Provincial promise

According to figures from PINK (the Polish Chamber of Commercial Real Estate), the largest regional office markets in Poland in 2021 were Kraków (with an office stock of 1,617,600 sqm), Wrocław (1,253,100 sqm) and the TriCity (963,300 sqm). Over the year, 226,300 sqm of office space was completed outside the capital city, much of which was in the TriCity (73,200 sqm), Kraków (60,700 sqm) and Poznań (37,500 sqm). In Q4 2021, seven projects with a combined area of more than 79,000 sqm were delivered in regional markets, with the largest being the 3T Office Park (38,200 sqm) developed by 3T Office Park in Gdynia. At the end of last year, in the eight major regional markets 853,650 sqm remained vacant, resulting in a vacancy rate of 14.1 pct (an increase of 0.6 pp q-o-q. and of 1.4 pp compared to the end of 2020). The highest vacancy rate was in Wrocław at 16.7 pct, while the lowest was in Szczecin – 5.3 pct. The total volume of leasing activity in 2021 came to 594,500 sqm, which is 2.1 pct more than last year. However, in Q4 2021 alone the volume was 63 pct up y-o-y. Over last year, the largest volume of space was leased in Kraków (156,000 sqm) followed by Wrocław (135,400 sqm). Skanska is one developer that certainly believes in the potential of regional markets. “What seems to be a key trend for the coming years is that Polish regional cities will strengthen their position as international destinations for R&D and SSCs. The Covid-19 pandemic has put logistics and supply chains worldwide to the test. This may mean that the trend for nearshoring is going to grow and Poland may prove to be one of its beneficiaries,” explains Paweł Warda, the executive vice-president of operations at Skanska responsible for Kraków, Katowice, Poznań, the Tri-city and Łódź – and he points to Kraków, Łódź and Poznań as being the cities where the most space was absorbed last year. He also emphasises that knowledge and know-how are important factors in where companies locate their offices: “The overall knowledge potential or brainpower represented by a local talent pool is of significant importance to companies when making their location decisions. This can result in companies being interested in strong academic centres, not only in tier 1 cities like Wroclaw, Kraków and Warsaw, but also in other regions where the potential is especially strong when it comes to knowledge of those fields that are of particular importance to a company,” he says.

The good life in the TriCity

Paweł Warda also exhibits a particular fondness for the TriCity. “We believe that the TriCity is a highly interesting location, as it is very attractive for IT companies, mainly due to its wide talent base. Companies are interested in locating and developing their businesses in this region. Unlike in Kraków or Wrocław, where the markets are saturated, in the TriCity it is easier for new companies to compete in recruiting the best specialists,” he explains. When asked what makes the TriCity special, Marcin Faleńczyk, the head of the Gdańsk office department at JLL, listed the supportive local authorities, the excellent local infrastructure and the area’s high quality of life as reasons. “At the end of 2021, the office stock in the TriCity amounted to 963,000 sqm and is heading for the 1 mln sqm mark in 2022. There is over 104,500 sqm under construction. This market also saw the highest net absorption rate among Polish regional cities in 2021,” he says. He admits that the vacancy rate has been on the rise since 2019 and currently stands at an all-time high of 12.3 pct, but states that this is largely due to developer activity having remained high over recent years, while, since “the onset of the pandemic, tenants have adopted a rather conservative approach when it comes to lease extensions. Nevertheless, ongoing negotiations and an increase in enquiries from tenants leads us to believe that the vacancy rate in the TriCity will have seen a slight drop by the end of 2022,” he predicts. When it comes to new supply, he states that: “By the end of 2022, the TriCity’s modern office stock is forecast to exceed 1 mln sqm.” This year it is expected that new supply will reach around 49,300 sqm, 71,100 sqm in 2023 and 52,200 sqm in 2024. He also draws attention to the city’s Młode Miasto district. “The former shipyard and port areas are being transformed into an attractive multifunctional part of the city due to such projects as the Palio Office Park complex by Cavatina Holding, and the DOKI mixed-use project consisting of a residential and retail section by Euro Styl (Dom Development Group), as well as an office area that is being developed by Torus,” adds Marcin Faleńczyk. He also points out that the city is coming back to life after the pandemic: “In 2021, we did see increasing leasing activity, especially from the IT products and services sector, which was responsible for as much as 38 pct of the demand for office space. The business service sector was the second most active, with a 20 pct share in the demand.”

Wrocław – a centre of academic excellence

Katarzyna Krokosińska, the head of Wrocław office department at JLL, points to the strong academic environment as being a major advantage of her city along with its vibrant and growing economy. “Wrocław is the third-largest office market in Poland (after Warsaw and Kraków), with more than 1.25 mln sqm of modern office space – and it is not losing any ground to its competitors. The city’s location in the south-western part of Poland and its well-developed infrastructure makes it even more accessible to companies from Western Europe,” she explains. She admits that the vacancy rate has been rising since 2017 and currently stands at an all-time high of 16.7 pct. It is forecast to increase again in 2022 and 2023 due to the fact that at the end of 2021 Wrocław had the largest amount of office space under construction among all the Polish regional markets at around 226,500 sqm. A total of 93,800 sqm should be delivered by the end of the year, 79,600 sqm in 2023 and 53,200 sqm in 2024. When it comes to tenants looking for space in the city, Wrocław is popular with the IT sector, which accounted for around a third of the demand in 2021. “The second most active industry, with an 18 pct share in the total demand, was manufacturing. Business services rounded off the top three with a 13 pct share,” she reveals. “We predict a further increase in the vacancy rate – from 16.7 pct to 17.2 pct at the end of 2022. This is mainly due to the large square-meterage to be delivered this year. Still, we expect the annual take-up volume in Wrocław to be larger than in 2019, 2020 and 2021. We also predict substantial growth in demand for flex solutions,” she says.

In second place: Kraków

According to Dorota Gruchała, the head of the Kraków office department at JLL: “In 2017, Kraków crossed the threshold of 1 mln sqm of modern office space. It is Poland’s second largest office market, after Warsaw, with more than 1.6 mln sqm of modern office space at the end of 2021. It is perceived as the jewel of Poland’s office market among the country’s regional cities. The growth of the city’s market has been tremendous and, more importantly, is backed by constant demand for offices. The city is, for example, the largest BPO/SSC hub in terms of headcount, with 82,100 employees, according to the ABSL 2021 report.” Nonetheless, she too admits that “the vacancy rate has been rising and currently stands at an all-time high of 16.1 pct (Q4 2021). This has been due to the pandemic and the increase in popularity of the remote working model, which was particularly true during the lockdowns. Development activity in Kraków, as in other key regional markets in Poland, is high, with substantial new supply continuing to enter the city’s office market. On the other hand, since the outbreak of the pandemic, tenants have adopted a rather conservative approach when it comes to extensions of the office space they occupy. Renegotiations claimed a significant share in demand in 2020–2021, thus net absorption was still lower than in 2019. Moreover, some relocations of companies from older buildings to modern facilities with green solutions are evident due to the increasing importance of ESG in business policies.” At the end of 2021, more than 213,300 sqm of office space was under construction in the city and in 2022 Kraków will see a new supply of around 95,100 sqm. In 2023, it could be as high as 117,000 sqm, with a further 60,500 sqm possibly to be added the following year. “This means that in three years’ time the total office supply in Kraków will have grown by 17 pct, which will probably result in an increase in vacancy. The large amounts of new office space to be delivered in the years to come will put pressure on the landlords of older buildings to modernise their assets to meet the sustainability and the quality expectations of tenants,” stresses Dorota Gruchała. The IT products and services sector is playing an increasingly important role in the city’s demand for office space and, according to Dorota Gruchała, “it should come as no surprise that this industry was the most active sector on Kraków’s office market, making up 21 pct of the total demand in 2021. Even with the increasing popularity of the hybrid work model, offices remain at the heart of IT companies, which are increasing their levels of employment and opening new subsidiaries wherever there is a pool of talent available. Kraków is one of the markets that is tempting companies with its highly skilled workforce. Other business services follow IT with a 19 pct share in the demand. Kraków also saw substantial leasing activity from manufacturing companies as well as banking, insurance, and investment businesses.” Over the coming year, she expects demand for office space to rise. “Considering the increase in tenant enquiries and ongoing negotiations, we expect the vacancy rate to drop from 16.1 pct to 15.5 pct by the end of 2022,” she forecasts.

Łódź at the centre of the action

Łukasz Dobrzański, the head of the office department in Łódź at JLL Poland, believes that Łódź benefits from being both a thriving academic centre and conveniently located in the centre of Poland, with easy access to the A1 and the A2 motorways as well as a large number of flight connections. He also commends the proactive approach of the city authorities and mentions the close connections between business and academia. “Moreover, Łódź is the closest market to Warsaw, which is an opportunity for companies to locate additional offices and complement their HQs in the capital. Currently, the city has a modern office stock of 583,000 sqm with another 80,850 sqm under construction. “The vacancy rate has been rising for some time and stood at 16.4 pct in 2020. It dropped slightly in 2021 to 15.8 pct, although it is forecast to increase again in 2022. This year’s new supply is going to be substantial, and we are seeing a relatively slow rebound in post-pandemic tenant activity,” he points out. “In 2022, we expect developers to deliver as much as 51,200 sqm of office space. There is no new supply planned for 2023, but in 2024 the market will see another 29,600 sqm of new modern offices. This supply should be sufficient as the vacancy rate is predicted to increase in the following years,” he adds. Again, the majority of the take-up in 2021 went to the IT products and services sector, which accounted for 62 pct of the total space leased. The second most active sector was manufacturing, accounting for a 10 pct share of the total demand. “We expect that in 2022 the demand will be stable at around 50,000 sqm. Still, more than 50,000 sqm of new supply by the end of the year will probably result in the vacancy rate hitting an all-time high, which we forecast to be 19.4 pct,” says Łukasz Dobrzański. Zuzanna Krech, an associate and the regional head for Central Poland at Cushman & Wakefield, draws attention to the high rate of development activity in Łódź. “New office projects have been delivered to the market and subleases continue to be signed. For offices, the process of changing how they function to fit the hybrid working model continues. This translates into app. 92,000 sqm of office space being immediately available. Tenants looking for new offices or renegotiating their current leases expect attractive rental rates and attractive incentive packages,” she states. The importance of the BPO/SSC sector has not gone unnoticed by her, as she points out that there are 92 such companies employing over 26,000 people in the city.

Catching up fast in Poznań

“Over recent years, Poznań has been recognised as one of the fastest-developing business hubs in Poland,” says Karol Patynowski, the head of regional markets at JLL. The total supply of modern office space in Poznań at the end of 2021 was 620,400 sqm, while there was almost 66,000 sqm of space under construction. The vacancy rate started rising in 2017 and at the end of 2020 stood at 13 pct. JLL blames this rise on high development activity in the city. However, the rate saw a marginal fall in 2021 to 12.7 pct and is forecast to drop by around 10 pct over 2022, which is due to only 6,700 sqm of office space scheduled for delivery by the end of the year. “New supply in 2023 is expected to reach 59,300 sqm and in 2024 it will be 32,000 sqm. The increase in the availability of high-quality space in Poznań is being driven by a growing interest from corporate occupiers, especially those from the modern business services sector,” explains Karol Patynowski. Unlike other major regional markets in Poland, Poznań saw the greatest tenant activity from the banking, insurance, and investment sector. “Companies from this sector were responsible for 27 pct of total demand in 2021. The business service sector’s share was 26 pct, and IT services followed with 20 pct,” he adds. GTC is another major regional developer with twelve office buildings in Polish regional cities, including the University Business Park and Sterlinga Business Park in Łódź, the Korona Office Complex in Kraków, Francuska Office Centre in Katowice, Pixel and Globis in Poznań, and Globis Wroclaw. “Regional markets in Poland have several advantages,” insists Maciej K. Król, the commercial director of GTC Poland. “Firstly, regional cities such as Kraków, Gdańsk, Wrocław and Łódź have excellent university bases to provide qualified staff that attract business. Another benefit is the location of Polish cities – in the very centre of Europe and well-connected to European capitals. We have noticed that especially during the pandemic, many companies from Western Europe started to move their headquarters to the CEE region due to the lower rents along with the available and the qualified employees, while still being in the same time zone. For this reason, regional cities in Poland are exactly what companies are looking for.”