Regional Office Market in Q1 2019

At the beginning of 2019, the lively activity of developers continued to be visible on regional office markets. The volume of new supply was higher than in the last quarter of 2018 and comparable with the quarterly average new supply recorded in recent years. On the other hand, few developers started new constructions in the first months of the year, which meant that the supply in construction was lower than at the end of 2018. However, due to the completion of not fully commercialized investments, an increase in the vacancy rate has been recorded. Tenants’ activity in the first quarter of 2019 was weaker than in the previous quarters, although comparable to the level from Q1 2018. This does not mean, however, that less activity of tenants in the first months of the year will translate into a slowdown throughout 2019. There was also a slight increase in rental rates.

Office market in Krakow

In the first quarter of 2019, 14,100 m2 of modern office space in six projects were completed on the Krakow office market. This result, along with Poznań (comparable volume) is one of the highest among six regional cities. As a result, total office resources in Krakow reached the level of 1.3 million m2, leaving the capital of Malopolska as the leader among the most dynamically developing regional markets. In addition, at the end of March, 194,000 sq m was under construction, of which more than 70% will be delivered to the market later this year. The biggest investment in construction is two stages of High5ive with a total area of 36,700 m2. In the first quarter of 2019, developers’ high activity was accompanied by unflagging demand for office space. In the first three months of the year, the volume of lease transactions was over 54,000 m2 and was comparable to the quarterly average for the last two years. The first quarter of 2019 saw an increase in the vacancy rate (1.5 pp q / q), which at the end of March amounted to 10.1% (132,000 sq m available for lease). The increase in the vacancy rate was influenced by new office projects in which, at the time of commissioning, more than half of the space was unoccupied.

Office market in Wroclaw

At the end of March 2019, total office resources in Wrocław reached 1.07 million m2, thus the city maintained second place among six regional markets. After the record-breaking new supply recorded in 2018, the beginning of the year in the capital of Lower Silesia in terms of newly completed projects began quite calmly. Only one office building was commissioned (City Promenady Business Park – Zita, Wrocław Forum: City One, 11,200 m2). However, one can not speak about the decline in developers’ activity, as 211,000 m2 remained under construction, of which almost 65% is planned to be completed by 2019. Business Garden remains the largest investment in the total area of 76,800 m2. At the end of March 2019, the vacancy rate in the Wrocław office market dropped by 0.6 pp. QoQ. up to the level of 8.5% (90,400 sq m of office space available for rent). The reduction in the index was caused by limited new supply, which at the time of delivery to the market was almost entirely commercialized. The demand for office space in Wroclaw is not diminishing. The volume of lease transactions at the end of March 2019 amounted to 39,900 m2. This result was 32% higher than in the corresponding period of 2018.

Office market in the Tri-City

In the first quarter of 2019, two office projects with a total area of 15,000 sq m were completed in the Tri-City, thus the total office resources in the city were estimated at 790,000 sq m. At the end of March 2019, there were 134,000 m2 under construction and if the developers meet the planned dates, 54,000 m2 of this area will go to the Tri-City market later this year. Thus, the new supply recorded in 2019 will be only 10% lower than the result recorded in the analogous period of 2018. The Alchemia – Neon project with a total area of 34,000 m2 remains the largest project under construction. The first quarter of 2019 brought much less interest in office space – contracts for only 9,100 m2 were signed. This result was lower by half than in the fourth quarter of 2018 and by over 60% lower than the quarterly average for the last two years. Despite the few lease transactions, the first three months of 2019 brought a further decline in the vacancy rate in the Tri-City, which at the end of March amounted to 5.4% and was the lowest since 2007. This result is also the lowest level among the six major regional markets.

Office market in Katowice

After the intense end of the year, the first three months of 2019 in the Katowice office market have passed quite calmly. Since the beginning of the year, no new project has been completed, so the total office resources estimated at 519,000 m2 remained unchanged compared to the fourth quarter of 2018. However, this is not a sign of a slowdown in the Katowice market, as there are 86,000 sq m in progress. Almost half of this area is planned for commissioning in 2019. Two phase of the Face2Face investment with a total area of 44,800 m2 remain the largest project under construction. In the first quarter of 2019, approximately 12,100 sq m of office space was the subject of a lease. It is much higher than the average quarterly value from the last two years (8,700 m2). As the vast majority of the space leased was pre-lets, the vacancy rate remained unchanged from Q4 2018 and was 8.8%.

Office market in Poznan

In the first quarter of 2019, only one investment – Poznań Business Garden, with a total area of 47,100 m2, was completed in Poznan, but it constituted 38% of the total volume of new supply recorded in this period in the six largest regional cities in Poland. Thanks to the completion of this project, the total office resources in the city exceeded 0.5 million m2. In addition, if the deadlines for putting an investment into construction (a total of 67,000 m2) will not be postponed, 2019 may be a record year in the history of the Poznań market in terms of new supply. The New Market with an area of 37,000 m2 remains the largest project under construction. In the first three months of the year, tenants’ activity was extremely limited. Lease agreements were signed for only 3,900 m2, of which almost 80% were renegotiations. In connection with putting into use the fully vacant Poznan Business Garden project, this translated into a significant increase in the vacancy rate to the level of 15.8%, the highest in fifteen years and the highest among regional office markets.

Office market in Lodz

In Łódź in the first quarter of 2019 total office space increased by only 2,300 m2 and amounted to 471,000 m2. Only one Sepia Office project has been completed as part of the OFF Piotrkowska Center investment. However, one can not talk about the slowdown in the Lodz market, because the very high volume of new office space is under construction. Of the 110,000 m2 of space under construction, approximately 65% ​​will be delivered by the end of 2019. Two buildings of the City Gate with a total area of 38,000 m2 remain the largest investment in construction. In the first three months of the year, approximately 15,100 sq m was leased in Lodz, which is comparable to the average quarterly volume in the last two years, albeit higher than in the first quarters of previous years. The relatively high demand with limited new supply translated into a drop in the vacancy rate to the level of 7% (from 8.7% in the fourth quarter of 2018). It was one of the lowest indicators recorded in regional cities.