Depending on who you ask to describe those changes – developers, investors, tenants or authorities – every one of them will point out some different aspects. Nevertheless, all of those features create the landscape of the Polish office sector and they all affect each other. On the basis of our research, we identified the most important trends that have occurred in the market within recent years and may determine the directions of its further development.
Dynamic increase of supply in major markets and a growing international developers activity
At first, the most visible aspect is a dynamic growth of office stock, which increased by about 50% in the past five years. At the end of September 2016, there was about 8.5 million m2 of modern office space in Warsaw and six other major regional cities, with a further 1.3 million m2 under construction. The office market in Warsaw has already exceeded 5 million m2. Kraków – the second largest office market in Poland, will approach 1 million m2 by the end of next June. Wrocław and the Tri-City are the other two most mature markets, both exceeding 500,000 m2 in recent years.
A significant change observed in all major regional cities is the growing interest of international developers. Previously, they focused development activity mainly in Warsaw, while in regional cities like Kraków, Wrocław, the Tri-City, Katowice, Poznań or Łódź, office space was delivered mainly by local investors. Modern office projects by international companies were few and far between. Over recent years, in each of the above-mentioned cities, we can find at least several A-class projects representing the highest world quality.
New locations – developing markets
Apart from Warsaw and the major regional cities, we’ve observed the formation of new office markets in medium-sized cities over recent years. These cities are defined as developing office markets and with populations between 100,000 and 400,000 inhabitants, such as Szczecin, Lublin, Bydgoszcz, Torun, Rzeszow, or Olsztyn, where the office sector is still at an early stage of development. Developing markets are able to offer highly-qualified professionals, improving infrastructure, competitive real estate prices and a friendly environment for investors with support from the local authorities. Projects in the pipeline in those markets most often include local developers’ investments.
Strong demand with significant role of BPO/SSC sector
Volumes of take-up in the Polish office market are beating records year-on-year. In 2015, about 1.3 million m2 was subject to lease in Warsaw and six major regional office markets. In 2016, take-up will certainly exceed 1 million m2, as within the period of Q1-Q3 2016 more than 900,000 m2 were leased by signing lease contracts. The press regularly publishes information about the entry of new businesses on the market. In Warsaw institutions from the financial, public, telecoms and IT sectors traditionally have a large share in the lease agreements volume. In regional cities, an essential role is played by tenants in the dynamically growing business services sector, which currently employs above 200,000 people in the whole country and that number is expected to grow. According to our estimates, BPO/SSC, IT and R&D centres currently occupy around 20% of office space in the Tri-City to nearly 50% of office stock in Krakow. Their share will increase together with the projected employment growth in the sector and with opening other business services centres in the country.
Polish office market attracts capital markets
The dynamic development and attractiveness of office sector are reflected in the capital market. Poland’s office market is the best developed when compared to other countries of Central and Eastern Europe. The most important difference within the last five years is the changing perception of regional markets by institutional investors. After the global financial crisis, until 2013, acquisition of office buildings outside Warsaw was rare and regional cities were perceived as risky, the markets insufficiently liquid. However, since 2014, investment funds have been showing greater interest in office assets located outside of Warsaw. As a result, in 2015, the office assets purchasers were focused mainly on regional markets. The value of office investment transactions in regional cities accounted for over 66% of the total office transaction volume reaching the highest level ever – €880 m. And in recent years, the office stock in Kraków, Wrocław and the Tri-City exceeded the threshold of 500,000 m2 of office space thanks to which they are now perceived by investors as liquid markets attracting more investment capital.
Higher standards, higher tenants’ expectations
Although location (including transport connections to the office building and amenities like cafes and restaurants in the neighbourhood) has still been one of the key factors for building occupants, the increasing quality of office space goes hand-in-hand with growing expectations of tenants. Developers are competing among themselves not only in terms of location or rent exemption. The next trend that has shown strong growth over the last couple years is green and sustainable development. Environmental awareness of tenants results in an increasing emphasis being placed on energy-efficient buildings, water saving, limitation of heat production and loss or operating costs optimisation. LEED or BREEAM certificates have become the standard for of new A-class projects. Some owners of older schemes are also trying to implement some of those solutions on the occasion of modernisation of existing buildings.
There has also been a change in attitude to office space as a working environment. A modern office is not only an open space with rows of desks. Modern air-conditioning and ventilation systems, natural lightening, height adjustable desks, flexible space arrangement and system of zones dedicated to different types of working activities (e.g. zone of a quiet work, ‘phone boxes’, places for team-working), cosy kitchens and relaxation zones have to guarantee employees with the comfort they need, while an original fit-out style is supposed to increase a companies’ image.