The average rented office space in Warsaw, the largest market in Poland, has decreased by as much as 1/3 over the last two years, according to REDD data. Investors can, however, rest easy. When it comes to thinking about offices, a revolution has taken place in the case of tenants and their employees, but only an evolution awaits the owners themselves in the coming years. And it’s rather organizational, because the money in this industry is still growing.
A hybrid reduces needs, not income:
The past two years have shown new opportunities for office tenants and they have quickly turned into a standard. These possibilities are, of course, mainly working from home. This can be seen in the REDD statistics from recent years.
From 2019 to the end of 2020, the average rented space in the capital decreased by almost 25%. In 2021, the market saw another decline here, this time by 7%. In a nutshell – from an average of 404 square meters in 2019, tenants changed their needs to approx. 277 square meters in 2021. In Q1 2022, we see an increasing average, but we will be able to provide an assessment of the trend after the end of the year.
“Most likely, the “3 days from office, 2 days from home” system has entered into office permanently. This is usually more convenient for employees, and because the boss does not need to have a full office staff all the time, he does not ask for such a large office by renting it,” explains Piotr Smagała, Managing Director and co-founder of REDD Group.
The time needed to commercialize office space has also increased significantly. Just before the pandemic, it was 145 days. At the end of 2021, it was already a whole year! In the first quarter of 2022, it is already over 500 days in Warsaw. Such data could indicate equally significant (and negative) changes for the finances of real estate owners, but here, as it turns out, it is the same, and sometimes even a big plus.
What is this paradox?
The average leased space is falling, but the value of the office buildings themselves is growing very rapidly. REDD data shows that some owners may have gotten more than ten percent in recent years.
“We checked it on three sample properties in Warsaw. Their total value in 2019 is PLN 3.6 billion. More than two years later, you would have to pay 4.3 billion for them. Interestingly, these buildings gain value faster than the income from them. So investors can basically just wait, their portfolio grows by itself. An enviable situation, I am not hiding it,” says Piotr Smagała.
Revenues from the aforementioned real estate in 2019-2021 are: PLN 229, 231 and 237 million, respectively. Almost none, when compared to the value of office buildings. As shown by REDD data, rents in the office real estate market are stable.
Slight fluctuations of up to 5% are the norm. The terms of signed rentals are also not significantly shortened. It is very similar with the number of transactions: in the aforementioned period, a slight decrease was recorded only in 2020, but the next year gave a higher result than in 2019.
According to REDD experts, changes in the office real estate market will come, but not revolutionary. Certainly, it will be necessary to better plan the lease and construction of new office buildings. Here you will need data and an increasingly efficient system of multi-level analysis.
