Office

Regional office markets - a review of H1 2018

10 August 2018

Posumowanie I połowy 2018 r.

Another million reached

In H1 2018, the office stock on Poland’s eight regional markets has increased by nearly 256 000 sqm, out of which approx. 127 000 sqm was delivered in Q2 of this year. The highest volume of new supply was recorded in Wrocław which saw completion of e.g. Sagittarius Business House (nearly 25 000 sqm) and Retro Office House (more than 18 000 sqm). This means that the Wrocław market, as the second one after Kraków, exceeded the 1 million sqm office stock threshold.

At the end of H1 2018, the volume of office stock on Poland’s regional markets reached 4.64 million sqm.

At the moment, there are approx. 90 office schemes under construction on the regional markets, the delivery of which will mean a supply of further 950 000 sqm by the end of 2020. More than half of the space currently under construction will be delivered to the two leading markets, i.e. Kraków (approx. 30%) and Wrocław (approx. 20%). The third largest region in terms of developer activity is the Tricity, where approx. 150 000 sqm of space is currently under development. It should also be pointed out that the Tricity, which for a long time has been associated with only local developers, is now attracting new national and international investors.

In the first six months of this year, net demand for office space on the regional markets reached approx. 205 000 sqm. Kraków and Wrocław attracted the most interest from tenants, with the two markets attracting more than half of the total net demand, i.e. approx. 30% and 25% respectively. This was to a large extent due to the high interest displayed by companies from the banking and investment as well as IT sectors. Leases for approx. 20 000 sqm of new space and expansions of existing space were signed in the Tricity, Katowice, Łódź and Poznań. The Lublin market is doing relatively well, where the lowest result was recorded in Szczecin.

H1 2018 saw an improvement by approx. 0.6 p.p. in terms of the vacancy rate recorded on the regional markets. In Kraków, despite the large volume of new supply, high demand from tenants led to a drop in the vacancy rate by approx. 0.5 p.p. down to 9.3% as recorded at the end of June this year.

Kraków continuous to strengthen its position as the regional office market leader skilfully taking advantage of its good reputation. It seems that the market has the potential not only to become the ‘first among equals’ as regards Poland’s regional markets, but also to be the ‘second after Warsaw’ in a manner analogous to maybe Barcelona and Madrid in Spain. We are particularly pleased to see stable high demand that absorbs the record breaking and continuously growing supply as confirmed by the drop in the vacancy rate.

Tomasz Skrzypek, Senior Consultant, Office Agency, Kraków, BNP Paribas Real Estate Poland

The high level of net demand recorded in Wrocław also enabled the market to maintain the vacancy rate at less than 10%, and this despite delivery to the market of more than 100 000 sqm of new offices. In the Tricity, the period between January and June this year saw completion of nearly 50 000 sqm of new space which was then very quickly absorbed by the market. This led to a significant drop in the vacancy rate down to 6.7%.

Delivery to the market of the majority of the office buildings currently under construction in the Tricity is planned for as late as 2019, which means that the market situation should not change dramatically in H2 of this year.

Katarzyna Best – Kuczyńska, Consultant, Office Agency, BNP Paribas Real Estate Poland

Katowice, as a result of completion of the large .KTW I scheme, saw a slight drop in take-up at the end of Q1 of this year. However, at the end of June 2018, the vacancy rate dropped to 10.8%, which means a decrease by approx. 0.5 p.p. as compared to the end of 2017. The highly limited supply of new space and new schemes led to a drop in the vacancy rate in Poznań (down to 7.7%), Szczecin (down to 6.8%) and Łódź (down to 8.6%). Lublin, which is the least developed of Poland’s markets, displays high sensitivity to changes in the volume of supply. An increase in the office stock by approx. 9% led to a considerable increase in the vacancy rate (by approx. 2.5 p.p.) and its reversion to the result recorded at the end of 2017. However, gradual absorption of the surplus space is expected to take place over the coming months.

Justyna Magrzyk-Flemming

Head of Marketing & PR CEE at BNP Paribas Real Estate Poland