With 300,000 sqm of office space set to come online in 2014, experts see office vacancy rates increasing to 15 percent towards the end of the year
by Beata Socha
Warsaw continues to be the number 1 office market in Poland. With 4.12 million sqm of existing office space, it accounts for over 60 percent Poland’s entire office stock.
The city is also Poland’s undisputed leader in terms of rent rates, which stand at some €16-€26/sqm/month in the Central Business District, while offices in non-central locations currently fetch €11-€18/sqm/month, according to data by Knight Frank.
However, the strong position of tenants pushes effective rents some 25-30 percent below the asking price. Experts expect rents to drop both in the city center and in more remote locations.
“Mokotów [Warsaw’s southern office hub] is likely to compete for tenants with Wola and Włochy, [both districts located west of the CBD] and developers will continue to offer pre-leases with very competitive terms,” said Soren Rodian Olsen, head of office and industrial investments, capital markets at Cushman & Wakefield.
“Rents are under pressure, they have been for the past 12-18 months. And the pressure will continue considering the additional supply to be delivered during 2014,” Olsen added.
The rate of current development is indeed impressive. Another 700,000 sqm is currently in the pipeline, with some 44 percent of that volume, 316,000 sqm, scheduled to roll off in 2014, according to data by Knight Frank. One of this year’s biggest completions will be Gdański Business Center by HB Reavis, set to delivered 46,000 sqm of GLA.
A similar amount of office stock (294,000 sqm) was delivered in 2013, 13 percent more than the 2012 figure. Some of the largest projects completed last year include Konstruktorska Business Center (48,000 sqm), Miasteczko Orange (43,700 sqm) and T-Mobile Office Park (40,000 sqm).
Experts say demand will continue to grow, which will, at least partially, offset the supply increase.
“Lease agreements signed in 2013 correspond to 633,600 sqm of office space, which was a very good result compared with 2012, as it stands for a 4 percent increase,” said Elżbieta Czerpak, director of market research at Knight Frank.
Last year saw the highest net absorption in five years, which stood at 191,000 sqm. However, assuming similar leasing activity this year, the amount of empty office stock will still likely increase by some 100,000 sqm.
Half a million
With the 438,000 sqm of office space that stood empty as of December 2013, Warsaw will likely see vacant office space exceed 500,000 sqm this year.
“Given the low pre-lease level in buildings that are currently under construction, we can expect higher vacancy rates in 2014 … that should exceed 15 percent at the end of the year,” Czerpak explained.
“We’ve been observing increasing vacancy rates for two years now. In Q4 2013, vacancy stood at 12.77 percent and was 2 pp. higher than 12 months earlier,” Czerpak added.
Vacancy continues to be slightly lower in the city center than in peripheral districts. It stood at 12.5 percent in Warsaw’s Central Business District, while outside the central area it amounted to 12.8 percent.
“In Warsaw, the demand for office space is high. However, company preferences are changing. They are usually looking for high-quality schemes in the best locations,” said Joanna Mroczek, director at CBRE. “The volume of lease transactions in 2014 should be at least the same as in previous years,” she added.