New office supply reached nearly 236,000 sq m in Poland’s key regional cities in Q1-Q3 2023, says international real estate advisory firm Savills. Gross take-up for the same period amounted to over 531,000 sq m, an increase of 19% year-on-year.
At the end of September 2023, the combined office stock of Poland’s key regional cities (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin and Szczecin) stood at 6.63 million sq m. According to Market in Minutes: Office Market in Regional Cities, the latest report from international real estate advisory firm Savills, Poland has three regional cities with more than a million square metres of office space each (i.e. Krakow, Wrocław and Tricity) and three with between 600,000-750,000 sq m each (Katowice, Poznań and Łódź), while the two smallest markets (Lublin and Szczecin) have under 225,000 sq m of office space each.
The regional city markets reported 16 office completions in the year to date with a combined area of over 236,000 sq m. The largest new projects delivered in 2023 are Cavatina’s Building B5 of the Ocean Office Park in Krakow (28,600 sq m), Ghelamco’s Craft in Katowice (26,700 sq m) and Skanska’s Building E of Nowy Rynek in Poznań (25,100 sq m).
At the end of September 2023, there was close to 482,000 sq m of office space under construction in the largest regional cities, a decrease of 19% from the same time in 2022. Of that total, nearly 92,000 sq m is scheduled for completion in the fourth quarter of 2023, with another 227,000 sq m expected to be delivered in 2024. The highest office development pipeline of 121,700 sq m is in Wrocław, followed by Krakow and Katowice, with 86,000 sq m and 84,200 sq m respectively.
According to Savills data, office take-up on the regional city markets reached nearly 532,000 sq m in the period January-September 2023 – an increase of 19% year-on-year. The sector that generated most demand was IT, which accounted for 28% of total take-up, equating to more than 148,000 sq m. Other significant occupiers were manufacturing (12%), business services (11%) and financials (10%). Flexible office providers leased more than 19,000 sq m, accounting for 4% of the total leasing activity.
“Considering the strong demand for offices in regional cities, we expect leasing activity for the whole of 2023 to be close to that recorded in the peak year of 2019. There is a growing trend among tenants towards optimising office space through in-depth analyses of office requirements during relocation processes. Offices in city centres with easy access to public transport services are in demand. Some companies are choosing to downsize offices, sometimes in favour of more prestigious locations, more efficient office usage and employee-friendly fit-outs. ESG and EU taxonomy requirements are an increasingly important factor for tenants when it comes to selecting an office,” says Jarosław Pilch, Head of Office Agency, Tenant Representation, Savills, and Head of Workthere Poland.
Low net absorption which was 76,000 sq m (down by 65% year-on-year) pushed the overall regional city vacancy rate up to 17.3% (an increase of 210 basis points year-on-year). At the end of September 2023, the combined office availability in all the regional markets surpassed 1.14 million sq m. Only two cities reported downward movements in vacancy rates compared to the same time in 2022: Tricity (a decrease of 40 bp year-on-year to just over 13%) and Lublin (down by 280 bp year-on-year to below 13%). The highest vacancy rates were in Katowice (over 23%) and Łódź (nearly 23%). With a vacancy rate of 5.2%, Szczecin was the only city with unoccupied office space accounting for less than 10% of its total stock.
Office rents hold relatively firm in most regional cities, but a slight rental correction has been observed in Krakow and Wrocław, which at the end of September 2023 reported monthly rents per square metre of EUR 14-16 and EUR 14-15.75 respectively. Of all the regional cities, Lublin has the lowest rental rates ranging between EUR 10-12 per sq m per month.
