OFFICE DEVELOPERS AND TENANTS REMAIN CAUTIOUS

17 sierpnia 2023

Leasing activity in Poland’s regional city office markets remained stable in the April to June period while developers continued to exhibit caution with regard to commencing new projects. With service charges being high, focus is shifting towards office upgrades and workspace optimization. The authors of the latest quarterly report from BNP Paribas Real Estate Poland also note that prime office rents remain high.

STABLE DEMAND

At the end of the second quarter of 2023, the combined office stock of Poland’s eight largest regional cities, excluding Warsaw, surpassed 6.5 million sqm. More than 116,000 sqm was delivered in the year to date across 10 office projects; of that total, 41% came on stream between April and June. The largest office completions in H1 2023 included Ocean Office Park B in Krakow and Nowy Rynek E in Poznań. Of all the regional cities, Krakow clearly led the way for new supply, accounting for 37% of all office deliveries in the first half of 2023.

Due to high office availability in existing buildings, developers are delaying new projects and are likely to commence construction once they secure substantial pre-lets. According to the report’s authors, new leases accounted for a significant proportion of total take-up in the second quarter of 2023 – together with pre-lets they made up approximately 70% of the leasing volume.

Gross office take-up for the second quarter totalled almost 166,000 sqm, which is comparable with the figure recorded in the January-March period. Total office take-up for the first half of the year was down by just under 3% year-on-year. This slight decline is a sign of some stability returning to the markets.

OFFICE VACANCIES IN ŁÓDŹ

At the end of June 2023, there was approx.1.1 M sqm of vacant office stock on the eight regional city markets, equating to a vacancy rate of 16.8%, up by 0.9 pp over the quarter. The highest vacancy rate of 23.4% was in Łódź, while the lowest was in Szczecin (4.4%). The volume of unoccupied office space shrank over the quarter in Lublin and Wrocław – down by 1.3 pp and 1.2 pp, respectively, reveals the report. What’s more, despite the completion of Brama Oławska, which was approximately 50% let, not only did the capital of Lower Silesia report no change in its vacancy rate, but it also attracted the strongest occupier interest in the second quarter.

Occupier activity in the regional cities remains stable, but there is a growing trend towards optimizing office footprints. New leases are being signed for smaller offices. The average lease size for the first half of the year was approximately 830 sqm, down from 1,000 sqm last year.

Dorota Mielke, Associate Director, Office Agency, BNP Paribas Real Estate Poland

Many tenants are opting to remain in their current locations by extending leases. Lease renewals accounted for 33% of all deals.

TIME FOR SAVINGS AND FLEX SPACE

Prime office rents in top locations featuring modern technologies, energy efficient systems and meeting ESG requirements remain high, with premium grade buildings commanding up to EUR 16.00-17.00 per sqm per month. Due to high service charges, office tenants and landlords are increasingly taking measures to deliver savings through upgrades and various technical improvements.

The first half of the year showed that the regional city markets were a good springboard for flexible office growth, with tenants increasingly favouring flex offices. Companies relocating to such offices include both rapidly growing start-ups and scale-ups, especially from such sectors as IT and high tech, as well as creative and marketing industries.

Tricity is emerging as an increasingly important player in the flex-space market, alongside Wrocław and Krakow. Flexible office stock in Gdańsk, Gdynia and Sopot stands at approximately 25,000 sqm, with another 5,000 sqm expected to be added by the end of this year.

Agnieszka Witkowska, Consultant, Landlord Representation, Office Sector, BNP Paribas Real Estate Poland

Key flexible office providers in Tricity include: Chilliflex, O4 Network, Spaces Gdańsk, Quickwork, Regus, Collab, Leśna Hub, as well as Good Space Coworking, City Space, and Mind Dock Coworking.