PL

POLAND Warsaw office market back – to embracing the new normal

Office & mixed-use development
According to JLL’s latest summary, the Warsaw office market is now returning to the “new normal” as employees gradually return to their workplaces. Covid-19 has had a transformative effect, but rather in terms of accelerating existing trends, such as desk-sharing and greater use of technology.

The demand for Warsaw office space in Q2 was significantly higher than in Q1, says the summary, but the total H1 volume was 335,000 sqm – 17 pct lower than the same period of 2019. Office viewings are taking place once again, which gives the market grounds for optimism looking ahead. Two districts, the City Centre and Mokotów, accounted for 73 pct of the demand. With companies now more likely to renew leases, Mokotów is benefitting. Pre-leases, however, are more likely in the City Centre, where most of the new supply is located – 87 pct of pre-leases signed in H1 were in that part of the city.

The largest lease transactions in H1 included: PZU’s prelease of 46,500 sqm in Generation Park Y, and (both in Mokotów) a 20,000 sqm sale-and-leaseback deal by DSV and a renewal and expansion for 19,800 sqm by Poczta Polska in Domaniewska Office Hub.

The supply side of the market bounced back in Q2 after the relatively slow Q1. Five buildings totalling 107,000 sqm (98 pct occupied) entered the market in H1, the largest being Varso (1 and 2), Chmielna 89 and DSV HQ. Other well-leased large-scale developments are scheduled for completion this year (The Warsaw Hub and Mennica Legacy Tower).

The total under-construction pipeline currently comprises 710,000 sqm, to be completed by the end 2022, 44 pct of which is already pre-leased. The vast majority of these projects are in the central parts of the city (84 pct), which may result in a lack of new product in non-central areas in the midterm thus possibly boost the attractiveness of existing assets in non-central locations. However, the total under-construction volume is now significantly lower than in Q1 2020, as developers seem to be more cautious to start new developments. This will further boost the appeal of, and competition for space in, current pipeline and existing buildings.

The vacancy rate in Warsaw only increased slightly to 7.9 pct by 0.1 pp since the end of 2019 and 0.4 oo q-o-q, despite all the new supply (5 pct in central zones and 9.8 pct in non-central zones). Prime monthly rents in Warsaw now range between EUR 18 and EUR 24 per sqm, and go up to EUR 16 outside the city centre.

There has been no sign of slowdown in the Polish real estate investment market so far, according to JLL. As many as 15 office transactions worth EUR 746 mln in total were concluded in Warsaw in H1, with investor interest centring on assets in City Centre West, Służewiec and the CBD.

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