According to the experts of the report ‘At a Glance. Office market in Warsaw”, the low level of new office space delivered will continue throughout 2024. Although 48,700 sq m was delivered to the capital’s market in Q1 of this year, only 67,000 sq m is under construction with a completion date of the end of the year. The marked decline in developer activity is the result of several factors, the most important of which include the rising cost of living due to interest rates and the hybrid working model perpetuated during the pandemic.
The low level of supply is thus translating into an increase in the length of lease terms for landlords.
“The Warsaw office market is seeing more and more renegotiations and extensions of contracts in existing locations. In turn, high fit-out costs and concern about compliance with ESG requirements, influence the lengthening of lease periods. More and more contracts are being concluded for 7-10 years,” emphasises Małgorzata Fibakiewicz, Head of Office Space Leasing, BNP Paribas Real Estate Poland.
The growth of service charges is holding back.
In 2023, record levels of inflation combined with rising electricity and gas costs have hit office property maintenance costs hard. Increasing requirements to maintain environmental and technological standards are also affecting service charges. As BNP Paribas Real Estate Poland’s report indicates, monthly service charge advances in 2023, compared to the previous year, increased by an average of around 25 per cent, a record high in this segment of commercial real estate.
“After the first three months of 2024, we can see that service charge rates are increasing at a much slower rate than a year ago, which is due, among other things, to the stabilisation of electricity prices. However, these costs are still a major burden for tenants in running an office, and the prospect of their further increase is forcing property owners to look for ways to optimise operating costs,” emphasises Małgorzata Karczewska, Senior Consultant, Office Leasing Department, BNP Paribas Real Estate Poland.
The second half of 2023 also saw an increase in rents in buildings in prime locations and of the highest standard. Currently, average rates in the Central Business District range between EUR 22.5-26 per sq m per month. In the largest non-central zone, Służewiec, they remain at €13-15 per sq m per month.
Diversity in vacancy and new construction.
As for the vacancy rate, at the end of Q1 2024, it stood at 11%, a decrease of 0.6 p.p. compared to the same period last year. In Warsaw as a whole, there is now almost 690,000 sq m of office space for lease and more vacancy is located outside the centre. The vacancy rate in older buildings is also rising, due to the relocation of many tenants to new office buildings. This is also influenced by the optimisation of leased space by many companies that have adopted a hybrid working model.
As BNP Paribas Real Estate Poland experts point out, it can be observed that the current construction of new office buildings is more spread out between the centre and outside the central office centres. By the end of 2026, 280 thousand sq m of new office space is planned to be delivered. Importantly, 62,000 sq m includes the modernisation of older office buildings.
New life for old office buildings
Three buildings are currently in the renovation process: V-Tower (formerly Warta Tower), University Business Centre II and G5 Prime Offices (formerly Grójecka 5). Between January and March this year, four projects were delivered: Lixa E & D, the Makro Cash and Carry building and Saski Crescent. The facility has also been modernised over the past year, with the aim of increasing its usability as well as making the building better for the environment.
“The Polish commercial property market is currently facing a wave of modernisation of older facilities. This applies to both the office and retail segments, which are in their maturity phase, and the youngest segment – warehouses. The average age of an office building in Poland is 10-15 years, while in Western Europe the average is in the range of 40-50 years. So it can be seen that Polish real estate is quite young. However, the current EU requirements are so strict that buildings which were built only 2-3 years ago no longer meet them and may also require necessary adjustments,” emphasises Klaudia Okoń, Senior Consultant, Business Intelligence Hub & Consultancy, BNP Paribas Real Estate Poland.
Source: BNP Paribas Real Estate Poland
Photo: Skitterphoto
