Total demand for office space on regional markets in the first half of the year was similar to last year’s level, but there were more vacant offices in all major markets, except Warsaw. Warsaw recorded a 30 percent decrease in demand for offices, and yet the vacancy rate decreased. Only a few office projects are being implemented across Poland, says Walter Herz.
"The unstable economic situation in the country and around the world, high costs of construction and financing of projects, as well as the growing level of vacancies on the office market in Poland mean that investments have slowed down and developers are still limiting their activities. Most offices in regional markets are under construction in Wroclaw and Cracow. In total, half as much space is under construction in the regions, compared to the period before the pandemic. Outside Warsaw, tenant activity remained similar to last year’s level. Total rental volume on regional office markets reached a slightly lower value than in the first half of 2022", says Mateusz Strzelecki, partner and head of Tenant Representation at Walter Herz.
Łódź with the largest number of vacant offices
In the first half of 2023, the resources of the Łódź office market increased by 1.9 thousand sqm of space, provided by the office building constructed in Fuzja complex. At the end of June, the Łódź office market included over 635 thousand sqm of space. Over 46 thousand sqm are under construction, most of which will be completed in 2024. Among others, Widzewska Manufaktura, which will offer 32 thousand sqm of offices and the next stage of Fuzja project are currently underway.
The absorption capacity of the Łódź market remains stable. In the first 6 months of this year, 30.8 thousand sqm were leased by tenants. Despite a small new supply, the vacancy rate in Łódź increased to over 23 per cent and remains at the highest level on the nationwide market.
The Tricity on the podium
Office space in the Tricity offers over 1 million sqm of modern space. In the first half of this year, less than 7 thousand sqm emerged on the Tricity market, including Officer and Matarnia Office Park building 2. Approximately 66 thousand sqm of space is under construction, including the Waterfront II project with 15 thousand sqm of space and Point with 12.5 thousand sqm of offices that will be completed next year.
In terms of demand, the Tricity remains at the regional forefront, behind Kraków and Wrocław. The rental volume on the Tricity market amounted to 68.6 thousand sqm in the first half of this year, which is one-fifth of the space rented on regional markets at that time.
There was a slight increase in vacant space. Mid-year the vacancy rate in the Tricity amounted to 14.3 per cent.
Poznań with the largest new supply in Poland
In Poznań, projects commissioned this year brought the city 32.4 thousand sqm of modern office space. It allowed the Poznań market to achieve the best result in terms of the new supply increase in Poland.
The office space in the capital of Greater Poland amounts to 650 thousand sqm of space. This year, three projects entered the market: Nowy Rynek E with 25.1 thousand sqm of space, Pollux building with 3.8 thousand sqm and Mercator D offering 3.5 thousand sqm. 54 thousand sqm of office space is still under construction. The largest project underway is Andersia Silver, with 40 thousand sqm of space under construction. Moreover, Tetos is implementing an investment at Pastelowa Street for the company’s own needs.
In the first half of this year, one-fifth fewer offices were sold to tenants than in the same period last year. 21.8 thousand sqm of space was leased. Due to the relatively large new supply on the Poznan market, the vacancy rate has increased slightly and now remains stable at 12.7 per cent.
Office space in Katowice without new supply
Katowice remains one of the fastest-growing office markets in the regions. Mid-year, over 100 thousand sqm of space was under construction on the Katowice market, one-third of which is to be delivered by the end of this year. Among the projects currently under construction there are the Craft office building with 26.7 thousand sqm of space and Eco City Katowice complex with 18 thousand sqm of offices, Murckowska office building and the Grundmann Office Park. Katowice's resources this year remained at the level of 735.5 thousand sqm because no office building was completed in the first 6 months of the year.
Tenants in Katowice are less active than developers. By mid-year, only about 25 thousand sqm of space had been leased on the Katowice market. The demand for offices in the region, generated by companies looking for modern space at a good price, dropped by over 40 per cent year-on-year. The low level of demand, even in the absence of new supply, has resulted in an increase in the vacancy rate in Katowice, which exceeds 20 per cent in the region.
Wrocław with the largest number of offices under construction in the regions
In Wrocław from January to June 2023, developers delivered 32.6 thousand sqm of office space. Among the commissioned projects there are Brama Oławska with 11.7 thousand sqm of space and another building completed in Centrum Południe complex offering 20.9 thousand sqm of space as well as Krakowska 98 office building. The office resources of the second largest regional office market in the country exceeded 1.36 million sqm mid-year and will continue to grow rapidly in the upcoming months because over 150 thousand sqm of offices is under construction in the capital of Lower Silesia. It’s the largest number among all of the regions. The developers' plans assume that most of this space will be delivered before the end of the year. Projects under construction include Infinity with 22 thousand sqm of space and two buildings in Quorum Park complex offering a total of 71 thousand sqm
Wrocław is also a regional leader in terms of demand. In the first half of this year, over 88 thousand sqm of Wroclaw offices were contracted, with new lease agreements dominating among the contracted space. The high absorption capacity of the market brought a decrease in the vacancy rate to 16 per cent in the second quarter of this year, which remains at a slightly higher level than a year ago.
Kraków ranks second on regional markets in terms of demand
Almost 40 per cent of completed space among offices delivered in the first half of the year in the regions happened to be in Kraków. About 43 thousand sqm of space was delivered in the capital of Lesser Poland, including the expansion of Ocean Office Park complex with 28.6 thousand sqm of space and Fabryczna Office Park B5. The resources of the second largest office market in Poland, after Warsaw, currently amount to 1.75 million sqm of space.
In the middle of the year, almost 100 thousand sqm of office space was under construction on the Kraków market square. Developers' activity compared to the boom years before the pandemic, when up to 300 thousand sqm of space was under construction, decreased to one-third. Among the projects currently under construction in Kraków , there are Kreo office building with 23 thousand sqm of space and Mogilska 35 offering 13.5 thousand sqm of offices.
In terms of demand, Kraków ranked behind Wroclaw in the regions. In the first half of this year, 82.5 thousand sqm of office space was contracted in Kraków with predominantly new contracts. Similarly to other regions, Kraków has increased the availability of offices. The vacancy rate has increased since the beginning of the year to over 18 per cent.
Warsaw market with fewer vacant offices
"Warsaw is the only office market that has not increased the number of office vacancies in recent months. Both demand and supply remain in relative balance in the capital. However, a trend related to the reduction of space occupied by tenants is visible. In contrast, the number of contracts concluded has not decreased compared to the pre-pandemic period. Nevertheless, companies usually leave the possibility of flexible change of the occupied space open, depending on changes in the market situation, which is reflected in the terms of the contracts. Due to the high costs of fit-out, contracts for the largest spaces require renegotiations", says Michał Porzycki, director in the Tenant Representation Department at Walter Herz.
Warsaw office market in the first half of this year, increased by only 18.7 thousand sqm of space. About 11 thousand sqm of offices was delivered in The Park Warsaw project. In addition, Wał Miedzeszyński 628 office building and Glicerynownia building in Bohema complex were completed. This year, Lakeside project offering 22.7 thousand sqm of space and the first building in Studio complex with 16.3 thousand sqm of offices are also scheduled for completion.
In the middle of the year, nearly 250 thousand sqm of offices was under construction. Developer activity is the lowest in two decades. Compared to projects implemented before the pandemic, it decreased by almost 70 per cent. Projects in progress include The Form with 30 thousand sqm of space and an office building in Towarowa 22 complex, the construction of which began this year offering 31 thousand sqm of space, as well as Upper One project with 36 thousand sqm of space, which will be built in place of the demolished Atrium International. Also, among the projects under construction there are The Bridge with 47 thousand sqm of offices, the next stage of Studio project offering 23 thousand sqm, Vibe A and B with 15 thousand sqm, Lixa - buildings D and E and Drucianka Campus with 42 thousand sqm
The plans include Adgar Park West D 3 project, The Park B8/B10, a project by Skanska on the current Ilmet plot, Spark A, Sobieski Tower, Poleczki Business Park - Stockholm, Lixa G and Diamond Business Park I/J.
In the first half of the year, 326 thousand sqm of offices was leased, one third less than a year earlier. Demand was more or less evenly distributed quarterly. According to Walter Herz, tenants are consistently most interested in spaces in modern facilities located in the city center, where the single-digit vacancy rate remains exceptionally low.
At the end of June, the vacancy rate on the Warsaw market amounted to 11.4 per cent on average and compared to the same period of the previous year, it decreased slightly. The total resources of the Warsaw office market amount to 6.28 million sqm of space.
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