The amount of office space under construction is decreasing. According to data from Newmark Polska, there is currently less than 260,000 sqm of space under construction in Warsaw, of which almost 80 percent is located in Warsaw. will be put into use by the end of 2023. Comparing this with the average annual demand of 600,000 sqm, there is one conclusion – a gap in new supply is looming. How will it change the Warsaw market?
The latest edition of the Deloitte Warsaw Crane Survey 2022 indicates that although last year the Warsaw market was delivered the largest number of office buildings since 2016, we will observe a slowdown in new investments in the next two years. This state of affairs is caused, inter alia, by the low number of building permits issued – only two in 2021, the limited availability of plots in central locations, as well as the growing costs of construction and surface finishing.
As Henryk Bilski, Leasing Director at STRABAG Real Estate, explains, there will be plenty of offices for rent in Warsaw. The supply gap, forecast for the years 2023-2024, will mainly concern A-class office space, which, however, will have a strong impact on the entire rental market.
“Due to the limited availability of new, high-standard space, tenants’ attention will be redirected to the existing facilities. Thus, we will come to the end of the tenant market, which became visible during the COVID-19 pandemic, when companies were reducing their office resources. The gap in new supply in Warsaw will restore the balance, and in the case of prestigious A-class products, we will come closer to the developer’s market,” says Henryk Bilski, Leasing Director at STRABAG Real Estate
A good address and design always included
The time of lockdowns made employers aware that an attractively located office is not only a work space, but one of the key tools for building a company’s identity, a place for interaction and strengthening ties with the team. Today, more than ever, convenient commuting to work, comfortable conditions and friendly interior design count more than ever.
“There are two trends worth noting, which were reinforced by the pandemic. On the one hand, we have a greater focus on the well-being of employees, on the other, employers want to attract them to work from the office through a well-designed space. Therefore, factors influencing comfort and well-being are important, i.e. adequate lighting, noise level and ergonomic furniture. We use more green plants that improve air humidity and bring a homely atmosphere. In addition, now our projects are dominated by space plans that take into account the hybrid work model – because many corporations decide to do so,” says Hanna Ruszkowska-Świąder, Head of Design Services Poland, Tétris.
The decision to rent space in older properties or B-class buildings available on the market does not mean that some companies will be a loss. The European Union requirements oblige the owners of this type of facilities to modernize them, inter alia, in order to support climate neutrality. An attractive address will always attract a tenant. It is worth adding that in the West, where the office base was built earlier than in Poland, ten-year-old buildings are not perceived as obsolete – they are still top locations.
Changes in lease agreements
According to Cushman & Wakefield’s estimates, the projected supply gap will become visible by 2025, which is mainly related to the uncertainty about the increase in construction costs. A large financial contribution on the part of developers will also translate into extending the duration of lease agreements. Moreover, pre-lease agreements, typical for the Austrian and German markets, signed several years in advance, will gain popularity.
“When competing for the most attractive buildings, tenants will be obliged to secure the office space for two or three years before the completion of construction. The slowdown in the area of new supply will motivate companies to change their strategy and plan their relocations in the long term, as it will no longer be possible to obtain office space six months in advance in Warsaw,” says Henryk Bilski, Leasing Director at STRABAG Real Estate
“In recent times, the importance of ESG (environmental, social, governance) aspects have become more and more visible, including the implementation of intelligent, ecological and safe solutions, allowing on the one hand the optimal use of resources and materials, and on the other – contributing to the protection of health and the comfort of employees. Due to the above goals, green lease contracts will become more common on the market. We are already witnessing the standardization of green clauses containing provisions on the joint efforts of landlords and tenants to manage and use office real estate in a sustainable manner,” says Dominik Rafałko, partner in the real estate and construction team at CMS
What will the tenants choose?
As Colliers indicates, the largest share of the lease structure in the first quarter of this year new transactions in Warsaw (52 percent). Companies from the sectors of finance, banking and IT were very active. According to market forecasts, the new supply gap will change the balance of power and increase the share of renegotiations and renewals of lease contracts in the buildings already occupied in the office market. Also, tenants considering relocation will be forced to choose a product from the pool of existing properties, targeting the cycles of expiring contracts. This, in turn, will be a challenge for the managers of older facilities. These types of office buildings have been revived in the face of the war in Ukraine and the needs of business operations transferred to Poland. How will they work in the event of a new supply gap?
“As a result of the changes taking place on the real estate market, people and their needs have once again become the focus of attention, and offices that guarantee well-being and care for the safety, health and well-being of employees have once again become a highly demanded product. The new properties we manage are equipped with many solutions improving the comfort of employees, while the older office buildings, which we also have in our portfolio, require some changes to fully meet the current market needs. We are transforming office buildings to their new purpose – fulfilling a social function (ESG – “S”), where the office building is less and less a workplace and more and more a meeting place for colleagues. Adaptation to the changed standards, adapting to the new needs of employees and a strong emphasis on sustainable, green and healthy office buildings are no longer a distinguishing feature, but a necessary condition to attract tenants and investors.,” Łukasz Mazurczak, managing director of MVGM Polska
Warsaw is stable for business
The last 11 years have shown the stability of the Warsaw office market. Fluctuations caused by global crises and declines in demand at the level of 20%. they are not able to weaken the position of Warsaw, which is ranked second in the European Cities and Regions of the Future 2022/2023 – Business Friendliness ranking. What will the market look like after 2025?
“The Warsaw office market will grow and the demand will remain at a stable, high level. Developers will also respond to this with new projects – although we will have to wait a while for this moment. At STRABAG Real Estate, we purchased a plot of land with the Atrium International office building in the center of Warsaw some time ago. It is an area that did not fully use its potential and development possibilities. That is why we plan to demolish the building and replace it with a modern A-class complex,” says Henryk Bilski, Leasing Director at STRABAG Real Estate
