A boom seems just around the corner

Agnieszka Majewska of Cushman & Wakefield Healey & Baker claims that this year's prognosis seems optimistic, with animation on the office market evident since January. Firms which contracted in the period of increased demand between 1997 and 1999 are presently looking for higher standard space at a lower price, through renegotiation or relocation. Small and medium Polish and foreign firms presently appearing on the market are also on the lookout for office space. Several experts operating on the Warsaw market point out, however, that a certain animation was visible already in 2003. In her report for Knight Frank, Aleksandra Baciarelli writes: "Visible animation was noted in the second half of the year reflected by an increased number of property presentations". Regretfully this did not translate into the amount of rented square metres, with KF final data stating that its new tenants last year found 105,000 sqm space which is 13 percent less than in 2002. Tenants were primarily interested in locations outside the city centre (60 percent of rented space), while an additional 45,000 sqm being let for the investors own needs.

Small and definitely large

That same (KF) report states that more than 61 percent of 2003 leases were for small spaces below 500 sqm. Some 13 percent were between 500 and 1,000 sqm, the remainder being for space above 1000 sqm. We may add that the largest contract concluded last year was with Commercial Union for a space of 7,500 sqm in the Ghelamco's Crown Point building outside the city centre. The 2004 contracting year opened with a large transaction for 11,000 sqm in the centrally located Rondo 1 building by Hochtief Project Development to be occupied by Ernst & Young, which will then have vacated the Warsaw Financial Centre and Warsaw Towers leaving behind vacant storeys when they do. But that is only the beginning of what lies ahead in 2004, if we are to believe agents' reports. Agnieszka Majewska of Cushman & Wakefield H&B tells us that the company she represents is expecting to sign three large contracts comprising a space above 5,000 sqm. Anna Staniszewska, co-author of the DTZ's report estimates the demand will be 50,000 sqm per quarter. Though it sets no figures, CB Richard Ellis represented by Anna Starczewska confirms these predictions.

Brand new space

Warsaw's largest real estate agents differ in their forecasts as to the number of square metres to be delivered on the market by the end of 2004. This is the result of the methods they use in their research. According to CB Richard Ellis, there will be 140,000 sqm in 2004. Cushman & Wakefield H&B analysts expect developers to commission 75,000 sqm outside the city centre in 2004 and 49,000 sqm in the centre. (that is, a total 124,000 sqm). DTZ expects around 160,000-165,000 sqm this year, with more than 60 percent outside the city centre, while last on the list Jones Lang LaSalle and Knight Frank expect 156,000 and 159,000 sqm respectively. A comparison with 2003 supply figures, which vacillated around 170,000 sqm depending on the source, means that Warsaw will see a slightly smaller or around the same increase of modern office space. When you bear in mind the predicted increase in demand, what percentage of vacant space might be expected? Will that also impact on a rise in rents?

No greater fluctuations

According to the DTZ represented by Anna Staniszewska, only a small 18-19 percent rise in the amount of vacant space may be expected, with locations outside the centre remaining at the same 11 to 12 percent level. As regards rents, DTZ predicts they will level out at 20-22 EUR/sqm in the centre and 16-20 EUR/sqm outside the centre. Knight Frank differs and officially predicts a further possible drop of the highest rates which amounted to 23-25 USD/sqm at the year's end. A reduction in supply will lead to a drop in vacant space from 16.1 percent in 2003 to 13.5 percent this year, claims Agnieszka Majewska of Cushman & Wakefield H&B, but rents will not change with 18-24 USD/sqm being asked for class A space in the centre and 14-18 USD/sqm outside the city centre.

Paradise lost?

Should these prognoses prove true and the long awaited economic upsurge visit the city at last, property owners will feel more secure. Smaller tenants will find negotiations more complex with fewer incentives offered, something with which most analysts concur in drafting market reports. Large tenants are still the most valuable and can force landlords to grant reductions, rent-free period and a higher standard in the finishing of office space. No effort will be spared to attract a large and renowned firm for a long period.