The first half of 2024 on the Warsaw office market marked an evolutionary change on both the demand and supply side. Development activity is slowly returning to pre-pandemic levels, with 280,000 sqm under construction at the end of June. On the demand side, we are observing a continuation of the renegotiation trend. The total take-up was 320,000 sqm, a comparable result to H1 2023, according to Axi Immo's latest report.
More than 60,000 sqm of new office space was delivered to the Warsaw office market in H1 2024. In 2024 as a whole, a total modern office space of approx. 110,000 sqm should be completed. In Q1 2024 Yareal finished the development of Lixa D (9,300 sqm) and Lixa E (16,900 sqm), while the Saski Crescent (15,500 sqm) from the CA Immo portfolio returned to the market after modernisation. In addition, Makro Cash and Carry completed a building at Jerozolimskie Av. for their own needs (6,900 sqm). In Q2 2024 Ghelamco completed the first phase of its Vibe project (15,000 sqm). However, the delivery of new projects increased the total office stock only slightly, by 0,03%. At the end of June, the total stock in Warsaw was estimated at 6.26 million sqm due to decisions to change the function of selected existing projects.
In contrast, we may expect an increase in new supply in the coming years. At the end of June, 280,000 sqm was under construction. Among the largest projects we can mention: The Bridge (47,000 sqm, Ghelamco), Upper One (35,900 sqm, Strabag) and modernisation of V Tower (33,700 sqm, Cornerstone) as well as Skyliner (24,000 sqm, Karimpol).
Emilia Trofimiuk, Research Manager, Research Department, Axi Immo, said: „Developers are adjusting their investment strategies to the expectations of tenants and their employees. That’s why more than 80% of office buildings under construction are projects located in central office zones. A significant number of these will be completed in 2025 - approx. 160,000 sqm. It is also worth mentioning that development projects that started in 2024 are mostly concentrated in the centre of Warsaw”
At the end of H1 2024 the average vacancy rate in Warsaw amounted to 10.9%, which indicates stabilisation when compared to the previous quarter (-0.1 p.p.) and a drop on an annual basis (-0.5 p.p.). The ratio of vacant space in central office zones remains on a downward trend, at 9.1% at the end of H1 2024. The highest share of vacant space is currently observed in Służewiec (19.6%) and the Żwirki Wigury office zone (13.5%).
Jakub Potocki, Associate Director, Office Department, Axi Immo, comments: "„Generational changes and new working styles are influencing tenants’ decisions regarding office space organisation. On the one hand, tenants are able to pay more per square metre of office space and are more inclined to choose central, well-connected locations. On the other hand, optimisation and efficient use of space is becoming a priority. It’s also becoming increasingly important for a potential office to meet environmental standards, with occupiers all the more keen to choose new projects with certificates at the “Excellent” level and above.”
H1 2024 was led by renewals of lease agreements (51%) in comparison to new contracts (38%) and expansions (7%). As a result, net take-up (leasing activity excluding renegotiations) decreased by 26% y/y. Total take-up amounted to 320,000 sqm and was only 2% lower compared to the corresponding period in 2023.
The office zone with the highest share of renewals was Służewiec (66%). In terms of sectors, the highest activity was recorded among tenants from the following sectors: banking, manufacturing, business services and IT. The largest transactions of H1 2024 - between 13,000 and 14,000 sqm - were renewal agreements.
Bartosz Oleksak, Associate Director, Office Department, Axi Immo, argues: "Due to the prevalence of hybrid working arrangements, we are seeing a dominance of small and medium size transactions in the market. The average transaction size in the period between January and June 2024 was less than 1,000 sqm. The largest new lease contract was just 4,000 sqm. This is a reversal of the trend observed a few years ago, when space consolidation drove leasing activity, with the banking sector leading the way”.
At the end of H1 2024 asking rents remained stable in the range between €19.50/sqm/month and €26.50 sqm/month in prime office buildings centrally located in Warsaw. In non-central zones asking rents start from approx. €10.00/ sqm/ month. In the remainder of the year, rents should remain stable in most projects. In June 2024 service charges for office space in the majority of modern buildings in Warsaw were between PLN 17.00/ sqm/ month and PLN 43.50/ sqm/ month depending on the location and standard of the space. Service charges remain on an upward trend.
