Challenging times ahead for Warsaw offices

25 października 2022

In the third quarter of the year, the office stock in Warsaw grew by 99,100 sqm, most of which attributed to one of town’s new symbols – the Varso Tower office skyscraper. However, the sector faces a decrease in demand and prepares for unprecedented rent adjustment and the settlement of service charges at new rates. BNP Paribas Real Estate Poland experts also draw attention to the importance of offices in attracting employees across different generations, as well as to the revision of the Labour Code provisions related to remote work.

At the end of the third quarter, total office space stock in Warsaw reached 6.34 million sqm, and new supply amounted to 99,100 sqm. The city center office hub saw the biggest gains, as the highest building in the European Union, Varso Tower, was delivered there. Among others, Greenberg Traurig law firm has already entered the office building designed by architects from Foster + Partners by signing a 10-year lease agreement for 5,000 sqm of offices. In the third quarter, also the P180 office building near the Wilanowska subway station was also put into use. The 15-storey building accommodates 32,000 sqm of office space certified with LEED Platinum, WELL Core & Shell and WELL Health-Safety Rating accreditations. The largest confirmed tenant of the P180 building is the Danish IT firm, Netcompany. It will transfer from a neighbouring office building, in order to occupy nearly 6,000 sqm of space at the new address.

The supply gap casts its shadow on construction

Currently, there are 180,000 sqm under construction in the capital city, to be completed between 2022 and 2025. This result is far below what the Warsaw market has consistently delivered in recent years. BNP Paribas Real Estate Poland experts indicate that 30 % of the total pool should enter the market next year, while the half should become available in 2025.

Low activity of developers may, in the future, positively impact the leasing process of buildings which are either under construction or are about to begin construction. One of them is the office part of the ‘Destinations’ complex, which Echo Investment will deploy in cooperation with a new partner, AFI, on the plot on Towarowa street. The office area will occupy approx. 33,000 sqm. PHN also wants to take advantage from the supply gap by launching the VENA investment on Prymasa Tysiąclecia Avenue (nearly 15,000 sqm of office space) – and so does Ghelamco, which presented the Vibe office building in the first half of October. This will be the first of the buildings in the complex to be created at the junction of Kolejowa and Towarowa streets. Inside the first building, tenants will enjoy 15,000 sqm of space that will become available in the first quarter of 2024.

At the end of the last quarter, there were 12.1%of vacant offices in the capital city, which means a slight increase in vacancy rates by 0.2 pp. as compared to the period between April and June. It is noteworthy that the rate in central areas is below average (11.1 %), and rises to approx. 13% outside the city center. When analysing the sub-zones in terms of the increase in the vacancy rate, the highest upward swing (q/q) of 4.9 pp. was recorded in Służewiec.

Strong central zone

Since the beginning of the year, 608,000 sqm of office space have been leased in Warsaw. This is 93% of the total 2021 take-up. and almost 52% more than during the first nine months of 2021. Almost 129,000 sqm were contracted solely in Q3. The quarterly result though indicates 13,3 pp decrease vs Q3 2021.

Offices in the largest Warsaw office hubs, which are located in the city center and in Mokotów, have been the most popular for many months. Central areas accounted for the record-high 54 % of the total demand.

notes Dorota Mielke, Associate Director from the Office Agency at BNP Paribas Real Estate Poland.

In the third quarter, new lease agreements dominated the structure of agreements, which accounted for 48% cent of all signed contracts. Renegotiations amounted to slightly less, at 45 %.

Rents will increase

Today, a monthly rent for the best offices in Warsaw amounts to EUR 26-27 per month. In turn, the average asking rent in existing buildings was: EUR 17.42 per month in buildings up to 5 years old, EUR 16.66 per month in buildings between 6 and 10 years old and EUR 14.21 per month in buildings over 10 years old.

The authors of the report point out that the market has so far seen a mild increase in rents. Asking rates rose by EUR 0.25-0.75, but this is just the beginning.

Next year will be unique in terms of rent and service charge increases. As inflation soars and energy prices increase, we expect rent adjustment unlike anything the office space market has seen post-2000. Office buildings and managers are trying to prepare well for tougher times. They do everything in their power to find energy savings with LED lamps, photovoltaics, current control motion sensors or modern BMS. Paradoxically, offices want and need to fast-track their transition into eco-mode, thereby adapting to ESG standards

says Małgorzata Fibakiewicz, Head of Business Intelligence Hub at BNP Paribas Real Estate Poland.

Employee-oriented office

Last quarter, we saw a growing trend involving employers trying different methods of encouraging employees to perform their duties at their fixed office desks. Today, more than half of employees in large cities work in a hybrid model, while in May 2021 it was 32 %.

Today, companies lease offices differently. They are fighting not only for talent, but also for a commitment and loyalty worthy of the times in which we live. They know that an attractive, well-located and well-thought-out workspace could be an important factor in attracting employees. Therefore, we are seeing more and more offices that are genuinely tailor-made. Moreover, they cater to employees across four generations who come to work in a single place.

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