Over the year, since the COVID-19 pandemic arrived in Poland, the Warsaw office market has seen a marked decrease in occupier demand and office stock under construction amid rising vacancy rates. Although the past 12 months have been challenging for the office sector, companies are no less keen to have an office of their own, says real estate advisory firm Savills.
With more than 167,000 sqm of new office space coming on stream in the first quarter of 2021, Warsaw’s total office stock surpassed the 6 million sqm mark. Office supply was boosted by the completion of two office towers near Daszyńskiego Roundabout: Skyliner (48,500 sqm) and Generation Park Y (44,200 sqm).
According to Savills data, office development pipeline stands at 407,000 sqm, the lowest figure in 10 years. More than 180,000 sqm is expected to be delivered by the end of this year, mostly in projects that broke ground in the pre-pandemic environment. Increased caution with regard to commencing new projects is likely to result in a supply gap in 2022–2023, says Savills.
In the first quarter of 2021, Warsaw’s office take-up climbed to 109,250 sqm, down by 20% on the same period in 2020, when the impact of the pandemic was not fully felt yet. According to Savills latest report, total leasing activity amounted to 574,000 sqm in the past 12 months, the lowest figure since 2011.
Due to Covid-19, the share of pre-lets plunged from 20% during the pandemic period from April 2020 to the end of March 2021 to just 10% in the first quarter of 2021 alone. Despite this, the largest transaction to complete in the first three months saw the Warsaw Transport Authority (ZTM) pre-lease 9,800 sqm in Fabryka PZO for its head office. The share of regears stood at a high of 32% in the first quarter of 2021, a trend that had been expected to intensify due to the pandemic, but the increase was weaker than originally anticipated. Regears accounted for 37% of the total leasing volume in the past 12 months.
At the end of the first quarter of 2021, Warsaw’s vacancy rate stood at 11.4%, representing a 3.9 pp increase over the past 12 months. Despite this, it was well below the 14.2% recorded during the previous supply peak in 2016.
Although office occupancy costs have come under pressure due to subdued occupier activity, headline rents are stable for the time being. Companies looking for ready-to-occupy office space under shorter leases can now choose from a wide range of sublease listings. To attract tenants, office landlords are therefore scaling up lease incentive packages that will include rent-free periods and fit-out contributions.
"An analysis of the past 12 months provides some insight into the impact of Covid-19 on the office market. The rate of vaccination and the risk of further waves of infections are, however, causing a great deal of uncertainty of what lies ahead. The pandemic certainly continues to shape the office market. Some companies are withholding their decisions regarding office leases or exploring opportunities for savings and more flexibility. At the same time, there is growing confidence in the office. Despite a high level of remote work, companies are unlikely to give up the idea of having a physical office altogether. The office market appears to have survived the pandemic and will continue to grow soon, while office landlords and developers now have a better understanding of tenants’ new needs,” says Daniel Czarnecki, Head of Landlord Representation, Office Agency, Savills.
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