The market is growing rapidly, since 2012 office space has increased by almost 70%. A record high 146,900 sq m was delivered to the market during 2016.
According to Savills, in 2017 modern office stock is expected to significantly exceed million sq m, with another almost 300,000 sq m in the pipeline for 2018 – 2019. The largest project in the city currently under construction are: O3 Business Campus II&III (38,200 sq m) by Echo Investment, Enterprise Park E&F (26,400 sq m) by Avestus and High 5ive E&D (20,600 sq m) by Skanska.
“Kraków is not only the largest regional office market in Poland but also leading business services hub in Europe with great potential. In the years to come, the office market in the city will grow even more”, explains Tomasz Buras, Head of Poland at Savills.
Demand side of the market is in line with strong supply. In 2016 the highest level of letting activity ever recorded at 187,800 sq m was observed – the third year in a row of record high demand. Almost half of lease agreements was in the form of pre-lease i.e. signed in a building yet to be delivered to the market, further 25% of the total volume took the form of new leases and relocations.
During 2016 companies from the IT sector were the most active tenants as they leased 23% of the total take-up. The largest lease agreements in 2016 include: a pre-lease of AON Hewitt in Enterprise Park E (10,700 sq m); a pre-lease of Euroclear Bank in Bonarka for Business G (10,000 sq m) and an expansion (also pre-lease) of ABB in Axis (10,000 sq m). Net absorption in 2016 stood at 110,300 sq m, over 40% above the 2015 level.
The vacancy rate in Kraków was the second lowest compared with other regional markets. At the end of 2016 vacancy rate stood at 7.2% (66,200 sq m). The vacancy rate in 2017 is expected to remain low as over 40% of the 2017 pipeline is already pre-let.
Prime headline rents are now in the range of EUR 13.00 – 14.50 per sqm/month. However, effective rents are 20% lower than headline rents as landlords offer incentives. Not only incentives such as rent-free periods and fit-out budget are offered but also some additional solutions and amenities to help companies retain employees e.g. concierge.
Headline rents are expected to remain stable, however as developer activity is very high landlord may increase incentives for tenants widening the gap between headline and effective rents.
Office market in Kraków is now strong, dynamic and very attractive to companies. There are some evidence of that: a high share of pre-lease and new lease agreements in the total volume of letting activity, the low vacancy rate despite record high developer activity and increasing number of buildings occupied by single tenants (e.g. Axis leased to ABB; Bonarka for Business G leased to Euroclear Bank and DOT Office A – C leased to Shell Business Operations).
“Kraków offers world-class offices, well-educated employees and high living standard”, concludes Dorota Ejsmont, Head of Landlord Representation Office Agency at Savills.