currently occupies 65th place. There are three Polish cities classified in the ranking, with Kraków and Warsaw completing the trio. Wrocław appears in the business plans of new investors, such as SoftServe, a Ukrainian IT company that will launch its software development centre in the capital of Lower Silesia. Companies already present in the city, such as Atos, BNY Mellon, Credit Suisse, Capgemini, HP, IBM, Nokia, or Viessman regard Wrocław as a location that enables long-term development both in terms of services and staff”.

Office market – time of intensive growth

Nina Stępień, Research Analyst, JLL, commented: “Wrocław, with office stock of 555,900 sq m is the third biggest and one of the fastest developing markets in Poland both in terms of construction and tenant activity. In the last five years, 32 office buildings have been completed and total office stock has increased by 59%. Almost 125,000 sq m is under construction, the majority of which will hit the market by the end of 2015. Developers still feel confident about their office investments in Wrocław, due to the high demand for office space, especially from the business services sector. This industry remains a key driver of office market development, with a 41% share in the city's occupied stock”.

Office pipeline

In H1 2014, 22,700 sq m of modern office space was delivered in Wrocław, with Green Day alone offering 15,500 sq m. JLL expects the Wrocław market to grow by an additional 52,300 sq m by the end of 2014, including deliveries such as West Gate, Wrocławski Park Biznesu II (B4), Promenady Zita phase I and Silver Tower Center. Currently, the biggest development under construction in Wrocław is Dominikański office building (almost 36,000 sq m of office space) due to be delivered in Q3 2015. Moreover, 22% of all space under development in the city is already secured by pre-let agreements.

Demand for office space

The Wrocław market is rather absorptive and mostly driven by large agreements, the majority of which are signed by the business services sector. The rate of employment in this industry has increased by 68% from the beginning of 2012, and coincided with a record-breaking gross take-up of almost 88,400 sq m of office space leased that year. In H1 2014, the gross take-up was 28,600 sq m. The first half of the year's biggest agreements included: 4,900 sq m renewed by a confidential tenant in Silver Forum, new deals signed by Fresenius Kabi in New Point Offices and by Parker Hannifin in Dubois 41 for 2,600 sq m and 2,500 sq m, respectively, as well as OBSS' expansion in West House for 2,200 sq m. In Q3, HP GBC signed a lease agreement for 16,400 sq m in Dominikański.

Vacancy rate

In the past, the vacancy rate in Wrocław hovered around 3.1% (the average for both 2010 and 2011) with little choice for new tenants, especially those who would be looking for extensions in the short term. The vacancy rate in the entire city now stands at 10%.

Rents in Wrocław

Some rental pressures on the Wrocław market have already been observed. In Q2, the higher and lower bands of prime headline rents decreased by €0.5, leaving prime headline rents ranging from €14 to €15 / sq m / month. Average rents are currently estimated to be between €12 and €13. Further rental pressures are expected as new offices are commissioned over the course of 2015 and 2016.

Labour Market

According to data from ABSL (the Association of Business Service Leaders in Poland), there are now more than 20,500 individuals (16% of the sector’s workforce) employed by business services companies operating in Wroclaw, making it the sector's third largest employment market in Poland. 7,900 new workplaces were created here between 2012 and 2014 alone (growth rate of 68%).

Agata Piątek, Delivery Manager Region South, Hays Poland, explained: “Wrocław's key asset in attracting new investments from the business services sector and enabling companies already present in the city to develop further is access to well-educated employees, both graduates and experts with successful track records. The city's employment pool, with knowledge of a wide range of foreign languages, have made Wrocław the location of choice for leading international companies such as IBM, McKinsey, Capgemini, Credit Suisse, Google and Nokia Solutions Network for their European operations. Importantly, the education and competencies of candidates meet the expectations of the business services industry. Wrocław is one of Poland's major education centres. It has the third largest number of students in Poland, and second in terms of technical and engineering graduates, which encourages growth of the Research & Development services. Wrocław's labour market potential also makes the city a natural choice for KPO -Knowledge Process Outsourcing – centres”.

There are 24 tertiary education institutions located in the city and, according to the Central Statistics Office of Poland, these were attended by 125,000 students in 2013. In the same year 1,400 people graduated with a degree in IT, 8,700 in economics and 3,500 in engineering – three key faculties for the business services sector.

The city has also taken steps to facilitate the acquisition of suitable candidates entering the job market by establishing the Wrocław Academic Hub – a body responsible for co-operation between universities and the business sector. The hub's aims are to co-ordinate education policies with market requirements, meeting the expectations of both employers and graduates.

Average gross monthly salaries for selected positions in Wrocław (in PLN)

Source: Hays Poland, June 2014

One of the main factors analysed in the process of selecting a location for a new service centre is the estimated investment costs, including labour costs. Salaries in Wrocław are still lower than in Warsaw, despite a comparable quality of life. Of course, as in every knowledge-based industry, salaries in the business services sector are dependent not only on where the company is based but also on a number of other factors, such as availability of rare skill sets, required sector experience and knowledge of foreign languages and market saturation.