Poland Ageing office stock and muted development activity

At the end of June 2024, the combined office stock of Poland’s eight largest regional cities (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin and Szczecin) was more than 6.73 mln sqm. Q2 2024 saw five new office projects come on stream with a total area of 30,000 sqm.

New office completions in the regional cities included B10 in Wrocław (14,000 sqm, Vastint), Leon Rappaport’s Villa in Łódź (7,700 sqm, Bodex), Silk in Tricity (5,500 sqm, LPP), Sky Garden in Szczecin (1,800 sqm, Idea Invest) and Roko Office Point in Kraków (1,400 sqm, Roko).

The downturn in construction activity in the regional cities, as in Warsaw, is attributed to a number of factors, including constrained land availability, elevated interest rates and financing costs, as well as hybrid work practices leading some tenants to downsize offices.
Ewa Nicewicz, senior consultant, Office Agency, BNP Paribas Real Estate Poland

In addition, developers tend to launch new projects upon securing significant pre-lets from key tenants during the planning stage.

Office demand remains moderate

Total office take-up for Q2 2024 reached nearly 146,000 sqm, up by 4 pct over the quarter but down by 13 pct from the same time last year. The strongest leasing activity was recorded in Kraków (49,000 sqm), Tricity (32,000 sqm) and Wrocław (24,000 sqm).

BNP Paribas Real Estate Poland notes that the trend towards office downsizing is gaining momentum on the rental market.

Due to high fit-out costs, tenants on the regional city office markets remain cautious about relocations, while the growing adoption of hybrid working has resulted in office downsizing by an average of 25-30 pct. In 2024, the average lease size in the regional cities is 950 sqm, down from more than 1,700 sqm in 2020-2021.
Ewa Nicewicz

Office take-up was dominated by lease renewals which accounted for 51 pct of all deals, while new leases made up 38 pct. The largest transactions of Q2 2024 were lease renewals of office space by Aptiv Services Poland in Enterprise Park F in Kraków (10,000 sqm), Takeda in the Sterlinga Business Centre in Łódź (5,700 sqm) and IBM BTO in Newton in Kraków (5,000 sqm).

There is and there will be office space to rent

At the end of June 2024, office availability on the eight key regional city markets amounted to more than 1,190,000 sqm, equating to a vacancy rate of 17.7 pct (down by 0.1 pp from the previous quarter but up by 1.1 pp year-on-year). Vacancy rates remained high, with the highest of 23.3 pct, 20.8 pct and 20.2 pct reported in Łódź, Katowice and Kraków respectively.

According to BNP Paribas Real Estate Poland, office availability levels will remain high in the coming months as unoccupied space continues to be absorbed by the markets in the next three to five years. Older office buildings aged over 10 years account for more than half of vacant standing stock, thereby pushing regional city vacancy rates strongly up, and most of that stock is long-term vacant.

Location or refurbishment?

37 pct of office buildings on the eight key regional city markets are more than 10 years old, while those aged under five years account for nearly 30 pct of total stock. A strong advantage of the former is, above all, their prime and well-connected location. However, as the supply of modern, certified and ESG-compliant stock continues to grow, older office buildings will have to be refurbished - otherwise they will run the risk of losing tenants.

If refurbished, such office buildings could remain attractive to tenants and meet their present-day needs. In addition, refurbishments of commercial buildings are necessary to achieve the goals of the Green Deal. All steps taken in this direction will mean investments in ESG values and pave the way towards lower service charges.
Sara Romanowska, consultant, Office Agency, BNP Paribas Real Estate Poland

Such investments matter as at the end of June 2024 more than 40 pct of office space in older office buildings in regional cities remained vacant.