High demand leads to a drop in vacancy rate
High demand leads to a drop in vacancy rate

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High demand leads to a drop in vacancy rate

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The capital attained 72 000 sqm of new office space spread over 8 buildings in the last quarter of 2017. The result recorded for the past three months made it possible to close last year with new supply at approx. 280 000 sqm and market size estimated at 5.37 million sqm – highlight authors of the AAG Office Warsaw Q4 2017 report at BNP Paribas Real Estate Poland.

Moderate supply

Following the high increase in new supply recorded in the capital in 2016 (approx. 410 000 sqm), in the period now reported on there was a visible drop when compared to the level recorded between 2012 and 2015.
The leading area in terms of office supply at the end of last year was the Centre zone, where the total volume exceeded 2 million sqm of space. For a few quarters now we have been able to see a dynamic pace of growth in the Centre – West zone. The area around Rondo Daszyńskiego, currently one of the largest building sites in this part of Europe, is seen as attractive thanks to the potential of the location, proximity to the heart of the city centre and excellent access to public transport, which includes the currently extended second metro line.

We are witnessing fundamental changes within Warsaw's central zone and can see that a new business district is developing in the capital. Within the next 2-3 years there will be new office schemes appearing in the vicinity of Rondo Daszyńskiego, which will include buildings set to permanently change Warsaw's panorama. However, it has to be pointed out that at the time of growth of its office market, the Wola district is also attracting numerous residential schemes accompanied by ground floor retail and service functions. At the moment the district has the highest number of new residential developments in the city. The formerly neglected and rundown part of the city has, unlike Służewiec dominated by the office development monoculture, a sporting chance of being transformed into a modern urban quarter that brings together diverse functions and stays lively and vibrant after the office buildings' working hours 

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

The report drawn up by BNP Paribas Real Estate Poland shows that Mokotów, the second largest zone in the city in terms of volume of stock, held the highest share of last year's office supply. The situation is different in the East zone which covers the part of the city on the right bank of the river, where the force of attraction for new office developments is the lowest.

Stable demand

Last year net office take-up (new leases, pre-lets and expansions) reached a level of approx. 600 000 sqm, which was slightly lower than the result recorded in the record-breaking 2015. However, when compared y-o-y, the 2017 result was more than 30% higher than that recorded in 2016.
The authors of the report highlight that tenants now show considerable interest in schemes located in the Centre zone and those developed on its western outskirts. Furthermore, Mokotów is now also becoming an attractive location, as while offering a wide range of office space, it is additionally providing greater opportunities to negotiate more flexible commercial lease terms.
Last year's high level of demand translated directly into a drop in vacancy rate which fell from approx. 15% at the beginning of the year to approx. 12% at the end of Q4.

When looking at the capital's market from the perspective of the vacancy rate only, one could get the impression that there is a lot of room for manoeuvre in terms of finding a suitable office. In reality, however, finding a space of the required standard in excess of 5 000 sqm, which is what large organizations look for most frequently when thinking about expansion or relocation to Warsaw, is now becoming a considerable challenge 

Patrycja Dzikowska, Head of Research & Consultancy, Central and Eastern Europe, BNP Paribas Real Estate Poland

The authors of the report point out that last year's demand structure was dominated by new leases.

No change in rents

At the end of last year monthly asking rents for prime space within the Centre zone oscillated between EUR 20.00 and EUR 22.00 per 1 sqm. It follows from the report that the improved occupancy rate translates directly into a favourable negotiating position for landlords. Analysts at BNP Paribas Real Estate Poland estimate that in the short-term horizon the market in the capital will see the return of a market balance in the tenant – landlord relationship, as well as optimization of tenant incentive packages in the form of rent-free periods and fit-out contributions.

The Centre is set to grow further

Over the next three years the most dynamic growth within the office sector will be recorded in the capital's Centre zone which will see the delivery of more than 75% (i.e. approx. 600 000 sqm) of the 780 000 sqm of office space currently under construction. Importantly, developers have taken a particular liking to the areas around Rondo Daszyńskiego, where there are building sites at which more than 250 000 sqm of modern office space are now being developed, with further schemes being at various stages of preparation.

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