Poland Office supply weakens across regional cities

The need to look for savings due to high inflation and rising service charges is set to be a major challenge facing the office market in the coming quarters.

Just under 20,200 sqm came on stream across two office buildings in Q3 2022 as new regional supply shrank for the second consecutive quarter, bringing the combined office stock of Poland’s largest regional cities (Kraków, Wrocław, TriCity, Katowice, Poznań, Łódź, Lublin, and Szczecin) to close to 6.36 million sqm.

In the first nine months of 2022, the new office supply in the regional markets comprised 332,050 sqm, up by 125 pct on the same time last year but down by close to 24 pct on the peak first three quarters of 2018, which witnessed close to 433,000 sqm delivered.
Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska

The largest office completions in the year to date include buildings A1 and A2 of the Global Office Park in Katowice (55,200 sqm), KTW II in Katowice (39,900 sqm), Midpoint71 in Wrocław (36,200 sqm), Fuzja’s buildings C and D in Łódź (18,700 sqm), Format in TriCity (16,000 sqm) and Quorum Office Park D in Wrocław (16,200 sqm).

At the end of Q3 2022, the office development pipeline in Poland’s key regional cities was broadly unchanged over the quarter with stock under construction comprising approx. 580,000 sqm, up by 4 pct over the previous quarter but down by close to 28 pct year-on-year. With banks tightening their lending criteria for new developments, the number of new office projects breaking ground in the regional markets has reduced.

Similarly, as with Warsaw, the regional city office markets also experienced a decrease in occupier activity in Q3 2022. Total leasing transactions in the largest regional cities reached 106,300 sqm, down by close to 44 pct over the quarter and almost 6 pct compared to Q3 2021. Total take-up in the first nine months of 2022 totalled nearly 450,600 sqm. Close to half of the office take-up came from the IT and business services sectors: 25 and 23 pct, respectively. Manufacturing came third, accounting for 11 pct of the total leasing volume.

New leases accounted for 51 pct of the total regional city take-up in the first three quarters of 2022, followed by regearing and renewals (27 pct). The remaining 22 pct was spread across pre-lease transactions (11 pct), expansions (7 pct) and owner-occupier deals (4 pct).

Both tenants and landlords are now facing the challenges of high inflation and rising utility prices which are expected to push occupancy costs up in the quarters ahead. As a result, tenants are likely to show increased interest in leasing space in buildings offering lower operating costs.
Joanna Bartosiewicz, Senior Associate, Office Tenant Representation, Newmark Polska

At the end of Q3 2022, the overall vacancy rate in the core regional office markets remained virtually unchanged since Q2 at 15.2 pct (up by 0.04 pp), but edged up by 1.7 pp year-on-year. Vacancy rates rose in four regional markets, including Łódź (up by close to 3.4 pp) and Lublin (+1.8 pp). The remaining regional cities reported lower vacancy rates, with the sharpest fall of 1.9 pp in TriCity. The combined office availability in the eight regional city office markets amounted to 967,200 sqm, with the largest volumes of unoccupied space in Kraków and Wrocław.