Warsaw office market growing rapidly. Tenants calling the shots

The problem is whether there will be enough companies interested in leasing them. “Over the last 25 years 430 modern office projects built in Warsaw, which have a total area of 4.2 mln sqm,’ says Joanna Mroczek, the director of the consultancy and market research department at CBRE. The city currently has a larger supply than Dublin, Rotterdam, Utrecht or even Abu Dhabi. With such a dynamic rate of development there is a good chance that Warsaw will top Geneva and Lisbon in the ranking of the largest office markets in the next few years. By the end of 2016, office supply in Warsaw will have increased by 600,000 sqm, the majority of which is to be built in the centre. CBRE forecasts that in the 2014–2016 period, as much as 350,000 sqm will be built in central locations, the majority of which will be located west of the Central Business District. The completion of the central section of the second line of the underground will certainly have an impact on this. Apart from new facilities, older office buildings completed a dozen or so years ago are currently being refurbished, extended and recommercialised, bringing more supply to the market. These include Ethos, Spektrum Tower and Moniuszki 1a, which will come back online in 2014 and 2015. These buildings have been vacated by their anchor tenants to allow renovations to take place to bring the premises up to current technical standards. The speeding up in terms of new supply, even when the high tenant activity is factored, has resulting in a growth in vacancy. According to CBRE’s calculations, app. 450,000 sqm of office is standing unoccupied in Warsaw – more or less the same amount as the area built in the record year of 2000. The vacancy rate has now exceeded 12.2 pct and it still expected to grow. “We expect that the higher supply will have an impact on the vacancy rate and push down rents with a simultaneous increase in incentive packages for tenants. Effective rents can now even be 25 pct lower compared to transaction rates. The trend should continue at least until the end of 2015,” believes Konrad Heidinger, a consultant in the market research department at CBRE. Current starting rents per sqm amount to PLN 25–26 in the best locations in the city centre. Effective rents are around EUR 21–23. In locations outside the city centre, effective rents per sqm stand at EUR 11–12. This is as much as Lublin, a city that is only just emerging as an office market in Poland. Colin Waddell, the managing director of CBRE in Poland, said that tenants are perfectly aware of the growing competition between developers. At the moment, when moving into a new building they can obtain much better financial terms and an increase in the standard of their offices.