Warsaw Office Market in Q1 2019

At the end of March 2019, the office space in Warsaw reached 5.5 million sq m. In the period from January to March, three office projects were completed: the second stage of the Spark complex (building B, 15 700 sq m) developed by Skanska Property Poland, a modernized tenement house Poznańska 37 (3,000 sq m), owned by Icon Real Estate and a small building in Prague – Kaleńska 5 (1 500 sq m). Despite the relatively small new supply put into use in the first months of 2019, if developers keep their deadlines, in 2019 they will deliver a total of 240,000 sq m to the market, slightly more than in 2018. This year the following projects, among others, are planned to be completed: Mennica Legacy Tower (66,000 sq m, Golub GetHouse), Chmielna 89 (26,000 sq m, Cavatina Holding) and Wola Retro investment (25,000 sq m, LC Corp).

During the first three months of 2019, the construction of only two office projects with a total area of 25,000 sq m was started. However, it can not be said that the activity on the developers side decreased, as at the end of March this year nearly 767 000 sq m of office space was under construction. The largest investments in progress are: Varso Place (114,000 sq m, HB Reavis) in front of the Central Railway Station, The Warsaw Hub (76,000 sq m, Ghelamco Poland) built at the Daszynskiego Roundabout or the Mennica Legacy Tower (66,200 sq m.) Golub GetHouse.

In the first three months of 2019, lease agreements for 140,000 sq m were signed on the Warsaw office market. Registered demand for office space was 40% lower than the volume recorded in the fourth quarter of 2018. However, this result does not have to be a sign of a decrease in the demand for office space. According to historical data, the volume of lease agreements in previous years never exceeded 200,000 sq m in the first quarter, while the subsequent quarters compensated the lower volume recorded in the first three months of a given year. New agreements concluded in existing buildings and in projects under construction amounted to 47% (including areas for own use of the owner) and 16% respectively. Other transactions were renegotiations of contracts – 28% of the total leased space, and expansions – 9% of the total volume. The Sluzewiec, Central Business Area and Jerozolimskie areas enjoyed the greatest interest among tenants.

The lower activity of the tenants and the completion of three office projects which were 70% vacant, contributed to a slight increase in the vacancy rate in Warsaw, which at the end of March amounted to 9.1% (501 000 sq m of available office space) and was 0.4 pp. higher than the result recorded at the end of 2018. However, over the last year, the vacancy rate in the capital has decreased by 1.7 percentage points, still remaining at the lowest level since 2012. The largest decrease in the vacancy rate was recorded in non-central zones, especially in the Zwirki i Wigury area (a decrease of 9.6 pp during the year). Such a significant change in the situation was influenced by the successful commercialization of the Business Garden complex put into use at the beginning of 2017. Most office space was offered in Sluzewiec – 220,000 sq m and in central zones – 135,000 sq m.

At the end of March 2019, a slight increase in asking rates in the best locations was observed. Initial rents in the Central Business Area, taking into account new prestigious projects, are in the range of 20-25 EUR / sq m / month, while in other central locations from 15 to 22 EUR / sq m / month. Asking rents outside the center range from 10 to 15 EUR / sq m / month. Due to the wide range of incentives that building owners offer future tenants, effective rates remain 15-20% lower than asking rents.