Despite previous apprehensions about a potential overheating of the office property market in central Warsaw, the possible emergence of a supply gap is now actually being reported. BY ADAM ZDRODOWSKI
The office property market in downtown Warsaw continues to be in full swing, with very high supply and demand volumes being recorded in the Central Business District and the City Center area surrounding it (including the fast-growing Rondo Daszyńskiego neighborhood). A number of very big office projects are now under construction in central locations in the Polish capital, with several more expected to be launched in the coming years. In spite of the sizable supply, tenants with large office requirements are finding it difficult to secure space.
In total, 765,000 sqm of new office space is set to be completed in the Central Business District and the City Center West zone (covering the part of the Wola district that lies closest to the CBD) by 2021, according to Savills. The biggest ongoing developments include Varso (HB Reavis, over 100,000 sqm), The Warsaw Hub (Ghelamco Poland, almost 80,000 sqm) and Mennica Legacy Tower (Golub GetHouse and Mennica Polska, approximately 60,000 sqm).
Ghelamco Poland is preparing to launch an office skyscraper project called Spinnaker at Rondo Daszyńskiego (see interview on page 68), while Skanska continues to develop its Generation Park scheme (a total of around 84,000 sqm of GLA in three phases) there. The latter developer has very ambitious plans for the near future when it comes to the office property market in central Warsaw. Skanska has recently begun demolishing an existing low-rise building located at Rondo ONZ which it is expected to replace with a taller structure.
The company also wants to build a taller tower on the site of the Ilmet office skyscraper in the same location. Last but not least, Skanska’s portfolio includes the former Impexmetal site located between Rondo ONZ and Rondo Daszyńskiego, which can house high-rise buildings. Exactly when those projects will be launched is not yet known. Regional director Krzysztof Wilczek said that the company does not bow to the pressure to build more space because of the activeness of its competition and continues to analyze the market situation very carefully.
He stressed that Skanska is in a convenient situation as it does not need to depend on external partners for financing and construction services – both are available within the group. “Due to this, we are able to react to opportunities appearing in the lease market more quickly,” he said. This ability currently seems to be of crucial importance as more and more companies are interested in leasing space in central locations, and large vacant areas in recently completed or nearly ready buildings are hard to come by.
In the opinion of Jacek Wachowicz, CEO at Immobel Poland, we are now witnessing a marked change in tenants’ preferences with regard to choosing locations, with convenient access to public transportation having the most influence on their choices. “By all indications, the trend is going to continue,” Wachowicz said. His company is currently developing the Central Point high-rise project at the intersection of ul. Marszałkowska and ul. Świętokrzyska, which will comprise 18,000 sqm of office space and should be ready in 2020.
Wilczek, too, maintained that new, well-located buildings are now filling up with tenants without any difficulty. Despite repeated forecasts of an imminent market crash, the strong demand for office space has continued. Indeed, according to JLL data, a total of more than 200,000 sqm was leased in the broadly understood city center of Warsaw in the first half of this year. This accounts for nearly 50 percent of the total amount of office space leased in the Polish capital in that period.
The planned projects will certainly not hit the market until 2020 as the process of obtaining administrative permits and the process of construction take more than two years, noted Daniel Czarnecki, head of landlord representation, office agency, at Savills. “In 2018 and at the beginning of 2019, no new schemes will be completed in this part of Warsaw,” Czarnecki said. Meanwhile, his company has had many enquiries from potential tenants interested in leasing office space in new developments in this period.
This situation has been leading the vacancy rate in central Warsaw to go down – at the end of H1 2018, it stood at 7.9 percent (which is the lowest level since 2012) and was much lower than the average vacancy rate for the entire city (11.1 percent), according to JLL data. In practice, this means that tenants looking for large office areas, sized more than 3,000 sqm, have little to choose from. Czarnecki revealed that in central locations the same office area is now often the subject of several negotiation processes – first come, first served.
The volume of new office space expected to be built in the CBD and Warsaw City West areas over the next three years may be impressive, but it will be delivered gradually, with 139,000 sqm, 391,000 sqm and 217,000 sqm set to be completed in 2019, 2020 and 2021 respectively. Considering the fact that part of the space scheduled for completion in 2019-2021 – some 82,000 sqm – has already been pre-leased, developers should not have any reason to worry about deciding to start new projects, Czarnecki argued.
Also, Mateusz Polkowski, head of research and consultancy at JLL, pointed out that Warsaw is one of the most absorptive markets in Europe, so the volume of new space should not affect the balance between supply and demand. At the end of 2017, occupancy of modern office space across the Polish capital was up by 360,000 sqm on the previous year. This was the second best – after Paris with its 440,000-sqm y/y difference – absorption result among all European cities.
