Preoccupied with profit
Bucking global economic trends, the office market in Poland continued to grow in the first half of the year, with a large number of new projects being completed across the country. This stands in contrast to the Polish residential market, which is currently in the midst of a slowdown.
"The last two years were a period of particularly dynamic growth for the Polish economy, which had a direct impact upon the commercial real estate market in Poland. Both the supply of and demand for modern office space are growing rapidly," said Katarzyna Opalska, an analyst at real estate consultancy Cushman & Wakefield.
As Poland's infrastructure improves and the country looks forward to organizing one of the world's biggest sports events - the Euro 2012 soccer championship - market analysts predict the growth trend will continue in the upcoming years.
"The improvement and expansion of the Polish motorway system, together with the improvement of infrastructure in major Polish cities that will host the soccer championships, will make developers and investors more active in the search for prime locations for their investment," said Joanna Mroczek, associate director at CB Richard Ellis, in the company's Understanding Office Destinations in Poland - Spring 2008 report.
Mighty Warsaw
Poland's capital remained the largest office market in the country in the first half of this year, with the city's total office stock amounting to 2.84 million sqm at the end of June. New completions in H1 2008 accounted for the delivery of 141,400 sqm of office space. This space was, for the most part, located in the Upper South subzone, which includes the highly popular Służewiec Przemysłowy area.
Among the largest newly completed office projects were Ghelamco's MarynarskaBusinessPark, Segro's Tulipan House as well as Immoeast's and Karimpol's jointly built Equator project.
According to a recent report by real estate consultancy DTZ, a comparable volume of new office space is likely to be completed in Warsaw in H2 2008. The forecast for 2009 is even more optimistic.
"Taking into consideration developers' plans, an additional 130,000-140,000 sqm is likely to be completed by the end of 2008. DTZ forecasts 2009 to be record-breaking in terms of new completions as the total office stock may increase by 380,000 sqm, most of which will be located outside of the city center," said the report.
Although the volume of leasing transactions in Warsaw decreased by 11 percent over the last year, demand for modern office space remained strong, resulting in a record-low office vacancy rate - 2.1 percent - as well as a large number of pre-let transactions. According to DTZ data, vacancy at completion date in major new office projects in the capital ranged between zero and seven percent in the first six months of 2008.
In H1, the Warsaw office market also saw the largest leasing transaction in its history, with Bank Pekao taking up 39,000 sqm in the LipowyOffice Park scheme being developed by Hochtief Project Development. Baltic Property Trust's recently-announced acquisition of 62,000 sqm of office space located in Telekomunikacja Polska's Warsaw properties, for its part, was the largest sale-and-leaseback transaction ever concluded in the Polish office market.
Regional growth
But the capital is not the only game in town, so to speak. Other cities in Poland also reported substantial office-market growth in H1 2008.
"Much as Warsaw remains the most developed market, regional cities, especially Kraków and Wrocław, are clearly coming to the fore in terms of growth dynamics. Investors are also becoming increasingly interested in cities whose development has so far been less dynamic, for instance Katowice and Łódź, as well as Szczecin and Lublin," said a Q1 2008 report by Knight Frank.
With 37,000 sqm of office space completed in Q1 2008 alone, Wrocław was the leader among secondary cities in terms of office supply. Ghelamco Poland's BemaPlaza and Skanska's GrunwaldzkiCenter I, which delivered 23,000 and 9,300 sqm respectively in H1, are among the major projects completed so far this year.
Trailing Wrocław were Kraków and the Tri-city conurbation where, according to DTZ research, the total volume of Q2 completions could reach 53,000 sqm and 49,000 sqm, respectively.
Regional office markets have already attracted a number of leading domestic and international developers. Some of the office projects planned or currently under development include: Ghelamco Poland's Katowice Business Point and Wrocław Business Park; GTC's University Business Park in Łódź and Centrum Biurowe Francuska in Katowice; Skanska's Silesia Business Park in Katowice; and Echo Investment's Avatar in Kraków and Tryton in Gdańsk.
Selective sectors
The financial, business-services and ICT sectors were the leaders in terms of office space lease, although, according to the CB Richard Ellis report, different Polish cities appear to be attractive to different sectors.
Kraków, which is focusing on new-technology firms, has generally become one of the most attractive locations outside of Warsaw. Among tech firms, Google has an R&D center there and the city has attracted the attention of other firms, such as Motorola, IBM and Shell.
Wrocław is also courting tech companies. Siemens, Hewlett-Packard and Google have already chosen to invest in the city.
Poznań, for its part, has good transportation links and is preferred by companies which operate both in Poland and Germany. Tri-city is chosen mostly by banks and insurance companies, while Łódź and Katowice have attracted production and outsourcing companies. Experts say that the latter three locations still need to improve their infrastructures and invest in order to develop land for modern office space.
Rent stabilization
The cost of leasing space in the various cities has grown along with demand. Warsaw, for example, saw H1 rents rise by 15-30 percent in comparison to the same period last year. At the end of May, office rents cost around EUR30-35 (zł.97-113) per sqm per month in central Warsaw, EUR18-20 (zł.58-64) in Kraków and EUR15-18 (zł.48-58) in other secondary cities.
According to experts from Knight Frank, pre-let contracts accounted for 80-percent of take-up in the first quarter of 2008. "At the moment most big investments act on the basis of pre-let agreement - before the property is built," said Andrzej Brochocki of Brochocki Nieruchomości. According to Mateusz Polkowski, a senior research analyst at Jones Lang LaSalle Poland, the majority of lease contracts in the first two quarters of 2008 applied to small office space, similar to 2007.
"In Warsaw we still see the biggest demand for office space up to 700 sqm," added Polkowski.
CB Richard Ellis reported a trend in Poland that the average size of leased office space is increasing - currently it stands at around 900-1,040 sqm. Because of high rents, it would seem better for a company to buy its office space than to rent it. "But it is still the Warsaw standard to lease office space rather than to buy it," said Polkowski.
As the total supply of office space is expected to grow, market analysts now predict a possible rent stabilization. Polkowski noted that rents should stabilize over the next several months. Other experts agreed.
According to Brochocki, "We can assume [that office property owners will] encounter some problems with getting new tenants, especially beyond the city center. Rent prices should stabilize, if not drop."
