Pushing past the percentages
The Warsaw Research Forum (WRF) has released its data on the office market's first quarter, and some agents are claiming the tide is turning. The exodus to the suburbs seems to have stymied, with vacancy rates dropping sharply in the city center, and record take-up increasing by more than 47 percent on the last quarter of 2004.
WRF also redrew the divisions on its office map of Warsaw. The city is now split into nine submarkets, with the city center split into two divisions, city-center core and city-center fringe, which together make up what is commonly referred to as the central business district.
WRF says it needed to do this to give clients better, more detailed information on the market, and the agents agree.
"Investors need more specific information," says Hadley Dean, managing director with Colliers International. "[The map] includes areas according to how investors perceive the market. People don't want to know the vacancy rates in the suburbs, they want to know the vacancy rates in Wola or Żoliborz. But the reason we don't call the sections Wola or Zoliborz is because geographically some of these areas are not in Wola, but they are seen as the same market."
Colliers believe these new division are a more accurate reflection of the market. "If you mark office buildings on a map of Warsaw you will see that the divisions are very natural," says Eliza Bingül, a research assistant with Colliers.
The overall statistics are impressive. Take up was very strong in the first quarter of this year, with almost 109,000 sqm leased. This was nearly double the previous quarter, with office space in the city center changing hands the most. Renewed leases and relocations were the driving forces behind the market, with a large number of lease expirations making companies reconsider their options.
Some 50,000 sqm in new space was delivered to the market, with only 4,175 sqm in two projects in the city center. This pushed the total modern office stock in the city to 2.33 million sqm.
Vacancy rates are what investors typically look at first, and in Warsaw it has decreased slightly to 11.13 percent. The city center saw a major drop, from 18.9 percent at the end of 2004 to 14.95 by the end of the following quarter. Non-central locations saw an increase in empty space, from 6.78 to 8.42 percent. Rents are still under some pressure, with landlords offering incentives and pushing down effective rents. Currently, the average asking rent per sqm in Warsaw is EUR 15.41, with monthly service charges coming to EUR 3.54 per sqm. However, effective rental rates can be up to 20 percent lower than asking rents.
Despite the positive results, many remain cautious of the market. With a large number of new projects due, and a potential new supply of 300,000-400,000 sqm, some fear that this recovery could be short-lived. But Hadley Dean says investors need to look beyond the percentages.
"Everyone is saying be careful about Warsaw because rents are going to go lower again. Its nonsense," he asserts. "You have to be careful when looking at percentages because this market is tiny. Look at the take-up figures. [There was take-up of] 300,000 sqm last year and we've already had 110,000 sqm now and it's looking like we will have 350,000 maybe 375,000 sqm of activity this year, and you have 400,000 sqm of product coming online. The vacancy rates will rise, that's for sure, but the problem wont be the new buildings. The problem will be in the older ones. Secondary buildings will bring down rents to keep tenants; there will be a bloodbath at R8/9 [per sqm]. But I'm quite bullish about [prime office space]."
So the office battlefield will not be in the prime-space but in the A-minus and B category. "I think there is going to be a lot of competition next year for the secondary buildings. But where I think there wont be a lot of competition is with buildings such as Metropolitan [where Colliers has recently chosen to relocate] and Saski, where effective rents are now increasing. [Landlords] are no longer that desperate and a lot of developers are quietly bullish," says Dean.
Many tenants are no longer exclusively looking at rents, according to Dean. "They are not so focused on headline rents but are looking for flexible solutions in the future. Expansion is the big word. [Now] our job is ... how can we get the most efficient space so our client can grow their business.
"Warsaw is a boom bust city, it has that energy about it, it's London, Frankfurt, New York, it's not Paris. You have four years up and three years down, and we are starting on the four years up," says Dean.
WRF also redrew the divisions on its office map of Warsaw. The city is now split into nine submarkets, with the city center split into two divisions, city-center core and city-center fringe, which together make up what is commonly referred to as the central business district.
WRF says it needed to do this to give clients better, more detailed information on the market, and the agents agree.
"Investors need more specific information," says Hadley Dean, managing director with Colliers International. "[The map] includes areas according to how investors perceive the market. People don't want to know the vacancy rates in the suburbs, they want to know the vacancy rates in Wola or Żoliborz. But the reason we don't call the sections Wola or Zoliborz is because geographically some of these areas are not in Wola, but they are seen as the same market."
Colliers believe these new division are a more accurate reflection of the market. "If you mark office buildings on a map of Warsaw you will see that the divisions are very natural," says Eliza Bingül, a research assistant with Colliers.
The overall statistics are impressive. Take up was very strong in the first quarter of this year, with almost 109,000 sqm leased. This was nearly double the previous quarter, with office space in the city center changing hands the most. Renewed leases and relocations were the driving forces behind the market, with a large number of lease expirations making companies reconsider their options.
Some 50,000 sqm in new space was delivered to the market, with only 4,175 sqm in two projects in the city center. This pushed the total modern office stock in the city to 2.33 million sqm.
Vacancy rates are what investors typically look at first, and in Warsaw it has decreased slightly to 11.13 percent. The city center saw a major drop, from 18.9 percent at the end of 2004 to 14.95 by the end of the following quarter. Non-central locations saw an increase in empty space, from 6.78 to 8.42 percent. Rents are still under some pressure, with landlords offering incentives and pushing down effective rents. Currently, the average asking rent per sqm in Warsaw is EUR 15.41, with monthly service charges coming to EUR 3.54 per sqm. However, effective rental rates can be up to 20 percent lower than asking rents.
Despite the positive results, many remain cautious of the market. With a large number of new projects due, and a potential new supply of 300,000-400,000 sqm, some fear that this recovery could be short-lived. But Hadley Dean says investors need to look beyond the percentages.
"Everyone is saying be careful about Warsaw because rents are going to go lower again. Its nonsense," he asserts. "You have to be careful when looking at percentages because this market is tiny. Look at the take-up figures. [There was take-up of] 300,000 sqm last year and we've already had 110,000 sqm now and it's looking like we will have 350,000 maybe 375,000 sqm of activity this year, and you have 400,000 sqm of product coming online. The vacancy rates will rise, that's for sure, but the problem wont be the new buildings. The problem will be in the older ones. Secondary buildings will bring down rents to keep tenants; there will be a bloodbath at R8/9 [per sqm]. But I'm quite bullish about [prime office space]."
So the office battlefield will not be in the prime-space but in the A-minus and B category. "I think there is going to be a lot of competition next year for the secondary buildings. But where I think there wont be a lot of competition is with buildings such as Metropolitan [where Colliers has recently chosen to relocate] and Saski, where effective rents are now increasing. [Landlords] are no longer that desperate and a lot of developers are quietly bullish," says Dean.
Many tenants are no longer exclusively looking at rents, according to Dean. "They are not so focused on headline rents but are looking for flexible solutions in the future. Expansion is the big word. [Now] our job is ... how can we get the most efficient space so our client can grow their business.
"Warsaw is a boom bust city, it has that energy about it, it's London, Frankfurt, New York, it's not Paris. You have four years up and three years down, and we are starting on the four years up," says Dean.
