According to a recent report by BNP Paribas Real Estate Poland, Kraków and Wrocław are at the lead of cities with the highest volume of new office supply for 2018 in Poland. The two markets hold 59% of the new space completed and delivered in the eight key regional cities and account for more than half of the net take-up generated last year.
A total of more than 511,000 sqm of modern office space was completed and delivered on the eight key regional markets in 2018. Kraków (155,200 sqm) and Wrocław (146,600 sqm) take the lead here and the two cities are set to strengthen their leading position amongst the regions in the nearest future even further. According to the BNP Paribas Real Estate Poland report, there are currently approx. 80 schemes with the total area of 860,000 sqm under construction, more than half of which is located in Kraków and Wrocław. This means that yet again regional cities will be ahead of Warsaw in terms of the volume of space under construction.
Interestingly, the largest office schemes of 2018 were developed in Tricity as opposed to the capital city of either Lower Silesia or Małopolska. Gdańsk saw the delivery of two new buildings within the Olivia Business Centre scheme: Olivia Star (45,700 sqm) and Olivia Prime A (28,000 sqm). The Tricity market will grow with the addition of further projects over the coming quarters as approx. 130,000 sqm is now under construction there. The largest schemes completed in Wrocław were Sagittarius (24,900 sqm) and Retro Office House (18,150 sqm), while in Kraków it was Equal Business Park C (23,500 sqm) and O3 Business Campus III (19,200 sqm). Large schemes were also completed on smaller markets, such as Ogrodowa 8 in Łódź (24,700 sqm), Spokojna 2 in Lublin (18,500 sqm) and KTW I in Katowice (18,200 sqm). Experts have been noticing the strengthening trend to develop larger office schemes for a while now.
“Projects with the area of more than 15,000 – 20,000 sqm – and sometimes even as much as 30,000 sqm – developed within one phase account for more than half of the current stock under construction. The favourable situation on the market encourages developers to invest on a greater scale than before,” says Patrycja Dzikowska at BNP Paribas Real Estate Poland.
Demand continues to grow, regions are becoming an interesting alternative for Warsaw
Total net take-up of office space in regional cities recorded in 2018 stood at 451,000 sqm, of which more than ¼ was attracted by buildings still under construction (the so-called pre-let agreements). In terms of geography, the highest demand for office space, i.e. more than 50%, was generated by Wrocław and Kraków. The high level of take-up recorded on the two markets resulted from significant interest on the part of businesses from the finance and investment as well as technology sectors (such as BPO/SSC /IT/R&D operators).
“More businesses are nowadays taking the decision to open a second – after Warsaw – location in the regions to place those operations there that do not have to be run in the capital. Another reason is the highly educated workforce and – despite the continued upward movement – the still competitive costs of employing and retaining those employees. Additionally, attractive headline rents, lower than those recorded in Warsaw, are of considerable significance here,” adds Małgorzata Fibakiewicz.
Rental levels for prime schemes in Kraków, Wrocław and Poznań amount to €15/sqm/month, while in Warsaw rents for the most prestigious locations start at €21.50/sqm/month. Lublin has the lowest rents for prime locations amongst the markets analysed, with an average of €11-13/sqm/month.
Gradually less vacant space
The growing demand for office space led to a drop in the vacancy rate, which at the end of 2018 stood at 8.4%. Importantly, even the cities with a high volume of new supply succeeded in retaining the vacancy rate recorded previously, while in some cases it was actually brought down to a level similar to the market average (Kraków – 8.6%, Wrocław – approx. 9%). This means that new space, despite the high volume completed, was quickly absorbed by the market. The highest drops were recorded on markets with currently the lowest and highest vacancy rate, i.e. Szczecin – drop by 4.9 p.p. down to 5.1%, and Lublin – drop by 4.3 p.p. down to 15.4%.