First signs of a supply gap in office regions

07 listopada 2022

At the end of September, the total modern office space available in the eight main regional markets approached 6.4 million sqm. A quarterly office market report prepared by BNP Paribas Real Estate Poland indicates a significant share of new agreements in the demand structure, as well as a strong interest in modern offices designed with hybrid work in mind. An important signal is the emergence of a supply gap in some markets.

At the end of the third quarter, the existing modern office space in eight key regional markets totalled almost 6.4 million sqm. There were no surprises on the podium of the largest office destinations, following Warsaw. At the end of September, Kraków had the largest area of offices to offer (1.6 million sqm), followed by Wrocław (1.3 million sqm) and the Tricity market (over 1 million sqm).

In the last quarter, only two new office buildings were commissioned in the regions – in Wrocław. They increased the total market volume by just over 20 thousand sqm of space. An occupancy permit was granted for the first building of the Wrocław Quorum complex, which is being constructed by Cavatina Holding. With its six storeys, the office building offers 16.2 thousand sqm of class A space, more than half of which has already found its tenants, mainly representatives of the IT sector. Along with the occupancy permit, the building was granted BREEAM “Excellent” certification. It is worth noting that Quorum is the largest mixed-use investment project being implemented in Lower Silesia.

The second launch of the quarter, also in Wrocław, was the commissioning of the L'UNI office building. Almost 4 thousand sqm of office space has been housed in the neo-Renaissance building of the former Faculty of Pharmacy of the Medical University.

In some regions, the supply gap is becoming a reality and tenants are preparing to fight and secure suitable space. This is particularly the case with premium, well-located class A office buildings. The expected slowdown in supply has repercussions on long-term planning. In some markets, finding, furnishing and moving into a new office in less than half a year will be a difficult thing to do.

says Klaudia Okoń, Business Intelligence Hub, BNP Paribas Real Estate Poland.

At the end of the quarter, there was 967.2 thousand sqm of leasable space in the regions, which corresponds to the vacancy rate of 15.2%. Experts point to a slight increase in the percentage of vacant offices, which amounted to only 0.05 p.p. on a quarterly basis. Łódź remained at the top of the cities with the largest total available space waiting for tenants. The textile city’s vacancy rate broke the psychological barrier, standing at 22% at the end of the third quarter. On the opposite side of the chart was Szczecin, where tenants have 3.9% of vacant space to choose from.

The report summarising office space in the regions in the third quarter of 2022 shows that demand between July and the end of September amounted to 106.3 thousand sqm and was more than 40% lower than the total volume of lease transactions recorded in the previous quarter. The most space was leased out in Kraków (24.8 thousand sqm), Tricity (24.3 thousand sqm) and Wrocław (23.3 thousand sqm). The demand structure was dominated by new agreements, which accounted for 68% of contracts signed, including pre-lease agreements and agreements securing space for landlord’s purposes. Renegotiations and extensions of existing contracts accounted for 25% of demand, while expansions accounted for 7%.

Experts at BNP Paribas Real Estate Poland indicate that in the reported quarter, the most active group of tenants were companies from the IT sector, which accounted for a total of 36% of demand in the regions. In Kraków, a pre-lease agreement for 4.7 thousand sqm for a confidential IT client was secured in the Ocean Office Park D office building, while in Katowice, gaming giant Keyword Studios decided to expand. There are already 1,000 people working in the Katowice office of the game industry leader, and those who will follow, will occupy desks arranged on over 3.8 thousand sqm of space. Another IT company, TietoEvry, decided to renew its existing agreement and lease 3.7 thousand sqm in Wrocław's Green2Day office building. Consultants from the office department of BNP Paribas Real Estate Poland advised in the transaction on the landlord side.

– Employees today need a different type of offices, also in the regions. The new challenge is to organise workplaces that are optimised for hybrid working and a different, more flexible use of available space. The outdated idea of open space is being replaced by spaces that offer, above all, an opportunity for cooperation, but also support health and mental comfort. Better design is more eco-friendly, allows for good lighting and air and solves the problem of, for example, noise. This mindset helps effectively attract talent to work

says Agnieszka Witkowska, Landlord Representation, office sector, BNP Paribas Real Estate Poland.

The third quarter saw the finalisation of the agreement for the sale of a suite of office real estate in the regions – Carbon Tower in Wrocław and Ocean Office Park A and Tischnera Office in Kraków – owned by Cavatina Holding. For approximately 66 thousand sqm of GLA with an average occupancy rate of around 90%, the new owner, Lone Star, paid around EUR 139 million.