No supply leads to temporary reprieve for vacancy rate

While take-up in Q1 was almost 110,000 sqm in the city's office market, in Q2 it has slumped to 66,440 sqm, which is down nine percent on the same period in 2004. Statistics published by CB Richard Ellis (CBRE) show that vacancy rates dropped, but there were no new office developments introduced to the market, and a number of new projects are scheduled for completion over the next 18 months. CBRE estimates that 100,000 sqm of new space will be on the market before the end of the year. These projects include Trinity Park Phase I (18,500 sqm), Cirrus (13,365 sqm) and Centrum Finansowe Allianz (11,700 sqm).

Non-central locations continue to be in high demand, with 35,500 sqm, or 55 percent, of total office space leased outside the city center. The most active submarket was Upper South with 13,320 sqm of leased space, followed by South-west with 7,800 sqm. The weakest letting activity was recorded in the East submarket with only 730 sqm of leased space. In the city center,  take-up reached almost 31,000 sqm, of which 19,800 sqm was leased in CC-Fringe.

Owner-occupiers account for just 4.67 percent of this activity. Expansions represent 4.74 percent, and pre-lets are a significant 12.34 percent of take-up. Many companies are choosing to stay put, with renewals making up 15.12 percent of leases, and new transactions account for the remaining 63.12 percent. Net absorption for Q2 came to 20,452 sqm, and the lack of new developments meant this is 105 percent more than in Q1 2005. With all the new space coming online in the next six months, however, it is difficult to see this trend continuing.

Vacancy rates in Warsaw decreased to 10.25 from 11.13 percent in Q1, largely due to the lack of supply. The highest level of vacancy rate by submarkets in Q2 2005 was recorded in CC-Fringe (14.39 percent) whereas the lowest vacancy rate is in the North submarket, at 3.84 percent.

Rents were stable for Q2. In the city center, prime headline rents are around EUR 19-21 (zł.76-84) per sqm per month with effective rents at about EUR 15-20 (zl.60-80). In non-central locations, headline rates are at EUR 12-15 (zł.48-50), whereas effective rents clock in at EUR 11-13 (zł.44-52).

Investment demand is still strong and yields now stand at around 7.5 percent, with prime yields at seven percent. CBRE says that yields for sale and leaseback transactions will be below seven percent. In Q2 2005 the most notable office investment transactions were Rondo 1, which was bought by Commerzlease for approximately EUR 200 (zł.800) million as a sale and leaseback transaction, UBC I and II, which were bought by SEB Immobilien-Investment for EUR 77 (zł.308) million, and Topaz, which was snapped up by TU Allianz for EUR 26 (zł.104) million as the first right of refusal.

Laurence Mackin