Cushman & Wakefield has summarised the situation on the Warsaw office market for the third quarter of 2024. Office take-up, both in leasing volumes and transaction numbers, was comparable to that recorded in the same period in 2023. Meanwhile, muted development activity, falling vacancy rates – particularly in central locations – and shrinking land availability are likely to encourage investors to launch redevelopment projects.
Supply: Development activity is likely to remain subdued until 2026
At the end of the third quarter of 2024, Warsaw’s total office stock stood at 6.26 million sqm. Office projects delivered in the three months to September 2024 included Viridis B (Polkomtel, 7,000 sqm) and Bohema Office D and E (2,600 sqm and 1,700 sqm respectively).
"There are currently seven projects under construction, totalling 207,000 sqm and scheduled for delivery in the coming years. This volume is well below the average supply levels recorded in 2012-2023. Cushman & Wakefield estimates that approximately 103,000 sqm of new office space will be added to the Warsaw office market this year across nine office buildings”, comments Ewa Derlatka-Chilewicz, Head of Research Poland, Cushman & Wakefield.
High borrowing costs and only gradually improving institutional investor activity have significantly dampened office construction in Warsaw. This downturn is likely to continue until the end of 2026. Most projects which are, however, expected to break ground in the next 12-24 months will be in prime locations so that developers can maximize their returns.
Take-up: The centre of Warsaw continues to attract the largest tenants
"Total leasing activity for the first three quarters of 2024 exceeded 492,000 sqm, a figure comparable to that posted in the same period last year. This is attributed to the gradual stabilisation of the office rental market and a trend among tenants towards optimising their office footprints. In addition, with 537 office leases finalised in the year to date, take-up in terms of transaction numbers also remained largely unchanged year-on-year. The relatively large volume of signed leases is a testament to the high liquidity in Warsaw’s leasing market. Occupier activity is expected to remain stable in the coming quarters", adds Jan Szulborski, Business Development & Insight Manager, Cushman & Wakefield.
From January to September 2024, new leases dominated the structure of demand in Warsaw, accounting for approximately 44% of all deals, while owner-occupier deals made up 7%. Additionally, renewals had a significant share at 42%, with expansions contributing around 7% to the total leasing volume.
"Warsaw saw a strong third quarter in terms of the volume of large leases and an increased share of new leases in total take-up. Renewals continued to account for the vast majority of large lease transactions over 3,000 sqm, while the increased volume of pre-lets, including those signed in the previous quarter in the centre of Warsaw, marked a positive turning point for the market”, comments Paulina Kopińska, Partner, Head of Warsaw Office Agency, Cushman & Wakefield.
The largest transactions of the third quarter of 2024 included Santander Bank’s pre-lease of 24,500 sqm in The Bridge, a confidential media company’s pre-lease of 10,100 sqm in the Office House and an owner-occupier’s deal for 8,000 sqm in Domaniewska Office Park Beta.
Vacancies: Office availability remains on a downward trend
At the end of the third quarter of 2024, Warsaw’s overall vacancy rate stood at 10.7%, up by 0.1 pp year-on-year but down by 0.2 pp from the previous quarter.
"This equated to nearly 671,000 sqm of unoccupied office space, marking a decrease of approximately 10,000 sqm compared to the second quarter of 2024. With new office supply expected to be constrained in 2024-2026, the city’s vacancy rate is likely to remain on a downward trajectory, enabling the Warsaw market to absorb surplus office space from existing stock”, comments Jan Szulborski.
Vacancy rates also vary by location, with the highest of 12.3% reported for non-central zones - a figure similar to levels seen in 2021-2023. In contrast, at the end of September 2024, the City Centre reported a vacancy rate of 8.9%, down by 4.0 pp compared to where it was at the end of 2021.
Rents: Office location, quality and HICP rate are key drivers of rental growth
The upward pressure on rents on the broad market was driven in the last 24 months by a record-high indexation rate for lease agreements indexed to the HICP rate (8.4% and 6.2% year-on-year for the eurozone in 2022 and 2023 respectively).
In the third quarter of 2024, prime office rents in Warsaw remained unchanged since the end of 2023 and stood at €22.00-26.00/sqm/month in the Centre and €13.50-16.50/sqm/month in non-central locations.
