Up and down

Warsaw office market data still does not inspire a great deal of optimism. In 2002, a lot of space was filled by the owners of buildings (so-called owner-occupier projects). Most of the tenancy agreements were signed for office buildings outside the centre and, although the proportion of vacant space in the centre fell by a little over 15 per cent in the 4th quarter, this was mainly due to the completion of a small number of new projects

The economic index, (particularly the GDP ratio which grew by 1.6 per cent in the 3rd quarter and inflation which stayed below 1 per cent), published by the Chief Central Statistical Office at the end of 2002, suggested the possibility of economic improvement in Poland. However, the unemployment rate tarnished the picture, with over 3 mln people remaining jobless at the end of the year, making it the worst such statistic since 1989.
Despite this, given Poland's accession to the EU and the cyclical nature of market economies, we might expect some improvement, including in the Warsaw office market.

Supply
According to the data in DTZ Research's report, buildings totalling 197,000 sqm of space were completed in 2002, which indicates a fall of 10 per cent in relation to the previous year.
Over a half of this space is located in office buildings which companies such as Agora, Polsat, the ITI Group, PPL, PLL LOT and SAP Projekt constructed for their own use. Dom Dochodowy o Trzech Frontach, the first stage of International Business Centre and the Marszałkowska 76 Office Centre, are among the buildings up for lease.
In 2002 most space, 169,000 sqm, was built outside the city centre, a trend which is expected to change as a number of major buildings, such as Metropolitan, Saski Crescent and Liberty Corner, whose space amounts to a total of 125,000 sqm, are about to be completed in the centre of Warsaw, while about 50,000 sqm of office stock will be delivered to non-central parts of the city this year.

Demand
New tenants leased 222,800 sqm last year, around a quarter more than in 2001. However, if we subtract the owner-occupier space and the space leased as a result of renegotiations, it becomes clear that new deals amounted to a mere 136,000 sqm, which means a drop by about 25 per cent in relation to the previous year.

Vacant space
The proportion of vacant space in the Warsaw market came to 16.91 per cent in 2002, which is not dissimilar to 2001.
The percentage of vacant space in the city centre fell, reaching a level of slightly above 15 per cent, while outside the centre we observed an increase to 18.3 per cent, which this year is likely to level out at 15-16 per cent, because of a decrease in demand. DTZ anticipate that vacant space in the centre of Warsaw will grow to 20 per cent in the next few months.

Rents
The starting rates per square metre of office space in prime Warsaw locations fluctuated from between USD/EUR 26 and 28 per sqm in 2002. Tenants also negotiated space arrangements and rent-free periods. Developers offered similar conditions outside the centre, and their rents varied from USD/EUR 15 to 19 per sqm, depending on the location and quality of the buildings.
As supply decreases and, hopefully, the economy improves, rents are expected to increase once more towards the end of this year.

Forecasts
DTZ Research analysts are predicting slightly increased activity in the office market this year, resulting to a large extent from expiring contracts and a wide choice of available property, as well as Poland's accession to the EU.
Despite all this, the coming months will be very hard work for developers and aggressive competition seems unavoidable. According to the report mentioned above, the development of Warsaw's office market will be concentrated in four locations, which is bound to confuse everyone's definition of what the Central Business District is:
naround the Palace of Culture, the Warsaw Financial Centre office building, the Złote Tarasy complex (under construction) and Hochtief Project Development scheme (planned) naround the Saski Gardens, Saski Point and Crescent buildings to Metropolitan and City Bank headquarters naround the stock exchange, Sheraton Hotel and Plac Trzech Krzyży naround Al. Jana Pawła II