Office development activity in Warsaw slows down sharply

Given the volume of office space expected to come onto the market in the fourth quarter, 2023’s total development activity will fall to its lowest in nearly 25 years. This slowdown has been caused, among other things, by a decline in the number of new projects breaking ground due to subdued occupier demand for office space in the years 2020-2021 and rising financing, construction and fit-out costs. Looking ahead, we expect the number of new starts will remain relatively small in the coming years, with the supply gap likely to last until 2025,

says Ewa Derlatka-Chilewicz, Head of Research, Cushman & Wakefield.

In the period between January and September 2023, the Warsaw office market saw a record number of 593 transactions take place, up by 6% year-on-year and by 10% compared to the office take-up in the peak year of 2019. The structure of demand in the first three quarters of 2023 was dominated by relocations which accounted for approximately 58% of all deals. Renegotiations and expansions made up 38% and 4% of the leasing activity respectively,

comments Jan Szulborski, Market Analyst, Cushman & Wakefield.

In our opinion, the limited office supply scheduled for completion in 2023-2025 will push vacancy rates further down, enabling the Warsaw market to absorb the office space surplus of 2020-2022 over the coming quarters. The pace of decline in office availability will, however, depend on the attractiveness of individual locations,

adds Jan Szulborski.

Cushman & Wakefield has observed that projects underway are experiencing the strongest upward pressure on rents due to their significant exposure to rising construction and fit-out costs. The pricing policy of landlords for existing office stock will largely depend on such factors as the location, age, quality and occupancy levels of their buildings,

concludes Grzegorz Dyląg, Partner, Head of Asset Services Business Space, Asset Services EMEA, Cushman & Wakefield.