Comparable to previous years, the volume of new supply in the Łódź office market in 2022, combined with relatively low demand, contributed to a significant increase in the vacancy rate. At the end of 2022, it stood at 21%, the highest vacancy rate recorded in regional cities.
The total office stock in Lodz at the end of 2022 was more than 631,000 sqm. From January to December, developers delivered nearly 43,300 sqm of modern office space. The largest projects completed during the period were Echo Investment’s Fusion C and D complex (18,700 sqm) and React I (14,200 sqm). The volume of completed projects was a result close to the average annual supply of the last 5 years, amounting to more than 39,000 sq m, and accounted for 11% of the office space completed in 2022 in regional cities. In Q4 2022, only one intimate office project was completed – Milionowa 21 with 1,800 sqm.
Developer activity in Lodz remains at a fairly high level. At the end of 2022, more than 48,100 sqm of modern office space was under construction, 85% of which is expected to be completed in 2023. The largest developments remaining under construction at the type stage include Widzew Manufaktura (29,880 sqm, Cavatina Holding) and another building in the Fusion complex (8,300 sqm, Echo Investment).
“The direction of transformation that the city has been consistently pursuing for many years seems to be the right choice. This is confirmed by Lodz’s high positions in Polish and international rankings. Tenant activity in 2022 remained at a level comparable to the previous year. The volume of transactions in Lodz in all of 2022 amounted to nearly 48,400 sqm, which accounted for less than 8% of all leases made in regional cities. Nevertheless, it should be noted that current tenant activity is nevertheless lower than in the years before the pandemic, and compared to the average annual demand of the last 5 years of more than 55,000 sqm,” – Filip Kowalski, Negotiator in Tenant Representation at Knight Frank, comments.
In Q4 2022, leases were signed for nearly 11,100 sqm. The structure of transactions in the past year was dominated by new agreements (74%). Renegotiations accounted for 21%, and expansions amounted to just 5%.
“Due to the significant amount of new office space delivered to the Lodz market in 2022 and demand remaining relatively low, although close to the result of
of 2021, the vacancy rate compared to the end of 2021 increased by as much as 5.2 pp. to 21% at the end of December 2022. This is still the highest vacancy rate recorded in regional cities, although the fourth quarter of 2022 brought a decrease in the rate by 1 pp,” – adds Katarzyna Bojar, Consultant in Market Research at Knight Frank.
Asking rental rates in the Łódź office market at the end of 2022 ranged from EUR 9.00 to EUR 15.00 per sqm per month.
The continued very high availability of office space may encourage tenants to undertake rent renegotiations and incentive packages. On the other hand, high construction costs, as well as an increase in the cost of servicing construction loans, may effectively inhibit investors’ negotiating power, especially in new buildings. There is also still a noticeable increase in service charge rates due to the progressive increase in the prices of services and utilities, which at the end of December 2022 were in the range of PLN 15.00 to PLN 21.00/sq.m./month.
