AXI IMMO summarizes 2020 and discusses the current trends in 2021 on the office market in Poland.
The key pandemic-related trends on the Polish office market of 2020 include the transformation of the way work we work and where we work. This prompted many occupiers to redefine their needs regarding the size of the office and the way the office is arranged. Equally important was ensuring workplace safety, also through new technological solutions. As a result of the pandemic and the lockdown measures, both development and leasing activity decreased slightly last year. Demand came mostly from new contracts and renewals.
At the end of 2020, total modern office stock in Poland amounted to over 11.7m sq m. Traditionally, Warsaw, with about 5,912,500 sq m, was ahead of eight major regional markets combined (approx. 5,790,000 sq m). Kraków remains the leader among the regional cities (1,554,900 sq m), ahead of Wrocław (1,226,300 sq m) and the Tri-City (888,600 sq m). In the last quarter of 2020, 163,400 sq m was delivered to the Polish office market, which includes 75,800 sq m across three projects in Warsaw and 87,600 sq m across six buildings in regional cities. The largest scheme completed in 2020 was Mennica Legacy Tower (47,900 sq m, Golub GetHouse), as well as Yereal Lixa A (22,100 sq m) and Lixa B (approx. 5,800 sq m), which were all delivered in Warsaw. Other large new completions include Face2Face B (approx. 26,200 sq m, Echo Investment) in Katowice, Hi Piotrkowska (21,000 sq m, Master Management Group) in Łódź and Unity Tower (15,600 sq m, GD&K Group and Eurozone Equity) in Kraków. New supply in the entire 2020 in Poland amounted to 700,700 sq m, of which Warsaw accounted for 307,400 sq m, Krakow – 140,700 sq m, Katowice – 61,300 sq m, Tricity – 60,300 sq m, Wrocław – 57,200 sq m, Łódź – 51,500 sq m, Poznań – 18,300 sq m. and Szczecin – 3,400 sq m.
“As a result of the pandemic, we observed lower development activity on the Polish office market compared to previous years. Developers and investors are much more cautious about starting new projects, mostly basing their decisions on the occupancy level of existing office space. In Warsaw and regional cities, some of the planned buildings will be postponed, and their construction will depend on the market situation. Moreover, sub-letting has become a clear trend, driven by general market uncertainty due to lockdown measures and the rise of remote working, both of which influenced occupiers’ strategic decisions regarding office space.. According to our estimates, as much as 100,000 sqm was subject of sub-let in Warsaw alone last year.” says Martin Lipiński, Head of Office Agency and Tenant Representation, AXI IMMO.
New office space delivered to the market in 2020 pushed the vacancy rate up slightly. There is currently approximately 1,320,100 sq m of vacant office space in Poland, which accounts for 11.3% of the total market resources. At the end of Q4 2020, Warsaw’s vacancy rate reached 9.9% (+30 bps q/q and 210 bps y/y) and amounted to approx. 583,500 sq m. of available space. In the regions meanwhile, 736,600 sq m was available for lease as at the end of 2020, which is an equivalent of 12.7% of total stock (+80 bps q/ q and 310 bps y/y). In percentage terms, the highest vacancy rate among the eight regional cities was recorded in Łódź – 16.4% (94,600 sq m), followed by Wrocław – 14.9% (183,400 sq m) and Kraków – 13.9% (217,500 sq m). The lowest vacancy was seen in Szczecin – 6.9% (12,600 sq m), Lublin – 7.8% (14,300 sq m) and Katowice – 9.1% (54,000 sq m).
„In the context of new supply and the forecasted new vacancy rate, 2021 should be interesting. The two largest schemes that are currently under construction in Poland – the Varso Tower and the Forest building by Slovak developer HB Reavis in Warsaw – should be completed at the end of the year. As a result, late 2021 and early 2022 will see very significant oversupply of office space in Warsaw,” comments Jakub Potocki, Negotiator, Office Agency, AXI IMMO.
„As for the new business centre of Warsaw, the Wola district, it is worth mentioning that in January 2021 the occupancy permit was granted to the 195-meter Skyliner skyscraper by Karimpol. Next projects in the pipeline are Generation Park Y by Skanska and Warsaw Unit by Ghelamco. Also, the mixed use Norblin Factory by Capital Park, will be delivered in 2021 near Rondo Daszyńskiego. As a result of the completion of these schemes, supply will increase by approx. 190,000 sq m, some of which had already been leased,” adds Bartosz Oleksak, Negotiator, Office Agency, AXI IMMO.
„The situation may force landlords to reduce headline rents, especially in B-class buildings and those schemes that have inferior road and public transport infrastructure. In addition, we expect further increases in incentives for new occupiers – a trend we have observed in the last few months. More than ever before, this is an occupier-led market. It is the first time in the modern history of Polish offices that occupiers have this much bargaining power and this many opportunities when negotiating new lease agreements,” continues Jakub Potocki.
Total gross take-up on the Polish office market amounted to 1,184,200 sq m last year. Leasing transactions totalling 602,000 sq m were closed in the capital city (-31% y/y), with 160,400 sq m of lease agreements signed in the last quarter. Meanwhile, take-up in all key regional office markets amounted to 582,200 sq m in the entire year, of which 107,000 sq m (-26% y/y) was closed in the fourth quarter. Among the regions, the highest occupier activity was recorded in 2020 in Kraków (156,600 sq m), Wrocław (128,400 sq m) and the Tri-City (87,700 sq m). Despite a marked drop in demand, both in the capital city and the regions, large transactions were closed, including a pre-let agreement for 46,600 sq m. by PZU in the Generation Park Y building in Warsaw, renewal of Nokia Siemens Network lease in the West Gate and West Link buildings (nearly 30,000 sq m) in Wrocław and a pre-let agreement signed by Allegro in Q4 2020 in Poznań’s Nowy Rynek D1 (26,000 sq m).
“The office market situation in 2020 can be described as a time full of challenges that brought us many new experiences. Firstly, we raised the standards of occupational health and safety. Compulsory lockdown made our approach to the office as a workplace more flexible. The home office has become an integral element in the life of virtually every company. As a consequence of these events, each of us came to believe that technology is our ally and that it is difficult to function without it today. Further tech solutions facilitating our remote work are a matter of time. Many occupiers decided to increase the average space per employee, which resulted in a change in the standard of office space arrangement and increased working comfort. In terms of spending time in the offices, employers are likely to move away from a “You must” approach to “I encourage you”. Maintaining relationships or, in the case of new employees, building relationships and training will be seen as key advantages of office space. The most important lesson from the pandemic was that new large leasing contracts continued to be closed. The signed transactions give hope that everything will return to normal in due course,” sums Martin Lipiński.
AXI IMMO offers commercial real estate advisory services in the areas of leasing and management of office and industrial space as well as acquisition and disposal of real estate assets and development land. The company also offers B2B and B2C supply chain management services. AXI IMMO’s biggest advantage is combining international standards of service with a thorough knowledge of the local market. The company received the award for the Best Local Agency in 2012-2019 and the Best Team for the industrial sector in 2016-2017 in the prestigious CiJ Awards organised by the CEE CiJ Journal magazine.