Q1 2024 on the Polish office market brings no surprises

22 May 2024

Global real estate services firm Cushman & Wakefield has summarized Q1 2024 on the Polish office market. Lease renewals accounted for a large proportion of take-up in regional cities amid an improvement in office availability and a slight increase in the volume of physically occupied space, latest figures show.

SUPPLY: APPROX. 40% OF THE DEVELOPMENT PIPELINE SCHEDULED FOR COMPLETION IN 2024 WAS DELIVERED IN Q1; LOW SUPPLY LEVELS EXPECTED TO CONTINUE UNTIL THE END OF 2026

At the end of the first quarter of 2024, the combined office stock of Poland’s largest markets amounted to approximately 12.95 million sq m.

New supply reached just under 80,000 sq m and was delivered in Warsaw, Wrocław and Krakow only. This marks a continuation of the downward trend in new deliveries observed in the last three years. Although a handful of office projects have broken ground, development activity remains subdued. In regional cities there is approximately 225,000 sq m of new office space under construction, down from the pre-pandemic 850,000 sq m,

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

The largest office completions of the first quarter were Cavatina Holding’s Quorum Office Park A in Wrocław (18,200 sq m), Yareal’s Lixa E in Warsaw (16,900 sq m), the refurbishment of CA IMMO’s Saski Crescent in Warsaw (15,500 sq m) and Echo Investment’s Brain Park C in Krakow (13,000 sq m).

Cushman & Wakefield estimates that approximately 210,000 sq m of new office space will be delivered onto the Polish market by the end of this year, followed by another 240,000 sq m in 2025. Higher supply levels are unlikely to be seen until after 2026,

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

DEMAND – LEASING ACTIVITY DOWN, BUT OFFICE ABSORPTION SLIGHTLY UP

In the first quarter of 2024, total take-up in Poland’s key office markets reached nearly 280,000 sq m, almost half of which (more than 139,000 sq m) was transacted in Warsaw, signifying a fall of 11% year-on-year, but a 4% increase in deal count. It is worth noting that leasing activity in the last 18 months was largely driven by a trend towards optimizing and downsizing office footprints.

The structure of demand was dominated in Warsaw in the three months to March 2024 by new leases which accounted for approximately 54% of all deals. Renegotiations and expansions made up 36% and around 10% respectively.

Leasing activity in regional cities amounted to 140,000 sq m, down by 17% from the first quarter of 2023. Take-up for the January-March period predominantly came from the IT, manufacturing and service sectors. However, in contrast to Warsaw, new leases in regional cities accounted for the largest share of take-up at 48% of the total, with renewals and expansions contributing 47% and 5% respectively. Absorption remained slightly positive, indicating another increase in physically occupied office space,

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

VACANCY RATES EDGE UP WHILE RENTS HOLD FIRM

At the end of the first quarter of 2024, Poland’s overall vacancy rate was 14.5%, up by 0.4 pp over the fourth quarter of 2023 and by 0.7 pp year-on-year. Warsaw’s vacancy ratio stood at 11%, up by 0.6 pp compared to where it was in the previous quarter.

Most regional cities also saw upward movements in vacancy rates, with notable exceptions being Katowice and Poznań, which reported falls of 1.0 pp and 0.6 pp respectively. The average regional city vacancy rate was 17.8%. Office availability in all the surveyed markets amounted to 1.88 million sq m, representing a 7% increase compared with early 2023,

explains Vitalii Arkhypenko, Analyst, Cushman & Wakefield.

In the first quarter of 2024, prime office rents in Warsaw stood at EUR 22.00-26.00/sq m/month in the Centre and at EUR 13.50-16.50/sq m/month in non-central locations.

Average prime office rents in central locations in regional cities were EUR 12.50-16.50/sq m/month, with new office buildings in prime locations commanding above average rental rates. Elevated office construction, fit-out and development financing costs continue to significantly impact rental rates in projects underway,

concludes Vitalii Arkhypenko, Analyst, Cushman & Wakefield.

Karolina Samczyńska

Head of Marketing and Sales Enablement, Poland at Cushman & Wakefield

Magdalena Znyk-Ossowska

Senior Consultant at Linkleaders

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