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27 (122) 2016
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Real Estate & Construction

Krakow’s office market in comparison with other Polish cities

By Krzysztof Misiak, partner, head of regional cities, Cushman & Wakefield
Header krzysztof misiak

 

Krakow, a leading European city on the outsourcing market, is an attractive investment destination.

Factors attracting overseas companies to the city include multiple institutions providing support to foreign investors, modern office space stock and easy access to multi-lingual talent. Krakow also boasts a high quality of life and a convenient location at Poland’s main thoroughfares.

Krakow was ranked the ninth best outsourcing location in the world in the Top 100 Outsourcing Destinations ranking published by Global Services and Tholons earlier this year. It is also the number one city in Europe, ahead of Dublin and Prague, at the tenth and 14th places of the global ranking, respectively. Other top Polish cities were Warsaw, ranked the 25th, and Wrocław listed as the 58th. Krakow’s key assets include investor support, lower labour costs and office rents compared to Warsaw and availability of qualified staff graduating from local universities. Krakow’s healthy office market is also driving the development of the city’s hospitality sector, which is witnessing an increasing number of hospitality projects breaking ground as the city is one of key tourist destinations in Europe.
   
Krakow is home to local headquarters of many international corporations, including Akamai, Capgemini, Cisco, Electrolux, Shell, UBS, Google, FedEx, Capita, HSBC, IBM, Lufthansa, Amway and Symphony. Many are considering further expansion. Akamai (IT sector) has renegotiated and expanded its lease in the Vinci Office Center up to 7,500m², while Brown Brothers Harriman (BBH), a global financial services firm, has signed a lease for another 7,500m² in the Orange Office Park to increase its total occupied space to more than 14,500m² in its next phase of expansion.

Regional cities benefit from the BPO/SSC and BSS sectors

According to the Polish Information and Foreign Investment Agency, the Polish business services sector (BSS) employs more than 190,000 staff across 852 companies. The largest concentration of BSS businesses is in Warsaw (160), followed by Krakow (119) and Tri-City (109). In terms of employment, the top cities are Krakow (44,500), Warsaw (36,700) and Wrocław (30,300). The dominant cities among the 36 BSS companies with more than 1,000 employees are Krakow (9), Wrocław (5) and Warsaw (4).

Polish regional office markets benefit from the continued growth in the Poland’s BPO/SCC sector. Krakow’s total office stock is expected to rise from around 833,000m² to 1 million m² over the next two years. New office projects under construction in the city include Skanska Property Poland’s Axis and a private investor’s Vistula Business Garden, whilst the largest completions in H1 2016 were Echo Investment’s O3 Business Campus I (16,370m²) and TriGranit’s Bonarka 4 Business F (10,100m²).

Warsaw, Krakow. Which city next?

According to global real estate services firm Cushman & Wakefield’s recent report Property Times: Office Market in a Growth Phase on the Polish office market in H1 2016, Poland’s total office stock in Warsaw and eight largest regional cities (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Szczecin and Lublin) stands at 8.7 million m². The largest office markets are Warsaw (5.0 million m²), Krakow (833,000m²), Wrocław (757,000m²) and Tri-City (629,000m²). Strong tenant demand has led to a large volume of office pre-lets in regional cities. The highest levels of new supply to be delivered by year-end 2016 are expected in Krakow (87,800m²), Tri-City (46,800m²) and Katowice (44,700m²).

Leasing transactions in Poland’s eight regional agglomerations totalled 248,000m², representing a 12% year-on-year growth. The highest take-up volumes were posted in Kraków (112,000m²) and Wrocław (36,500m²), whilst in the smallest markets of Szczecin and Lublin only 3,600m² in total was transacted. As in previous years, demand for modern office space in regional cities came largely from IT, insurance and banking sectors.

The largest hikes in occupied space were in Warsaw (133,400m²), Krakow (48,000m²) and Tri-City (31,500m²), whilst absorption levels fell in Katowice (-68%) and Szczecin (-78%) compared to H1 2015. Vacancy rates averaged 13.4% for Poland and 10.8% for its regional markets. The lowest vacancy rate was in Krakow (6%), whilst the highest in Szczecin (17.7%). Compared to the end of H1 2015, the strongest rise in vacancies was in Katowice (up by nearly 6.5 percentage points).

Rents remained relatively stable in most office locations in H1 2016. Headline rents stood at €24 per m²/month in Warsaw’s city centre and at €13–€16.5 per m²/month in non-central locations. Regional cities saw their rents at €12–€14.5 per m²/month.

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