Yields and vacancies take a hammering
According to the latest data from the Warsaw Research Forum (WRF), 2005 was another record year on the Warsaw office market.
Market activity was up to 373,000 sqm, a massive increase over 2004's figure of 300,000. Of this, more than seven percent was for owner-occupier deals, and renegotiations accounted for 23 percent.
The Warsaw Research Forum is made up specialists and analysts from five real-estate companies: CB Richard Ellis, Cushman & Wakefield Healey & Baker, DTZ Zadelhoff Tie Leung, Jones Lang LaSalle and Colliers International. According to the WRF, total stock on the market now stands at 2.374 million sqm, with 120,200 sqm in 30 office buildings delivered to the market last year. Only six of these projects were located in the city center, and came to 28,900 sqm, with supply remaining tight, while completions in non-central locations have continued their growth, and last year made up 91,300 sqm.
Few gaps in the market
Vacancy as a whole took a tumble, and for Warsaw it now stands at 8.2 percent, down from 12.4 percent last year. The main reason for this is a sharp fall in vacancies in the city center; at the end of 2004, it was 18.9 percent, and it is now down to 12.5 percent. Non-central locations looks busier. In 2004, the vacancy outside the center was 6.7 percent, and this has slipped to 5.5 percent.
However, yields in the capital are under severe pressure, according to a recent report from Knight Frank (KF), and have fallen below seven percent for prime office. Yields on transactions currently under negotiation are expected to further decrease, and could hit six percent. This could mean investors will turn back to the traditional property investment markets in Western Europe.
KF says that 47 percent of the capital's office market is located in the Central Business District (CBD). There is some 247,000 sqm currently under construction, mostly in non-central locations.
Rent-book blues
WRF has yet to reveal its rental figures, but KF reckons that asking rents have dropped by EUR 2 (zł.7.65) per sqm per month excluding VAT. This puts rental levels at "14-18 (zł.54-69) per sqm per month in high-quality schemes in the city center and EUR 10-14 (zł.38-54) in other locations. Net effective rents are five to 15 percent lower, regardless of location. Landlords are still offering incentives, but not as aggressively as in the past.
The introduction of Rondo 1 and Lumen in Złoty Tarasy also brought some turbulence to the city-center market.
Escape from the capital
Investors are also starting to look beyond the capital in search of sound office investments, according to KF.
Kraków saw a limited supply of new space come on the market, but demand remained strong, which forced down the vacancy rate. Some 4,900 sqm came on-stream, increasing the overall stock by just four percent to 120,000. However, supply is set to increase this year, with five projects already underway.
Vacancy in Kraków tumbled by 13 percent in 2005, according to KF, and now only seven percent of the city's office stock is standing empty. Take-up was very strong and hit 15,000 sqm.
Despite this, rents remained stable. Asking rents are at "13-16 (zł.50-61) per sqm per month in prime buildings with effective rates EUR 1-2 (zł.3.82-7.65) less.
No room at the inn
Wrocław is enjoying the lowest office vacancy rate in the country, with demand ahead of supply. Many developers have now secured sites for development and are in the process of getting building permits.
Total modern office stock is around 108,000 sqm, with about 5,000 sqm introduced last year. Vacancy fell from five percent to just one percent, and developers are now forming a queue outside the city. Many old buildings are also being renovated and upgraded to meet the surge in demand for office space. Prime rents have stabilized at around EUR 11-13 (zł.42-50) per sqm per month, with few if any incentives on offer from landlords.
Steady as she goes
Little has changed on the Poznań market since 2003. No new space has been delivered, the vacancy rate is decreasing and rents are stable.
Of the 121,000 sqm in the city, 77,000 sqm is in the city center, says KF. In 2003, vacancy was at 34 percent, but this has since dropped to a more reasonable 15 percent. Prime asking rents remain at EUR 12-14 (zł.46-54) per sqm per month, while net effective rents are at EUR 10-12 (zł.38-46). The rapid decrease in vacancy has led to many landlords withdrawing incentives for tenants.
In Katowice, the majority of modern office stock is owned by banks or financial institutions. Before 2000, no high-quality office space was built in the city, but there was a small building boom until 2004. Last year, only 4,000 sqm was delivered, but a growth in demand means there should be more than 11,000 sqm delivered this year. Vacancy is estimated at 16 percent, which is a year-on-year fall of four percent. Prime asking rents are at EUR 10-15 (zł.38-57) per sqm per month, with effective rents around EUR 1-2 (zł.3.82-7.65) lower.
