In 2020, office take-up hit its lowest level in ten years amid pandemic headwinds despite the largest-ever single lease contract signed to date and one of the highest volumes of new office space coming onto the Warsaw market on record, says real estate advisory firm Savills. Rents remained resilient and the overall vacancy rate is still below the levels last seen during the previous supply peak five years ago.
According to the latest report from Savills, 314,000 sqm of new office space came on stream in 2020, bringing Warsaw’s total office stock to 5.9 million sqm. This marks the second-highest annual supply in the history of the city, following the previous peak in 2016. Office completions in the vicinity of Daszyńskiego Roundabout accounted for approximately half of that total. 2020 was also a year of large-scale projects as this high volume of office space was delivered across 12 projects only, the largest being The Warsaw HUB, buildings B and C (88,900 sqm), Mennica Legacy Tower (47,900 sqm, the tower), and Varso I and II (46,600 sqm). At the end of December 2020, the development pipeline comprised approximately 559,000 sqm (including Skyliner, completed in January 2021), the lowest figure in ten years. More than 90 percent were in projects that broke ground in the pre-pandemic environment.
According to Savills data, Warsaw’s office take-up climbed to 602,000 sqm in 2020, representing a 31 pp decrease y/y and the lowest volume since 2011. Despite the increased caution being seen in the market due to the pandemic, many tenants decided to upsize their offices. The proportion of expansions rose from 6.5 percent in 2019 to 8.7 percent in 2020.
As expected, in the aftermath of the pandemic, the share of renegotiations increased in the second half of 2020, but contrary to some fears the leasing activity was not dominated by lease extensions. Office lease renewals were almost as frequent as relocations during the past 12 months, with extensions accounting for 37 percent of all deals, up by just 3 pp compared to the previous year.
“Occupier activity was understandably more subdued on the Warsaw office market in 2020 compared to the previous year due to the challenges facing companies during the pandemic. With office take-up at more than 600,000 sq m, the market did not come to a complete halt by any means. New leases, including pre-lets, accounted for a vast majority of the leasing volume. Many tenants put office decisions on hold, but cannot delay them indefinitely. In 2021, companies will increasingly focus on where and how they want their employees to work,” Daniel Czarnecki, Head of Landlord Representation, Office Agency, Savills, said.