The office market in Poland continues to develop apace. Over 3.9 million sq m of modern office space was delivered throughout Poland over the last seven years. Furthermore, a majority of this space has been effectively absorbed by the market. From 2017 to 2019, it is expected that another approximately 2.5 million sq m will be delivered to market with nearly 40% (950,000 sq m) being located in Warsaw alone. Developers also aim to complete a further 400,000 sq m of space in Kraków, which is the biggest destination for business services centres in this part of the world.
The activity ratio gives rise to a natural question: will all this space find tenants?
Global players flock to Poland and are leasing offices
“In recent years, Poland has become an extremely attractive business destination for numerous global brands that both launch and develop their units in the country, providing services for increasingly advanced processes. The most important examples of new investments in recent years, or even months, include State Street and Swarovski in Gdańsk; Credit Suisse, Dentons, DLA Piper, Goldman Sachs, William Demant in Warsaw; Red Embedded and UBS in Wrocław; TRW and Whirpool in Łódź; Guidewire, Uber and Zurich Insurance Group in Kraków as well as Rockwool in Poznań. Although these companies already occupy substantial office space, they continue to develop and as a result generate demand for additional square metres”, comments Tomasz Trzósło, Managing Director, JLL Poland.
In Warsaw, the share of expansion agreements in overall demand was 10% (75,900 sq m) in 2016 while on regional markets it was 13% (20% in Kraków). What is also significant is the percentage of pre-let agreements in the demand for office space, especially outside Warsaw - pre-let deals accounted for 38% of overall demand on regional markets. In total, the volume of pre-let agreements in Poland exceeded 347,000 sq m in 2016.
“The sound performance of the office market in 2014-2016 was underpinned by strong demand and net absorption. During the last three years, companies leased in total nearly 4 million sq m of space on the major office markets in Poland. Considering the strong development among firms, including those from the business services sector, we can expect the demand to hit a total of 5 million sq m in the next three years (2017-2019)”, says Mateusz Polkowski, Head of Research and Consulting, JLL Poland.
New office buildings still in demand
Consolidations and growth of companies already operating on the market generate the need for new offices. As a result, demand for large space is often focused around objects that are either under construction or even scheduled to be developed. Therefore, office developers continue to launch new investments, even if this is on a speculative basis, expecting interest among major market players. In parallel to the consolidation trend visible among large entities, some corporations have decided to launch their units in smaller cities.
Change in the office landscape
“Another change happening on Poland's office market is the revision of lease strategies among property owners of older buildings. Typical locations for international giants primarily constitute the most modern objects. As a result, owners of older office buildings focus on smaller companies or decide to change the function of the whole investment. This was the case with Mennica Polska which decided to demolish the Aurum office building and develop a residential project. Furthermore, older office buildings are more frequently replaced by newer, larger investments especially when their location is attractive and allows for higher objects. Such a solution will be the case with, for example, Illmet in Warsaw. As a result, the market will attain modern investments while older and less commercialized projects, unadjusted to the needs of tenants, will be withdrawn”, adds Mateusz Polkowski.
“The office market in Poland is facing numerous challenges but remains in good shape. It is characterized by high demand and net absorption. Large scale of investments is counterbalanced by robust demand. In 2017-2019, we can expect approx. 2.0 - 2.5 million sq m of newly developed office space to be delivered and just slightly lower net absorption – that is the demand for additional space from tenants – provided that current trends will continue. Therefore, future prospects for the office segment remain – in our opinion – most definitely positive”, summarizes Tomasz Trzósło.