Warsaw office market continues to flourish
Positive sentiment among tenants, developers and investors are reflected in the spectacular demand for office space and reduced vacancy rates in the Warsaw office market, according to JLL. The growing presence of co-working companies is another sign of an expanding market.
“The Warsaw office market’s bullish mood continued with the market remaining on-course to deliver outstanding 2018 results,” said Mateusz Polkowski, head of research and consulting at JLL. “An ever-increasing number of companies and institutions are investing in Warsaw’s real estate. These include both companies looking to set up operations here as well as funds seeking investment opportunities. Such positive market sentiment is illustrated by the truly spectacular demand for offices in Warsaw, a decreasing vacancy rate and the growing range of products that the market has to offer. From January to the end of September 2018, tenant activity came in at nearly 632,000 square meters [6.8 million square feet],” says Mateusz Polkowski, head of research & consulting at JLL.
A closer look at demand for offices in Warsaw submarkets shows that the City Center leads the way with 178,000 square meters (1.92 million square feet) transacted, followed by Mokotów, with 138,000 square meters (1.49 million square feet) leased, with the CBD completing the top three with 136,000 square meters (1.46 million square feet).
“The most notable transactions included a renewal and expansion by Deloitte in Q2. This lease deal confirms that tenants increasingly pay attention to the location of the property, its functional features, amenities in the immediate area as well as to the long-term possibility of expanding the office within the building,” said Jakub Sylwestrowicz, head of tenant representation at JLL. “It is also worth noting that besides international companies that enter the Polish market, a source of demand is also generated by the public sector, with the Polish Financial Supervision Authority’s choice of the Piękna 2.0 building as a prime example.”
Currently, the hottest trend in the city is the rise of flexible spaces operators, with some of the most active ones being Regus, Spaces and WeWork.
“All flex operators leased 86,000 square meters [926,000 square feet] of office space in first quarter to third quarter 2018. This expands the offering of the market in Warsaw and creates new structures that are complementary to traditional leases. The model of work is evolving and commercial real estate is both benefiting from and adapting to it,”added Sylwestrowicz.
"The growing demand for office space is addressed by developers who conduct projects that change the skyline of modern business Warsaw. The new supply in first quarter to third quarter 2018 totaled 190,000 square meters [2 million square feet]. Currently, the total under-construction volume amounts to 740,000 square meters [7.97 million square feet]. However, as Warsaw is one of the most absorptive markets in Europe, this volume will not affect the balance between supply and demand,” explained Polkowski.
The largest projects delivered to market in 2018 include: Proximo II, Equator IV and Koneser.
The vacancy rate in Warsaw has continued to fall and by the end of third quarter 2018 had dropped to 10 percent. The vacancy rate in central zones now stands at 6.6 percent, which is the lowest since 2012.
Prime headline rents increased in the central areas of Warsaw due to the high demand and low vacancy rate (which is far below the city’s average) and increasing construction costs (approximately 15 percent to 20 percent growth since 2012). Here prime rents are currently quoted at €17 to €23.5/square meter/month ($19 to $26.7/square foot/month), while prime assets located in the best non-central areas lease at €11 to €15/square meter/month ($13 to $18/square foot/month).
