Poland Time of the supply gap

The fourth quarter of 2022 was similar to previous quarters regarding new supply on the Polish office market. Once again, developers' activity was higher in regional cities (Kraków, Wrocław, Tricity, Katowice, Łódź, Poznań, Szczecin, and Lublin), where a total of 73,800 sqm was delivered between October and December 2022, with a relatively modest result for Warsaw alone of only 8,700 sqm. Throughout 2022, a total of 642,600 sqm (+16.5 pct y/y) was delivered on the Polish office market, with a breakdown of 405,800 sqm (+79.3 pct y/y) in regional markets and 236,800 sqm (-27.1 pct y/y) in the capital. Thus, by the end of 2022, the sector's total stock stood at over 12.7 mln sqm (+4.24 pct y/y), with a breakdown of 6.26 mln sqm in Warsaw and 6.43 mln sqm in regional cities. The largest amount of space outside the capital is located in Krakow (1.7 mln sqm), Wroclaw (1.32 mln sqm), and the Tri-City (1.01 mln sqm).

We are in a supply gap phase, a post-pandemic effect when developers put some projects on hold for fear of uncertain demand. On the other hand, the situation is somewhat different in regional markets, where the results in terms of new supply are a very positive surprise. Perhaps this situation will contribute to the diversification of development plans for some clients.
Jakub Potocki, Senior Consultant, Office Agency, Axi Immo

The observed increases in new supply and tenant activity have not significantly affected the vacancy rate on the Polish office market, which maintains the status quo at 13.47 pct (- 0.08 pct). The result translates into more than 1.71 mln sqm of vacant space. In unit terms, Warsaw has 726,400 sqm (-6.68 pct y/y) available space, about 11.6 pct of the capital's total stock, with the vacancy rate falling to 10.5 pct in the central zones and 12.4 pct outside the centre. In contrast, vacant space in regional cities is 985,100 sqm (+15.4 pct y/y), with the highest vacancy rate in Łódź at 21 pct.

The supply gap is not only a precursor of far-reaching changes and a partial departure from the tenant market in favor of the developer or investor. With service charges skyrocketing and rental rates rising today, some office building owners require longer leases to secure funds for finishing the so-called fit-out space. Quite unexpectedly, we can expect to witness transactions for at least seven years on the wave of renegotiations or during the signing of new contracts. At the same time, there is still a long way to go to reach the models in Western Europe, where the average lease term can last up to 12 years.
Bartosz Oleksak, Senior Consultant, Office Agency, Axi Immo

Throughout 2022, the volume of lease transactions on the Polish office market amounted to nearly 1.5 mln sqm (+20 pct y/y), with almost 870,000 sqm leased in the capital (+34.1 pct y/y) and 624,100 sqm leased in regional markets (+4.9 pct y/y). In Q4 2022 alone, tenant activity amounted to 427,700 sqm, with Warsaw (253,000 sqm) accounting for a higher share of leasing than the regional ones (174,000 sqm). The October-December 2022 demand pattern was dominated by new leases (WAW 52 pct vs. REG 50 pct), ahead of renegotiations and extensions (WAW 41 pct vs. REG 40 pct), expansions (WAW 6 pct vs. REG 4 pct), and space leased for own use (REG 6 pct).

In 2022, we saw increased inquiries for new office space due to two phenomena. First, the period of renegotiated or pandemic leases extended for an additional 12 or 24 months was ending. Second, the war in Ukraine caused businesses to move from the east to the first safe location, Poland. As a result, the additional surge in demand has influenced greater office space absorption. Some of the relocating companies opted for short-term contracts and subleases. However, most chose to lease space in serviced offices or coworking spaces.
Jakub Potocki

Regarding trends for 2023, we expect legislative work to be completed on standardizing remote work. We are waiting for proposals and regulations of employer cost-sharing for utilities or electricity and what strategy clients will adopt due to these changes. On the supply side, on the other hand, we are entering a period of reduced activity on the part of developers, which, with rising demand, will probably result in lower vacancy rates.
Bartosz Oleksak