According to a report published by Newmark Polska, during the first three months of 2023, occupier demand on Poland’s regional city office markets remained strong amid increasing office availability and a further drop of development activity. The markets continue to adapt to the new standard created by the rise of the hybrid working model and the growing focus on flexibility in office layouts and uses.
At the end of the first quarter of 2023, the combined office stock of Poland’s eight largest regional city markets (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) was close to 6.5 million sqm. With over 68,000 sqm of office deliveries in the three months to March, the regional cities increased their lead over Warsaw, which has 6.26 million sqm of office space. The first three months of 2023 saw four office completions: two in Kraków (Ocean Office Park B and Fabryczna Office Park B5), one in Tricity (Officer) and one in Wrocław (Centrum Południe 3).
The first quarter of 2023 witnessed a further decrease in the developer's activity with around 530,000 sqm under construction, down by over 8% since the fourth quarter of 2022.
“This trough - despite still relatively strong leasing activity - is due to the substantial share of lease renewals and renegotiations in the total transaction volume and large volumes of ready-to-occupy office space available in buildings completed in the last five years (close to 420,000 sqm, which accounts for almost 41% of the total vacant space in the regional cities)”, says Anna Szymańska, Head of the Office Department at Newmark Polska.
Total office take-up on the core regional markets in the first quarter of 2023 climbed to nearly 175,000 sqm and was comparable to the leasing volume recorded in the last quarter of 2022 (up by 0.2%), but was over 13% higher than in the first quarter of 2022. Regarding occupier activity, the past quarter lagged behind only the first quarters of 2020 and 2017, which saw 213,700 sqm and 178,500 sqm transacted, respectively. In January-March 2023 there was only one lease signed over 10,000 sqm in the regional cities, with all the other deals being agreed for under 5,001 sqm of office space. The sectors that generated the most demand were IT and manufacturing, which accounted for 25% and 13% of the total take-up, respectively. Logistics came third with 7%.
Broken down by transaction type, new leases accounted for 45.7% of all deals agreed in the first quarter of 2023, with renegotiations and renewals having a similar share (43.8%). The remaining 10.5% came from expansions (6.5%), owner-occupier transactions (2.8%) and pre-lets (1.1%). Renegotiations and renewals saw their share of the total take-up increase from 40% in the fourth quarter of 2022 while the proportion of pre-lets was down from 7.6% in the fourth quarter of 2022.
At the end of the first quarter of 2023, the overall vacancy rate on the core regional office markets stood at 15.9%, up by 0.6 pp since the fourth quarter of 2022 and by 0.4 pp compared to the first quarter of 2022. Upward movements in vacancies were reported in five markets (Kraków, Wrocław, Poznań, Szczecin and Lublin). Vacancy rates edged down in Łódź and Tricity while Katowice saw no change in vacancies. The combined office availability on the eight key regional markets rose to a record high of over one million square metres.
“With office availability still high in both existing buildings and projects under construction, rental rates hold firm and are expected to remain flat in the coming quarters. That said, landlords of office buildings featuring modern technology and ESG solutions are unlikely to give ground in rent negotiations”, says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.
