Office

Offices in the new reality. What next?

10 sierpnia 2020

At the beginning of the year they were full of hustle and bustle, in the second quarter – especially during the lockdown – mostly deserted and with a completely different organization of work. Today, many offices have come back to life, although a large share of employees still work remotely on a full monthly basis or appear in the office on a rotational basis. In this time of the crisis, the authors of the report "Office market in Warsaw, At a Glance 2020 Q2" highlight the robust supply and demand, a record-breaking lease agreement, but also the high uncertainty of the coming quarters.

We will see how office buildings will cope with the completely new realities in the next three quarters. Market participants today focus on evaluating the past three months. Tenants, developers and investors thoroughly analyse the negative and positive effects of the lockdown when planning the current and future business prospects by including remote working in their analyses. In the short-term perspective, the coronavirus and the expected economic slowdown will certainly be reflected in the decisions of the office market participants. The question often asked today – whether some office spaces will not turn out to be redundant due to the wide range of possibilities for remote working – is primarily the reason for the search for an answer to what the real impact of such a decision will be on the daily functioning of the company and its competitiveness in the long run.

Despite the general fascination with the extensive possibilities of remote working, we are optimistic about the coming quarters of this year in the office market. The situation connected with the global pandemic has exposed the organisational weaknesses of this solution, especially in Asian countries, where access to the Internet, and sometimes even to electricity, outside the office building can be very limited. Therefore, we see an opportunity for our region to transfer part of the processes and competences of companies to Poland. Currently, companies are carrying out an in-depth analysis of the possibilities of a wider use of remote working. Currently, companies are carrying out an in-depth analysis of the possibilities of a wider use of remote working. Legal aspects, labour law regulations and current exchange of information among employees, which are the basis for seamless and effective functioning of the company in the long term, are being analysed

Mikołaj Laskowski, Head of Office Agency, BNP Paribas Real Estate Poland

Despite the pandemic, the world of Warsaw offices did not stand still. Analysts from BNP Paribas Real Estate Poland have summarised that between May and June the office market in Warsaw increased by about 100,000 sqm of modern space. This result corresponds to about 62% of last year's total new supply. By the end of June, the second of a complex of three office buildings in Varso Place (40,000 sqm) and an office pyramid at Chmielna 89 (25,000 sqm) opened their doors.

In the recent years, the demand for offices has been very high, and not only in the capital. This is why, in the first months of the pandemic, developers did not slow down: all significant projects were delivered almost according to plan or with a slight delay due to reduced availability and mobility of construction workers or temporary problems in foreign material supply chains. Assuming that none of the major projects will be put on hold in the second half of the year, which has not been yet signalled by the developers, by the end of December, Warsaw may see 219,000 sqm of space more. Therefore, throughout 2020, the office sector in Warsaw may grow by around 330,000 sqm of new space, which is more than twice as much as last year

Klaudia Okoń, Consultant, Research and Consultancy, BNP Paribas Real Estate Poland, co-author of the analysis

According to the summary for H2 2020, the gross demand for the capital's offices looked surprisingly good compared to January-March. It amounted to nearly 196,000 sqm, of which approximately 29% was due to renegotiations and renewals of existing lease agreements. BNP Paribas Real Estate Poland's analysts emphasise that the largest number of extended agreements were signed in office buildings located in the Centre, CBD and Mokotów zones. Uncertainty resulting from the possible second wave of COVID-19 and the economic slowdown means that some companies are still holding back their development plans, which in the short term translates into postponing the decision to lease a new office. The second quarter saw yet another office space record. PZU Group leased the entire Generation Park Y office building at Daszyńskiego Roundabout, signing a lease agreement for 46,500 sqm. The 140-metre-high skyscraper built by Skanska will house the insurance giant's new headquarters in two years' time and provide workplaces for several thousand people, who so far have worked in several dispersed locations.

The analysis of Q2 2020 also indicates a slight increase in the vacancy rate, which has been steadily decreasing for the past 5 years to reach a record low of 7.5% at the end of Q1. As of the end of June, the vacancy rate was 7.9%, which is still a very good result given the significant volume of new space delivered. It is worth noting that the vacancy rate decreased by 0.6 p.p. compared to the corresponding period last year. In addition, there is a growing trend of emerging premises to be sublet. The analysts emphasize that office modules ranging from 300 to 800 sqm are the most popular to be subleased. At the moment, the decisions of large, stable, global companies with long-term lease agreements signed have no influence on the development of subleases. BNP Paribas Real Estate Poland experts added that in the past 12 months the largest number of vacancies were taken up in the area of Żwirki i Wigury (down by 3.8 p.p.) and Puławska (down by 3.2 p.p.) corridors. The increase in vacancy rates in comparison with the corresponding period of 2019 affected the West zone, where the vacancy rate increased by 2.6 p.p. in the second quarter. The authors of the analysis point out that the current situation may intensify the trend of decreasing popularity of older buildings, which do not meet modern technical parameters, are located in an inconvenient location, as well as office buildings requiring thorough modernization. The pandemic may accelerate the need to upgrade and possibly convert such buildings to non-office functions.

The coming months will be a time of reorganisation for the office sector. Because of the sanitary requirements, most of the employees will return to the refitted out offices. Maintaining the social distance will be easier in open spaces, where the number of occupied desks will decrease and in some cases the spaces will be fenced. Some tenants may decide to determine the number of employees who will be able to be in the office at one time. In many cases, this will mean the continuation of remote working in a rotational system. The managers are faced with the task of reducing the morning and afternoon peaks in the main walkways.

The key word in the new office reality will be flexibility, both in terms of rights and obligations of the parties in the lease agreements, as well as of quick adaptation of space to the emerging needs

Mikołaj Laskowski, Head of Office Agency, BNP Paribas Real Estate Poland