Office market revives, but....rising vacancy rates continue to push rents downward
By : Tomasz Stepien
Although Warsaw's office market is beginning to show signs of revitalizing after a dismal 1999, oversupply will continue to push rates down, property sources said.
Total office take-up (the sum of office space leased by tenants) in the capital's office market reached 112,000-131,000 square meters, according to source estimates. But whatever the exact take-up figure, it is thought to more than double last year's number of 50,000, according to DTZ, a real estate agency.
"The market is ahead of last year," said Darren Battle, head of Central European research for Jones Lang LaSalle, an Anglo-American property firm. Jones Lang LaSalle estimates that take-up in the first six months of the year reached 112,000 square meters, almost as much as in all of 1999 when the figure was 115,000 square meters, he said.
"It's a very good year compared to 1999," confirmed Jeroen van der Toolen, head of the office agency at DTZ, which estimates that take-up in the first half of 2000 was 131,000 square meters. Most of the activity has been in suburban business parks where tenants leased 72% of total take-up in the first half of 2000 as compared to 28% in the city center, DTZ said.
The office market in 1999 revived as many tenants decided to move to new offices and benefit from the falling rents, property sources said. "Many firms are changing old offices for new ones," said Maja Biesiekierska, head of the office agency at King Sturge, a property firm.
Tenants' willingness to move to new offices marks a change from last year when tenants were still wary after the Russian crisis and rents were high in Warsaw. As a result, many tenants decided to wait before moving their businesses.
"Last year people were waiting for rents to come down," said Douglas McMurray, managing director of Colliers International Poland, a real estate agency.
"(Now) more and more tenants are willing to take the decision (to move)," said Bartlomiej Hofman, a negotiator with Knight Frank Nieruchomosci. "It's better than a year ago when there was complete stagnation."
Rents dropped by at least 20% this year to $25-$30 per square meter a month in the center of Warsaw, van der Toolen said. Moreover, selected buildings downtown are willing to offer far lower rents to attract tenants. These include the Reform Plaza and the Elektrim building whose rents run as low as $17-$20 per square meter a month, he said.
"You can make a $15 deal (in the Elektrim building)," confirmed McMurray of Colliers, Elektrim's agent.
Rents in Reform Plaza and Elektrim are as low as those in suburban business parks, where rents of $18-$23 are also about 20% less than last year, van der Toolen said.
Rents run lower in the city center because the oversupply is greater there than in the suburbs. About 70,000-80,000 square meters of office space remain vacant in buildings developed downtown last year, DTZ said. In addition, 60,000 square meters in buildings to be developed later this year still need tenants, he said.
At the same time, there are fewer vacancies in the suburbs. About 18,000 square meters are available in buildings developed last year while 82,000 square meters remain in buildings under construction.
Overall, the vacancy rate in Warsaw, where the total modern office stock is estimated at 1.08 million square meters, is 14.2% compared to 10% last year, said Battle of Jones Lang LaSalle.
He estimated that by the end of 2001 the vacancy rate will decrease to 11.5%, but that rents will continue to come down. "We expect rents to decline slightly more," he said.
DTZ's van der Toolen expects that rents in the center will decrease to $24-$28 per square meter and $17-$22 in the suburbs. Away from downtown, the area most likely to be affected by falling rents is the Aleje Jerozolimskie area, where a number of developers are starting new projects, he said.
In addition to lowering rents, landlords are willing to offer more incentives to attract tenants, said Hofman of Knight Frank. A typical incentive package includes financing the fit out or offering several months of free rent (usually up to three months), he said.
Such incentives combined with the prospect of falling rents could encourage more tenants to change offices in the coming months, property sources said (see sidebar). "Many tenants are still waiting," said Leszek Gietko, head of office leasing at Unikat, a Warsaw-based real estate agency.
The willingness of tenants to move could boost the business of real estate agents charging commission for brokering deals. "I think the market is excellent, it's perfect for brokers," said Pierre Couderq, a partner with the Couderq & Partners property agency.
