Office rents likely to fall in major cities as supply increases, business grows
The rents differ so much because supply and demand varies widely from city to city. "Demand (for office space) is directly linked to the number of economic indicators," said Richard Sexton, head of the office agency at Knight Frank Nieruchomosci.
Among those indicators is unemployment, Sexton said. Unemployment is a barometer of business activity. As business activity grows, more jobs come on the market reducing the number of unemployed. At the same time, as business grows, so does the demand for offices. Warsaw, for example, has the highest rents because it is the capital, which attracts more multinational businesses than any other city in Poland. It also has one of the lowest unemployment levels among major Polish cities.
Multinational companies are major customers for class-A office space "Historically this (the high demand) drove rents to over $50," said Sexton. But since 1997, the more than twofold increase in supply of new office space has been a major driving force in pushing rents down.
In other cities, the supply has remained low because business and thus demand has lagged. But the landscape is changing as domestic and multinational companies expand their businesses and set up branches and headquarters across the country.
Poznan, for example, has become a hub for business and financial services and ranks second alongside Gdansk with monthly office rental rates running $29 per square meter, according to Knight Frank. Here, however, rents do not follow unemployment levels, as Gdansk has twice the unemployment rate of Poznan. A possible explanation is the very tight office market in Gdansk, which keeps rates higher than expected, property watchers said.
"Trojmiasto hasn't really picked up yet," said Ricky Aboo, head of the office department at Healey & Baker real estate agency. The unfavorable bureaucratic environment delays office development in the Gdansk area, he said.
Based on the tight supply of space, rates in Gdansk could remain high unless firms decide to set up in neighboring Gdynia, which some say is threatened with a glut of new space. Poznan's tight supply of office space is scheduled to change significantly in the next year, causing some easing of rental rates over the medium term, according to industry members.
The Von der Heyden Group has been developing the Poznan Financial Center, which will bring 14,500 square meters of new office space next year. Other projects underway in Poznan will add an additional 15,000 square meters of class-A office space which is likely to satisfy demand and bring rents down, Knight Frank said.
This forecast is likely to be mirrored in other major cities, where new class-A office space is scheduled to come to market.
In Krakow there is only one existing class-A building, the Cracovia Business Center, which provides 12,000 square meters of space. This supply has failed to meet growing business needs and rents have gone up, said Artur Staniszewski, an agent with Henry Butcher's regional office in Krakow. But several projects are under way, notably about 20,000 square meters of class-A and class-B space in Super Krak and the 16,000 square-meter Centrum Biznesu Lubicz office project, which is scheduled to open next year. Once Centrum Biznesu Lubicz and Super Krak are completed, the demand is likely to be satisfied and the rents will ease, Staniszewski said. "Privately I think it will satisfy demand," he said. The new projects like Centrum Biznesu Lubicz will initially be able to charge a premium and ask about $30 or even more per square meter a month for their offices, Staniszewski said. But later projects are not likely to get more than $26-$28 per square meter, he said. "The first will win," he said.
Among those indicators is unemployment, Sexton said. Unemployment is a barometer of business activity. As business activity grows, more jobs come on the market reducing the number of unemployed. At the same time, as business grows, so does the demand for offices. Warsaw, for example, has the highest rents because it is the capital, which attracts more multinational businesses than any other city in Poland. It also has one of the lowest unemployment levels among major Polish cities.
Multinational companies are major customers for class-A office space "Historically this (the high demand) drove rents to over $50," said Sexton. But since 1997, the more than twofold increase in supply of new office space has been a major driving force in pushing rents down.
In other cities, the supply has remained low because business and thus demand has lagged. But the landscape is changing as domestic and multinational companies expand their businesses and set up branches and headquarters across the country.
Poznan, for example, has become a hub for business and financial services and ranks second alongside Gdansk with monthly office rental rates running $29 per square meter, according to Knight Frank. Here, however, rents do not follow unemployment levels, as Gdansk has twice the unemployment rate of Poznan. A possible explanation is the very tight office market in Gdansk, which keeps rates higher than expected, property watchers said.
"Trojmiasto hasn't really picked up yet," said Ricky Aboo, head of the office department at Healey & Baker real estate agency. The unfavorable bureaucratic environment delays office development in the Gdansk area, he said.
Based on the tight supply of space, rates in Gdansk could remain high unless firms decide to set up in neighboring Gdynia, which some say is threatened with a glut of new space. Poznan's tight supply of office space is scheduled to change significantly in the next year, causing some easing of rental rates over the medium term, according to industry members.
The Von der Heyden Group has been developing the Poznan Financial Center, which will bring 14,500 square meters of new office space next year. Other projects underway in Poznan will add an additional 15,000 square meters of class-A office space which is likely to satisfy demand and bring rents down, Knight Frank said.
This forecast is likely to be mirrored in other major cities, where new class-A office space is scheduled to come to market.
In Krakow there is only one existing class-A building, the Cracovia Business Center, which provides 12,000 square meters of space. This supply has failed to meet growing business needs and rents have gone up, said Artur Staniszewski, an agent with Henry Butcher's regional office in Krakow. But several projects are under way, notably about 20,000 square meters of class-A and class-B space in Super Krak and the 16,000 square-meter Centrum Biznesu Lubicz office project, which is scheduled to open next year. Once Centrum Biznesu Lubicz and Super Krak are completed, the demand is likely to be satisfied and the rents will ease, Staniszewski said. "Privately I think it will satisfy demand," he said. The new projects like Centrum Biznesu Lubicz will initially be able to charge a premium and ask about $30 or even more per square meter a month for their offices, Staniszewski said. But later projects are not likely to get more than $26-$28 per square meter, he said. "The first will win," he said.
