According to a report published by Newmark Polska, 2023 on the Warsaw office market was a year of stable occupier demand, moderate development activity and continued adaptation of tenants to evolving work patterns. Other notable factors impacting the capital’s market included the growing demand for sustainable and high-tech offices, which in turn led to an increase in refurbishment projects.
At the end of Q4 2023, Warsaw’s total office stock reached 6.23 million sqm. In the whole of 2023 just under 61,000 sqm of new office space came on stream, marking the lowest new supply in the history of the Warsaw office market. Of that total, 67% was delivered during the fourth quarter, which saw the two largest office completions of 2023: Lakeside (22,700 sqm, Mokotów) and Studio B (17,900 sqm, City Centre West).
Development activity in Warsaw continued at a moderate level. Such factors as protracted decision-making procedures, tenants’ focus on savings and high construction costs forced developers to revise their plans for the coming years, with pre-lets being a precondition for launching new projects this year.
“At the end of December 2023, Warsaw’s development activity stood at just under 281,000 sqm, of which nearly 46,000 sqm was in buildings under refurbishment. Office landlords are likely to be driven to upgrade office buildings by the growing occupier demand for offices featuring technological and environmental solutions that improve energy efficiency or cost optimisation and support the ESG agenda", says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.
Last year, leasing activity hit its highest in the fourth quarter, which saw more than 255,600 sqm transacted, accounting for 34% of 2023’s total. The combined gross take-up for 2023 amounted to nearly 749,000 sqm, a year-on-year decrease of just under 13%.
“Occupier activity continued to focus on central office locations, especially City Centre West, where close to 167,800 sqm was leased. Last year, the most active tenants on the Warsaw office market were companies from such sectors as business services (19.2%), manufacturing (14.3%) and IT (10.9%). The adoption of hybrid working patterns resulted in office leases shrinking on average by 20-30%. This trend is expected to carry into this year”, says Anna Szymańska, Head of the Office Department at Newmark Polska.
In 2023, as in the prior year, lease regearing and renewing activity continued unabated, with renegotiations and renewals accounting for 42.7% of last year’s total take-up although their share hit the highest of 49% during the fourth quarter. This indicates that renegotiations are being ever more frequently seen as an economical solution that helps tenants both downsize and adapt their offices to their current needs. The remaining 57.3% was spread across new leases (41.9%), pre-lets (8.6%), expansions (3.9%) and owner-occupier transactions (2.9%).
At the end of December 2023, Warsaw’s vacancy rate was 10.4%, down by 0.2 pp over the quarter and by 1.2 pp year-on-year. The sharpest annual falls in vacancies were recorded in Mokotów (-6.2 pp, excluding Służewiec), the CBD (-4.8 pp), with the biggest growth of 3.3 pp reported for Ursynów and Wilanów. The overall office vacancy rate is expected to continue its downward trend throughout 2024, especially in the most sought-after locations.
Prime office rents stand at €22-26/sqm/month in the city centre and €16-18/sqm/month in non-central locations. Stable demand for prime offices offering smart and ESG solutions continues to place upward pressure on rental rates while older office buildings are increasingly having to compete on price.
