Katowice leads the way for office development

In Q1 2022, new supply in regional city office markets amounted to more than 243,000 sqm in 16 projects, 48% of which was delivered in Katowice. The largest office completions included two office buildings in Katowice: TDJ Estate’s .KTW II (39,900 sqm) and Cavatina’s Global Office Park A1 and A2 (27,300 sqm and  29,900 sqm, respectively); Echo Investment’s Midpoint71 in Wrocław (36,200 sqm) and Torus’ Format in Gdansk (16,000 sqm).

Warsaw’s new supply in Q1 2022 came to close to 94,000 sqm delivered across five office projects, the largest being HB Reavis’ Forest Tower (51,500 sqm), Yareal’s Lixa C (19,400 sqm) and PHN’s Skysawa I (8,500 sqm).

The development pipeline in Poland’s largest city office markets stands at approximately 685,000 sqm. Most projects underway are expected to be completed in the next two years.

“Development activity has been subdued since the beginning of the pandemic as developers remain cautious about commencing new projects. This is largely due to uncertainty around the impact of the Russian invasion of Ukraine on the Polish economy, with the office market experiencing a significant rise in office construction and fit-out costs. Given the stock under construction, we expect a limited number of new projects coming onto the market in 2023-2025,” comments Katarzyna Lipka, Head of Consulting & Research, Cushman & Wakefield.

A rebound in leasing activity

Office take-up in the first three months of 2022 hit 426,600 sqm, representing an uplift of 37% year-on-year. Of that total, most were transacted in Warsaw and were for large offices.

Take-up by transaction type was similar to that seen pre-pandemic: new leases accounted for 65% of the leasing volume, while renewals made up 25% and the share of expansions was back at 10%.

The largest office lettings of the first quarter of 2022 in Warsaw saw PKO BP pre-let 34,500 sqm in Skysawa I & II and ING Bank expand and renegotiate its lease for 23,500 sqm in Plac Unii. The two biggest deals in regional cities were new leases signed in Katowice by PWC for 12,900 sqm in .KTW II and by Keywords Studios for 9,300 sqm in Global Office Park A1.

Overall vacancy rate is not falling

Despite the increased occupier demand, high new supply levels pushed Poland’s overall vacancy rate up to 13.8%. Warsaw’s vacancy rate edged down to 12.2%, marking the first fall since the beginning of the pandemic, while regional city markets saw their vacancy rates rise to 15.5%.

Rents under upward pressure

Office rents have come under upward pressure due to the uncertain geopolitical situation and rising construction and fit-out costs. In Q1 2022, prime office rents stood at €23.00–25.00/sqm/month in Warsaw and at €12.5–15.5/sqm/month in regional cities.

“Looking ahead, we expect rising costs to continue to put upward pressure on both headline and effective rents, further fuelled by the gradually shrinking availability of office space in prime locations and buildings,” adds Jan Szulborski, Senior Consultant, Consulting & Research, Cushman & Wakefield.