Walter Herz: What’s the take on offices in Krakow

30 August 2023

A firm grip on finance is evident in Krakow’s office market.
One of the main criteria for choosing office space in Krakow is financial conditions, which, just behind location and access to public transportation, are the most important for tenants looking for new offices, according to the latest survey of the Krakow office market, compiled by Walter Herz. The standard of the building, parking and services available in the area also matter to those surveyed.

Companies plan to expand.
The assumptions of business expansion, which is planned by more than 83 percent of the surveyed companies from 27 industries with offices in Krakow, sound an optimistic note. This is a good omen for Poland’s second largest office market after Warsaw, and heralds further investment development in the city.

Office Kraków is still in the process of development, although its pace is slower. As a result, its vacancy rate remains quite high, at over 18 percent. In the first half of 2023, the Krakow market added about 43 thousand sq m of modern space. At the end of June this year, almost 100 thousand sq. m. of office space remained under construction in Krakow, including, among others, the Kreo project and Mogilska 35. This is three times less than in the years of the market boom, before the pandemic, when up to 300 thousand sq. m. of office space was under construction in the city, reports Mateusz Strzelecki_Partner and Head of Tenant Representation at Walter Herz.

Walter Herz’s analysis was aimed at verifying the direction of the office market in Krakow, what is key for tenants in particular industries, and determining what function the office will serve in the coming years.
For small and medium-sized companies, the most important factors in choosing a new office turned out to be business expansion and cooperation with the property owner, respectively. In addition, for smaller entities, access to public transportation, office rental budget, location and the standard of the building and parking are important.

In contrast, for large companies, the most important aspects in the decision are, in turn, the office rental budget, access to public transportation, location, parking and services in the area, and less crucial is the standard of the building.

High office switching costs argue for renegotiation.
The survey showed that the perception of the current function of the office is quite complex, it is supposed to simultaneously fulfill several tasks, combine various business and employee needs. To integrate the team, to enable the use of equipment and technical infrastructure by employees, to serve a representative function and to provide comfort for conducting business meetings.

The results of the analysis conducted by Walter Herz also show that only 7 percent of respondents see ESG as a key factor in choosing an office. With a very strong global trend in this area, still a small percentage of companies in Krakow are interested in projects that meet environmental standards. This aspect was mostly emphasized by large, international corporations.

The survey found that 27 percent of the companies surveyed had changed offices in the past 24 months, with 52 percent of tenants opting to renegotiate their lease and stay in their current office. The main reasons for keeping the occupied location were financial conditions and good cooperation with the landlord. Higher costs associated with the eventual lease of a new office and high expenses for the arrangement of its space also proved to be decisive here.

“Demand for office space in Krakow remains at a relatively good level. However, in its structure, one can notice a growing share of renegotiations and a decline in the volume of pre-leases. As in all, domestic markets, with an eye on investment profitability, developers are holding back the start of new office projects due to the high cost of financing their construction and the conditions of banks, as well as the exorbitant prices of construction materials and labor. As a result, the level of new supply in the coming years in Krakow will drop significantly,” says Kamil Kowalewski, Associate Director at the Krakow branch of Walter Herz.

70% of companies satisfied with current office.
A survey conducted in the Krakow market by Walter Herz showed that as many as 70 percent of the companies surveyed declared that their current office meets their needs, while only 30 percent of respondents plan to look for a new place to work. More than 80 percent of companies among those that conducted a workplace analysis are satisfied with the office they occupy. Nearly half of the organizations participating in the survey decided to do so.

The most satisfied with their current office are respondents from companies whose lease will still be in place for more than 36 months, while the least satisfaction is shown by companies whose lease ends in the next 12 months. Thus, one can conclude that companies whose employees rate the current office well have recently changed it, rearranged the space or renegotiated the lease terms.

For companies that indicated that the office they occupy does not meet their expectations, the biggest inconveniences were too few meeting rooms, too cramped work space and the low standard of the building.

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