JLL: Warsaw office market in excellent condition

Almost 425,000 square meters (4.6 million square feet) of modern office space was leased in Warsaw in first half 2018, while an additional 700,000 square meters (7.5 million square feet) of offices remain under construction. Rents increased on a par with decreasing vacancy rates. New coworking concepts are beginning to gain traction as well.

Advisory firm JLL summarized the situation on the Warsaw office market at the end of first half 2018.

Demand for the City Center

“Warsaw is one of the most active markets in terms of the development of modern office space in Europe. Demand is clearly driven by a constant influx of new international companies, expansion of those already present as well as firms’ transfers from older to more modern office buildings, located predominantly in the center. In the first half 2018, the occupier activity totaled 424,700 square meters [4.6 square feet],” said Mateusz Polkowski, head of research & consulting at JLL.

The City Center, with 113,000 square meters leased, was the most popular zone among tenants, especially with those entering the market. Together with the Central Business District (90,700 square meters/976,000 square feet) and Mokotów (92,600 square meters/997,000 square feet), they account for 70 percent of the total take-up in Warsaw. The most notable deals concluded in the first half of 2018 included a new deal signed by the Polish Financial Supervision Authority for 14,800 square meters (159,000 square feet) in Piękna 2.0, the pre-let by Cambridge Innovation Center (CIC) for 13,500 square meters (45,000 square feet) in Varso II and a renewal by PLL LOT for 11,800 square meters (127,000 square feet), its headquarters.

Coworking spaces are conquering Warsaw

Warsaw’s excellent performance was made possible by companies from a very wide range of sectors being active on the market. This high demand, to a large extent, can be attributed to the modern business services, consulting and banking sectors, as well as coworking operators. The latter accounted for 21.5 percent of the total demand volume of central areas during the first half 2018.

“The growing popularity of coworking concepts stems from the changing work style of the millennial generation as well as the growing competition for talent on the labor market. Employers look for new ways to attract and retain specialists and are offering modern coworking spaces, which are well equipped in terms of technological solutions. Warsaw is now reflecting this worldwide trend. As a consequence, coworking operators have become an increasingly important source of office space,” said Tomasz Czuba, head of office agency, JLL.

Supply under construction

“Currently, the total under-construction volume in Warsaw totals 700,000 square meters [7.5 million square feet], which will be delivered to market by 2020. Developers are most active in the city center. However, as Warsaw is one of the most absorptive markets in Europe, this volume will not affect the balance between supply and demand,” added Polkowski.

The new supply of office space added to the market in H1 2018 totaled 15 buildings with 173,700 square meters (1.9 million square feet) of office space. Another 57,000 square meters (614,000 square feet) is planned for completion by the end of the year. The biggest projects include: Proximo II (20,000 square meters/215,000 square feet), Equator IV (19,100 square meters/206,000 square feet) and Koneser H&O&P (17,300 square meters/186,000 square feet). The biggest developments that are scheduled to be completed by the end of 2020 are Varso (more than 100,000 square meters/1.1 million square feet) , The Warsaw Hub (almost 80,000 square meters/861,000 square feet) and the Mennica Legacy Tower (60,000 square meters/646,000 square feet).

Vacancy rate and rents

“It is worth mentioning that the vacancy rate in the central zones now stands at 7.9 percent, which is the lowest it’s been since 2012. Warsaw has reached the bottom of the rental cycle and some rental pressures may be experienced along with increasing labor and construction costs. This phenomenon is characteristic for the biggest business locations in Europe. Nonetheless, we forecast that rental rates in Warsaw will stabilize in 2019–2020,” added Czuba.

By the end of June 2018, the vacancy rate in Warsaw was 11.1 percent. The index in Non-Central zones was 13.1 percent. Prime headline rents remained stable in first half 2018 with the exception of the City Center West zone. In central Warsaw, rents are currently quoted at €17/ square meter/month to €23/square meter/month ($20/square foot/month to $27/square foot/month), while prime assets located in the best non-central areas lease for €11/square meter/month to €15/square meter/month ($13/square foot/month to $18/square foot/month.