A good Q2 2023 for the office sector in Warsaw

02 sierpnia 2023

– “At A Glance – Warsaw Office Market Q2 2023”

According to the latest office report from BNP Paribas Real Estate, the second quarter of 2023 in Warsaw saw new office space come on stream, demand remain steady and the vacancy rate in the city centre edge down over the previous quarter. Two projects were launched between April and June and another one is scheduled to break ground in the third quarter. The Warsaw market has also seen several old office buildings demolished in recent months.

A good quarter for the office sector: new office completions

The Warsaw office market ended the second half of 2023 on a strong note, with its office stock amounting to 6.25 million sqm. According to report authors, approximately 18,300 sqm was added to the capital’s office stock between April and June through three completions: The Park 9, Wał Miedzeszyński 628, and Bohema Building F (Glicerynownia). The second quarter also saw the launch of two long-awaited office projects: The Form and Building B of Towarowa 22. In addition, STRABAG Real Estate is expected to commence the construction of Upper One in the very heart of the city in the third quarter - the complex with a 130-metre-high office tower and a hotel will replace Atrium International, which has already been knocked down.

The report’s authors also note that despite renewed construction activity and new starts, developers remain cautious about commencing projects.

There were several positive signs appearing in the Warsaw office market in the past quarter. These included three new office completions - especially given the lack of new supply in the first three months of the year - as well as renewed development activity and the start of long-awaited projects, a clear positive amid the shrinking office availability. Looking more broadly, however, with 260,000 sqm under construction at the end of the second quarter, the Warsaw office development pipeline is well below the historic peaks of around 800,000 sqm in the years 2017-2019. However, after difficult previous quarters, this modest uplift is naturally a promising sign, boding well for the future

says Małgorzata Fibakiewicz, Head of Office Agency, BNP Paribas Real Estate Poland.

Take-up and rents

Gross office take-up for the second quarter of 2023 reached nearly 167,100 sqm, up by 5 pp over the quarter but down by 21 pp year-on-year. Occupier demand was focused on the City Centre and the Central Business District. Total take-up for the first half of the year surpassed 325,700 sqm. New leases, including pre-lets, and renegotiations accounted for 51% and 45% of the total leasing volume between April and June 2023, respectively. Rents and service charges remained on an upward trajectory in the past quarter, with leases expectedly becoming longer and rental rates subject to increasingly higher indexation. Małgorzata Fibakiewicz notes, however, that the growth in asking rents has been modest so far, but growing utility costs pushed average service charges up by around 30% in the past 12 months.

A trend towards demolition of obsolete office buildings

The next few years on the Warsaw office market are shaping up to be a period of building upgrades and repurposing, as well as replacing obsolete stock with modern one and adapting existing buildings to modern user requirements. Tenants expect friendly, multifunctional, sustainable and healthy places and spaces that fit into the urban landscape. Buildings which are energy inefficient or would require considerable financial outlays to bring them in line with the EU’s legislation on building energy efficiency are the ones to undergo refurbishment or demolition.

Three demolitions have been taking place in Warsaw in recent weeks. These include a Leipzig-type office building at 10 Marynarska Street in Służewiec, Atrium International, which has already been knocked down, and the skeleton frame of EuRoPol Gaz. The key reasons for demolition include the age of a building, high maintenance costs, a lack of sustainable solutions or simply the unlocked potential of a site. Demolition of energy inefficient buildings will pave the way for new developments with specifications compliant with ESG strategies and new EU legislation.

adds Klaudia Okoń, Senior Consultant, Business Intelligence Hub & Consultancy, BNP Paribas Real Estate Poland.

Vacancy rate edges down

At the end of the second quarter of 2023, Warsaw’s vacancy rate was 11.4%, down by 0.2 pp over the quarter and by 0.5 pp from the same time in 2022, reveals the report. The amount of unoccupied office space in the capital stood at 714,400 sqm at the end of the June quarter. The vacancy rate for central zones edged down to 9.9% while that for non-central locations remained unchanged at 12.7%.

AI, ageing societies and offices

The development of AI and ageing societies are likely to have a significant impact on office leasing in the future, says the report from BNP Paribas Real Estate Poland. AI leading to process automation is expected to reduce demand for traditional offices. According to Statistics Poland (GUS), people aged 60+ will account for approximately 40% of the Polish population in 2050. Consequently, there will be a diminishing pool of people in jobs to finance the pensions of a growing number of seniors. This is likely to result in higher taxation levels.

The ageing of societies is a demographic turning point. Forward-looking companies should already plan their policies, including office strategies, with regard for the new demographic reality. The new normal, with AI, automation and robotization, will bring brand new challenges for architects and investors

comments Kinga Kolberg, Senior Consultant, Office Agency, BNP Paribas Real Estate Poland.