Poland Low new supply, rising occupier activity

At the end of last year, Warsaw’s total office stock stood at 6.2 mln sqm, of which just 61,000 sqm was delivered in 2023 – the lowest annual figure for new supply in the last five years and well below the five-year average of around 220,000 sqm. This shows that Warsaw is experiencing supply constraints. The Q4 of 2023 saw 40,600 sqm of new office space delivered through two projects only: Lakeside in Mokotów and Studio B in City Centre West.

2024 is shaping up to be another year with significantly lower new supply levels not only in the capital, but also in regional cities. Due to economic slowdown, protracted decision-making processes, tenants’ focus on cost cutting, and high development costs, many developers have revised their investment plans for 2024-2025.
Małgorzata Fibakiewicz, head of office agency, BNP Paribas Real Estate Poland

Demand for office space improved in 2023, reveals the report. Last year’s office take-up reached nearly 750,000 sqm, which was lower than in the peak year of 2022 but well above the pre-pandemic level seen in 2020-2021. Of that total, more than 255,600 sqm was leased in the period October-December 2023. Occupiers’ interest focused mostly on the City Centre, the Central Business District and Służewiec.
Lease renewals accounted for the largest share of take-up at 49.3 pct of the total as tenants would rather avoid having to spend much on relocations and adaptation of space to their needs. New office leases made up 43.2 pct of the leasing volume recorded in Warsaw during the fourth quarter. The largest transactions of the three months to December 2023 were the renewal of GDDKiA’s lease of 12,900 sqm in Green Corner B, Lux Med’s pre-let for 12,000 sqm in Lakeside, and Lionbridge Poland renewing and expanding its lease to 7,300 sqm in Astrum Business Park I. Occupier activity on the Warsaw office market is expected to remain stable in the coming quarters.

As of the end of Q4 2023, there was 238,000 sqm of office development underway. While only one new project (Studio A) was announced in the last quarter of 2023, the first quarter of 2024 will, in turn, see construction works begin in two more office buildings: Vena and the second phase of Skyliner. As a result, office availability in Warsaw is shrinking, especially in central locations, which is also reflected in office vacancy levels. At the end of Q4, unoccupied office space accounted for 10.4 pct of Warsaw’s total office stock, down by 0.2 pp over the quarter and 1.2 pp year-on-year. The office vacancy rate in the capital is expected to continue to trend downwards.

Although development activity has recently picked up, new supply is still failing to keep pace with demand for office space in Warsaw. This is due to several factors. Firstly, the constrained new supply in 2023, which was caused by economic uncertainty, and secondly – last year’s relatively strong occupier activity. Another factor is the maturity of the market as older office buildings are being gradually put out of use.
Klaudia Okoń, senior consultant, business intelligence hub & consultancy, BNP Paribas Real Estate Poland

The BNP Paribas Real Estate report notes that office landlords are likely to come under growing pressure to raise rental rates in 2024, particularly in the case of projects under construction. In 2023, prime office rents remained largely unchanged from the end of 2022 – they stood at EUR 22-26/sqm/month in the Centre and at EUR 13.50-16.50/sqm/month in non-central locations.

The Polish commercial property market will soon be swept by a wave of refurbishments as approximately 70 pct of buildings in Poland are energy inefficient. There is also a growing focus among tenants on sustainable offices. In Warsaw, there are already three office buildings undergoing refurbishment: Warta Tower, Saski Crescent and University Business Center II.

Refurbishment and repurposing works are now required to adapt buildings to ever-rising ESG standards. This trend can be seen in Poland and beyond as more than three quarters of office stock may be at risk of obsolescence by 2030. Gradual improvement of energy efficiency is one of the biggest challenges facing the commercial real estate sector, which has been mandated by the EU to reduce energy consumption and greenhouse gas emissions as part of its efforts to achieve net zero by 2050.
Dorota Mielke, associate director, office agency, BNP Paribas Real Estate Poland

An environmental focus is at the heart of new projects. Warsaw will soon gain its first office building with wooden structure. The four-storey building will be part of the Poleczki Park office complex in the Wyczółki area in Warsaw and its eco-friendly solutions will help reduce energy consumption.