According to Savills data, Wrocław’s office stock surpassed 1.2 million sq m at the end of 2020. The city retained its position as Poland’s second-largest regional city office market. Only Krakow and Warsaw have more office space. In 2020, office completions amounted to 58,500 sq m, the lowest in three years. This fall in supply was not, however, caused by Covid-19 as this was the level of completions planned before the pandemic began.
“Tenants have been stalling relocation decisions for a long time. Although a large proportion of employees continue to work remotely, conditions are paradoxically ripe for companies to begin thinking about where and how they would like their employees to work in the coming years. Tenants may now demand much larger lease incentives during lease negotiations,” says Michał Grabikowski, Regional Manager, Office Agency, Savills Wrocław.
Savills notes in its latest report that only one office project broke ground in Wrocław during the pandemic. Vacant space in office buildings completed in 2020 accounted for as much as 50% of their floorspace when they were given occupancy permits. Due to the pandemic, financial institutions are considerably more cautious about financing new office build and developers have become less willing to commence new construction.
At the end of December 2020, the development pipeline comprised more than 111,000 sq m of office space, most of which was under construction in the southern part of the city, along Powstańców Śląskich Street. This area has recently gained in importance and is expected to maintain its growth momentum in the coming years, says Savills.
As the market remains mired in uncertainty, the percentage of relocations has fallen sharply in Wrocław. In 2020, regearing accounted for as much as 52% of the transaction volume compared with the average for the previous three years at 32%. Last year’s leasing activity amounted to approximately 128,500 sq m, representing a 4% increase on the previous year. Net take-up, exclusive of renegotiations, was considerably lower at 59,900 sq m (down by 24% year-on-year).
Take-up by sector remained stable. The largest changes included the rising share of IT as Nokia renegotiated two leases for a total of almost 30,000 sq m. Leasing activity was also boosted by the financial sector and business services.
“Wrocław has always been a mecca for the tech sector, which continues to grow at speed despite pandemic challenges. Developers of software for the gaming industry and e-retailers in particular are planning to grow their headcounts. As the pandemic is brought under control, many businesses will want to return to in-office working, which is likely to boost demand for office space. Technology is becoming a signature industry for our city,” says Bartosz Plewa, Consultant, Office Agency, Savills Wrocław.
Despite the economic downturn caused by the pandemic, prime headline office rents held firm at between EUR 13.50-15.50/sq m/month. According to Savills data, older and secondary office buildings fetch rents of EUR 10.00-13.00/sq m/month.
At the end of December 2020, Wrocław’s vacancy rate stood at 15.0% (up by 2.3 pp year-on-year). Most Polish cities saw an increase in vacancy, but Wrocław’s vacancy growth was below the average of 3.1 pp for Poland’s eight largest regional cities. Additionally, the market has approximately 31,000 sq m of office space available for sublease.
“Tenants have recently benefited not only from rising vacancy rates and greater lease incentives, but also from a vast array of sublease listings. Organisations looking for office space have a chance of securing an office in prime buildings that previously enjoyed full occupancy. Additionally, they may move into ready-to-occupy offices available practically for immediate occupation on very good financial conditions. Given the cyclical nature of the economy, tenants are unlikely to enjoy the upper hand in negotiations for ever. More muted development activity may lead to less choice in the future, especially for tenants looking for larger spaces,” concludes Michał Grabikowski, Savills.