In the third quarter of 2024, Poland’s regional city office markets demonstrated stability, though elevated vacancy rates remained a significant challenge, hindering development activity. The combined office stock of the eight key regional cities reached 6.73 million sqm. With 1.82 million sqm of office space, Kraków continued to lead the way, ahead of Wrocław (1.37 million sqm) and Tricity (1.06 million sqm), says BNP Paribas Real Estate.
Vacancy rate stabilisation
At the end of the third quarter of 2024, Poland’s overall vacancy rate stabilised at 17.3%, down by 0.4 pp quarter-on-quarter but largely unchanged from the figure recorded at the same time in 2023. Of all the regional cities, Łódź, Poznań and Kraków saw office availability contract the most, while Wrocław experienced an increase. The highest vacancy rate of 21.1% was reported in Łódź, while Szczecin recorded the lowest at 6.8%.
BNP Paribas Real Estate Poland notes that office availability is expected to remain high in the coming months as unoccupied office space continues to be absorbed by the regional markets over the next three to five years. Office buildings aged over 10 years are the primary contributor to high vacancy rates, accounting for more than half of the long-term vacant stock.
What is the market demand?
Total office take-up for the third quarter of 2024 reached 223,000 sqm, up by 54% over the quarter and by 13% year-on-year. The strongest leasing activity was recorded in Kraków (85,000 sqm), Wrocław (43,000 sqm) and Tricity (40,000 sqm).
“In the third quarter of 2024, office take-up in the regional cities remained on par with the record-breaking figure from the same period in 2023, signifying stability in the office rental market. The total year-to-date leasing volume surpassed 0.5 million sqm, marking a mere 4% decrease from the first three quarters of 2023. Take-up was largely driven by renewals which accounted for 53% of the transaction volume, while new leases and expansions made up 43% and 4% respectively. In the first nine months of 2024, demand came primarily from IT companies”, comments Małgorzata Fibakiewicz, Senior Director, Head of Office Agency, BNP Paribas Real Estate Poland.
The third quarter of 2024 saw several large transactions in regional cities. The largest was a lease renewal for 16,000 sqm by a confidential tenant at Kapelanka 42 A in Kraków, followed by State Street Bank’s renegotiation of its 10,000 sqm lease in Gdansk’s Alchemia II and Rossman’s lease of 8,000 sqm in Teofilów Business Park C in Łódź. In Wrocław, the biggest letting deals included lease renewals for 8,500 sqm each at Bema Plaza and Wrocław Business Park – Nowa Strzegomska. These transactions demonstrate that tenants remain active in the largest Polish regional cities.
Impact of supply on rental rates
Development activity remained subdued in the regional city office markets, with 286,000 sqm under construction and scheduled for completion in 2024-2026. The largest projects in the pipeline include Cavatina’s Quorum Office Park B in Wrocław (53,000 sqm) and Von der Heyden Group’s AND2 in Poznań (37,000 sqm). Another significant project underway is WITA (26,000 sqm), being developed in Kraków by Archicom & Echo Investment.
Despite constrained new office supply, prime office rents in regional cities remained stable in the third quarter of 2024 at EUR 11.5-18.0 per sqm per month, depending on building location and quality. Rental rates are, however, expected to come under growing pressure in the coming months due to a scarcity of new office developments and a moderate decline in vacancy rates. According to experts from BNP Paribas Real Estate Poland, longer leases for five to ten years are becoming increasingly common in new office buildings, driven by high fit-out costs. Meanwhile, older buildings tend to offer more flexible lease terms: two to five years for renewals and three to five years for new leases.
Challenges facing developers and new projects
According to a last report released by BNP Paribas Real Estate Poland, new supply in the three months to September totalled only 15,400 sqm. The largest office completion was Vastint’s Waterfront II in Gdynia, which delivered 14,500 sqm of new office space.
Poland’s regional city office markets have expanded by nearly 77,000 sqm in the year to date. High vacancy rates are keeping construction activity low, with only a handful of new office projects breaking ground. Additionally, office developers have significantly curtailed their activity, with some repurposing planned projects for other uses, such as residential and rented accommodation. However, a supply gap is unlikely as projects in the pipeline are being developed in phases or as mixed-use buildings.
“The trend towards office space consolidation and optimisation is gaining momentum. Companies are taking steps to maximise the utilization of office space while seeking improved quality. An important factor driving this process is the growing demand for modern, flexible offices that cater to the needs of today’s workforce. The war for talent has become a major challenge and is increasingly spreading to regional markets”, says Jan Pawlik, Workplace Management Director, ISS Facility Management.
