Current challenges on the Warsaw office market

Bartłomiej Łepkowski and Renata Kabas-Komorniczak

By Bartłomiej Łepkowski, Partner, Head of Office and Logistics Asset Management, Knight Frank and Renata Kabas-Komorniczak, Partner, Rödl & Partner
Between July and September 2015, some 92,000 sqm of office space was delivered to the Warsaw market. Consequently, the volume of new space completed since the beginning of the year amounted to 235,000 sqm. As a result, total office stock in Warsaw reached almost 4.6 million sqm, while the leasable area exceeded 3.9 million sqm. Unless developers postpone completion dates of their investments, 2015 should close with an annual new supply of approximately 340,000 sqm. Although it is a smaller volume than expected in mid-year, 2015 should be a record year in the history of the Warsaw office market in terms of newly completed offices.

Monthly rental rates offered in the CBD decreased slightly over the last year and start from €15 per sqm, only the smallest office modules in prestigious office buildings exceed €23 per sqm. In buildings outside the center, asking rents still ranged between €10.5 and €18, depending on location, the age of the project and the availability of space in the building. Importantly, effective rates may be lower than asking rates by up to 30 percent, as in many cases, developers still offer substantial incentive packages to potential tenants.

The availability of existing office space increased in comparison to the end of 2014. Approximately 590,000 sqm of vacant offices accounted for 15 percent of the rentable stock (12.9 percent of all Warsaw office stock). Nearly 200,000 sqm remains vacant in the CBD, out of which some 45 percent of the volume consists of buildings delivered prior to 2000. The vacancy trend is rising and is expected to reach over 17 percent by end of 2015.

The current and forecasted situation on the Warsaw office market already is, and will be, even more challenging for landlords, especially for those who own older buildings. They have to compete with new developments and find ways to enhance the attractiveness of their buildings. The goal is always to entice new tenants and convince existing ones to stay longer by prolonging lease agreements.

Basically, there are real estate owners such as property funds or specialized real estate firms who have complex organizational structures which include asset management and other specialized teams. On the other hand, other property investors do not, and will not establish such teams and will outsource the management of their real estate investments to professional advisors.

For those property owners who do not have dedicated, specialized teams in Poland, it is of great importance to secure optimum care of their investments which should continuously generate steady returns for their shareholders in the long term. Therefore, considering the challenging market conditions, it is of high importance to have a trustworthy and professional advisor in place.

In order to keep pace with challenging market requirements and growing competition, property owners pay more and more attention to asset management activities as well as the optimization of business administration services which usually include a set of corporate governance, accountancy, legal and tax services.

The one-stop concept, i.e. all asset management, accounting, legal and tax services under one roof provided by a professional advisor, is a solution worth further consideration. Such a solution is more effective than contracting each service separately. It enables real estate investors to have one point of contact for all day-to-day matters related to their assets and therefore, to concentrate on their core business.

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