The event, held in Wrocław’s Double Tree by Hilton, offered participants a comprehensive overview of the current state of the commercial real estate market in Wrocław and the Lower Silesian region. As well as looking at trends in supply, demand, vacancy rates and rents, there was a strong focus on sustainable development (ESG) in the light of the EU’s CSRD Directive. Tougher reporting standards pose risks for older B and C-class buildings, especially when it comes to office space. Solutions such as thermo-modernisation and adaptive reuse were highlighted as effective means to mitigate these risks. However, the commercial real estate market remains subject to ongoing regulatory changes and uncertainty as to future demand, shaped to a large extent by geo-political forces.
The event began with a series of presentations setting the scene. Paweł Boczar, head of CBRE’s Wroclaw Office, provided a thorough overview of the office market trends in Wrocław; Marcin Janik, associate director at CBRE, discussed the trends and key investments in the warehouse and production market across Lower Silesia, while Przemysław Piętak, supply-chain advisory director at CBRE, offered insights on how to select the optimal location for a warehouse or production facility. Jowita Czech, leasing manager in commercial projects at Echo Investment S.A, presented the ESG considerations in Echo Investment’s projects, focusing on the Swobodna Spot project designed to enhance employee well-being.
Following a coffee break, the first panel discussion, moderated by Paweł Boczar, took place, summarising the challenges currently faced by the commercial real estate market in Wrocław. The panel also addressed the impact of new legal regulations and policies on the market, providing insights into likely trends in supply and demand for next year, including issues related to investments and financing in the commercial real estate sector.
The second panel, moderated by Michael Dembinski, the BPCC’s chief advisor, examined the growing significance of ESG and the CSRD directive, with a focus on older B and C-class buildings in Lower Silesia. These buildings face potential difficulties in sales or rentals and the risk of stranding events, where owners won’t be able to find tenants or buyers for their assets. The panel also explored whether these actions help attract more environmentally conscious tenants and investors.
The panellists were: Patryk Czernik, leasing director, Cavatina, Marcin Janik, associate director, CBRE, Katarzyna Kubicka, regional director Echo Investments, Maciej Płatkowski, associate director, head of Wrocław office Gleeds Polska, Marcin Siewierski, associate, regional head, western Poland office department Cushman &Wakefield and Marek Stasienko, director of office-space leasing, Skanska; in the second panel, they were joined by Anna Jarzębowska, ESG Consulting, CBRE
Key takeaways: The most visible trend is a limited supply of new office space over next two-three years. There are still high vacancy rates, but absorption will increase; the market still active, big players are still coming onto the market, but at lower level than before pandemic – there is optimisation due to global uncertainty; the market is suffering from high interest rates, inflation, drastic rise in costs of building and fit-out; lower yields make real estate less attractive as an asset class. Developers will only build more when they can sell more. The supply-side has contracted because of high interest rates. Geographically, tenants showed interest before the pandemic in Wrocław’s outer fringes (in particular the western fringes), but now seek city centre locations. Many existing large tenants are cutting their floor-space requirements dramatically – even up to 50%. They are keeping the same budget, but looking to relocate to the city centre, which is more attractive for employees. Low yields mean other asset classes are more interesting. Panellists mentioned the new $4.6 billion Intel factory outside Wrocław, which will lead to contractors needing office space nearby, and generally spurring growth across the region.
While global demand for office space has fallen overall, smaller, flexible, spaces are selling well. The market is adapting; on the one hand, developers can’t build cheaper, on the other rents will have to go up, but businesses are unwilling to pay more for their space, so the market is currently looking for an optimum point. Construction firms who build from their own equity are in a better place than those who have to borrow from the market. Yet overall, in Western Europe the current situation is much worse for tenants. Capital will return to Poland in the wake of the election result and the unblocking of EU funds, but it will take time. Poland’s immediate neighbours understand Poland better, so new enquiries from German and Czech investors outnumber those from the US and UK. Another issue holding back the Polish market is the lack of Polish real-estate investment trusts (REITs). A change in the law in Poland would lead to an increase in transactions.
Globally, manufacturers starting to look at Poland; plots remain cheaper than Czechia or Germany. Projects are starting to unfreeze after Covid and the start of Russia’s full-scale invasion of Ukraine. Japanese firms are back and Korean manufacturer LG’s investment is creating new demand for supply chains and logistics.
On ESG issues, the on top of the increased costs of labour and building materials, everything will have to be certified to meet ESG reporting requirements, so BREAM and LEED certification will become standard. Buildings have to be green. This is expensive, so business will have to optimise. Holistic approaches are needed – not just solar panels. As the EU’s CSRD comes into force for all firms employing over 250 people, reporting of ESG measures will become compulsory. Some firms are already demonstrating best practice by doing this voluntarily, using the EU’s taxonomy as a methodology to avoid greenwashing. The aim is to have measurable, comparable data for use by all stakeholders. Energy policy means energy transformation, with a national power grid that is capable of coping with solar energy produced by panels, especially in warehouses. New spatial planning regulations for end-2025 will make it easier to plan and develop.
Fit-out can cost €900-1,000 per square metre; placemaking – now an integral part of the ‘S’ in ESG – is also expensive, so the typical build cost for a 20,000m2 office can be 30%-40% more than before the pandemic. The result is that footprints are shrinking, with deals of 1,000m2 now considered big. The investment market is dormant, and expected to remain so until 2026.
On the logistics side, given that 11% of Poland’s warehouse space was completed last year, and 23% the year before, vacancies are up and demand is down, also driven by a slowdown in the rise of e-commerce, which had seen spectacular growth during the pandemic. This leads to owners wanting higher rents from a smaller number of potential tenants, and this results in falling yields. Rents, which had been climbing quickly, have now plateaued. Location is key given that transport is the biggest cost of logistics. Heat maps of populations suggest that Lower Silesia is a good location for supplying the CEE and DACH regions. Polish locations currently showing promise include Szczecin, Rzeszów, Opole, Zielona Góra, Lublin and Bydgoszcz.
On the ESG issue, panellists agreed that auditing buildings for their emissions is crucial. Ways to reduce a building’s carbon footprint include installing – or modernising – a building management system (BMS) to help optimise energy and water use, thermo-modernisation, and installation of solar panels and heat pumps. Closed-loop water systems can also be retrofitted, and the use of recycled materials in construction is becoming more common. Older buildings will increasingly have to be subjected to adaptive reuse, as the CO2 emissions associated with demolition are becoming unacceptable. Placemaking is also an important new trend, avoiding the negative ‘S’ aspects of business districts that are dead outside of office hours and at weekends. By opening up shared spaces around office developments to local residents, they become part of the urban fabric, enhancing the area’s attractiveness to employees. The importance of public transport, bicycling infrastructure and electric-vehicle charging points was also stressed. In an era of falling demographics, young employees tend to be more demanding (there are half as many young people entering the Polish labour market today as there were 20 years ago), employers have to take better care of their staff; wellness has become important. The Well certificate, alongside BREAM or LEED, will become essential for all good employers.