Fewer office completions but more deals

Poland’s office development pipeline has shrunk considerably over the last three years. Although construction activity has bounced back to a degree with a handful of projects breaking ground, the downturn trend in office development continues both in the capital and in regional cities. In Warsaw there is approximately 235,000 sq m under way while office stock under construction in regional cities stands at around 310,000 sq m. The slowdown in development activity is due to high office construction and fit-out costs and the overall economic downturn in Poland and globally,

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

New office supply on regional city markets is expected to total 305,000 sq m, more than 25% below the five-year average, with regional cities likely to experience a supply slowdown in 2024, about a year later than the Warsaw market,

comments Vitalii Arkhypenko, Office Market Expert, Cushman & Wakefield.

Total leasing activity in Warsaw for the first three quarters of 2023 reached nearly 497,600 sq m, down by 18% from the same time in 2022. However, the number of office lease deals hit an all-time high and was up by 6% year-on-year and by 10% compared with 2019,

adds Jan Szulborski, Office Market Expert, Cushman & Wakefield.

Nominal leasing activity was stronger in regional cities - it hit just under 532,000 sq m, up by 19% year-on-year and by 3% compared with the same time in 2019. New leases accounted for 59% of the office leasing volume while renegotiations and expansions made up 35% and 6% respectively. As before, take-up in regional cities predominantly came from the IT and business services sectors. Absorption for regional cities (an indication of a real increase in overall office occupancy) was relatively low - it stood at around 75,500 sq m, the lowest in 13 years. This shows that despite a large volume of transactions, leasing activity largely focused around tenant rotation in currently leased offices and lease renegotiations, with few office expansions. Regional cities are seeing the structure of leases change over time, which in the long term will create value for investors seeking to acquire commercialised assets,

comments Michał Galimski, Partner, Head of Regional Markets, Cushman & Wakefield.

Only a few buildings in regional cities are likely to see rental levels exceed EUR 16.50 per sq m. These will first include office buildings in Krakow, in the vicinity of the Main Railway Station. While rental growth is expected to gradually gather pace for prime offices, locations that have been falling out of favour with tenants since 2020 are unlikely to be re-commercialised despite aggressive rent cuts. Fortunately, such locations are widely dispersed on the regional markets,  

concludes Michał Galimski, Partner, Head of Regional Markets, Cushman & Wakefield.