According to Savills latest research, over 5.7 million sqm of new office space will be completed in Europe in 2022, of which 49% is currently pre-let. In Warsaw, Savills forecasts that a rebound in demand and an undersupply of new office stock will translate into visibly shrinking availability.
A further 5.1 million sqm of space is scheduled for 2023, of which 23% is already pre-let. In total over the next two years, this marks a 43% increase per annum on the average level of completions over the previous five years. However, rising construction costs, as well as shortages of materials and labour, are adding pressure to supply chains and delaying some office completions. Furthermore, they are impacting fit-out costs in some countries in Europe.
In terms of quantum of space, Berlin (1.8 million sqm) and Munich (1.0 million sqm) have the highest development pipelines in Europe by end of next year, according to the international real estate advisor. Barcelona (8.3%), Dublin (7.7%), Budapest (7.3%) and Berlin (5.6%) are seeing the highest proportions of speculative development as a proportion of existing stock by the end of 2023.
Mike Barnes, Associate Director, Savills Commercial Research, comments: “Occupiers’ appetite for new, energy-efficient space continues to grow in order to meet self-imposed 2030 carbon emissions targets. Rising energy prices will further accelerate the demand for more energy-efficient office buildings. Overall, we anticipate European office take-up to rise to circa 9m sqm in 2022 and maintain pace in 2023.”
Christina Sigliano, Savills EMEA Head of Occupier Services, says: “The next big question comes with what happens to secondary office stock amid obsolescence risk and how much landlords are willing to invest to ensure their buildings are still lettable. According to our research, the average cost of raising an office’s EPC rating from Grade D to Grade B stands at circa €500 per sqm. As a result, we anticipate the gap between prime and secondary rents to increase, creating new opportunities for developers to asset-manage older assets to achieve rental uplift.”
Office leasing activity in Warsaw amounted to 273,200 sqm in the three months to March, one of the best-performing quarters in the history of the capital. At the end of March 2022, there was 323,800 sqm of modern office space under construction. Occupier activity in recent months was largely driven by the public sector as well as financial services and IT companies which accounted for 42% of the total office take-up in Warsaw.
Karol Grejbus, Associate Director, Tenant Representation, Office Agency, Savills Poland, comments: “Rising construction and fit-out costs and a rise in utility charges are some of the challenges facing the Polish office market. At the same time, more and more employees are returning to the office and companies are resuming lease decision-making and looking for a head office for years ahead. Despite the Covid-19 pandemic, which affected the pace of growth of the office market, developers in Warsaw are gradually trying to return to their pre-pandemic levels of activity. The Warsaw Municipality issued six planning permissions between January and December 2021. And more importantly, seven new applications were received by the Warsaw City Hall during that time. It is a positive sign but a dearth of new supply is expected to continue until such projects are delivered and companies seeking larger offices, in excess of 5,000 sqm, will also have to consider older buildings in non-central locations”.
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