With Warsaw and major Polish regional cities maturing, developers are looking to fill office void in developing and emerging markets
by Beata Socha
Warsaw will see over 200,000 sqm of new office space delivered 2014, mainly in the Ochota district and the CBD area. The city already has over 4 million sqm of office stock and the undisputed top office market in the country.
Warsaw’s stock is twice as big as the total modern office space in six main regional cities combined. The 2 million sqm in regional cities is still the bulk of all office stock outside of Warsaw (83 percent). The top four developing cities in terms of office space – Szczecin, Lublin, Kielce and Bydgoszcz – each with populations of 200,000-400,000, altogether offer less than 300,000 sqm.
“Cities like Szczecin and Bydgoszcz already have shared service centers with foreign capital involvement. New companies in the BPO/SSC sector are also looking for locations outside the main business centers of the country,” said Monika Dębska-Pastakia, a partner at Knight Frank who also chairs RICS Poland.
Construction activity in these cities is very strong, particularly in Szczecin, northwestern Poland, where 29,400 sqm of space was added to the market in 2013 putting the total stock at some 100,000 sqm. Bydgoszcz, located in central Poland, has also seen a major increase in available office stock, which after the 14,100 sqm was completed in 2013 now stands at 50,000 sqm.
Developing cities usually have a high vacancy rate of 15-18 percent, except for Kielce in southern Poland, where vacant space accounts for only 8 percent of the total stock. Rent rates are significantly lower than in mature markets, at €7-13/sqm/month, with the exception of Szczecin, where rent rates are close to mature regional cities, at €11-15/sqm/month.
Chicken and egg
There is, however, a handful of Polish cities between 100,000 and 300,000 where office construction activity is only beginning to emerge, such as Rzeszów, Olsztyn, Toruń, Białystok, Zielona Góra and Legnica.
These cities altogether offer less than 200,000 sqm and have found themselves in a certain “investment deadlock.” The existing office stock seems insufficient to attract potential investors from the BPO/SSC sector. On the other hand, without more companies looking for space there, developers are reluctant to launch large-scale speculative office construction.
Rzeszów, in southeastern Poland, is the only city in the group which has managed to break the stalemate. Local developer Developres is currently building a 26,000 sqm class-A office scheme there, while Irish Boxelder is planning to launch construction on several more.