Warsaw office market in H1 2024: stable demand, rising finishing costs and green deals

HIGHER SUPPLY AND MORE OFFICES UNDER CONSTRUCTION

At the end of June, the total supply of office space in the capital stood at 6.25 million sqm. About 45 percent of this space is located in the city’s central zones, with 1.01 million sq. m. located in the Central Business District (CBD) and 1.81 million sq. m. in the Center zone. The remaining 55 percent of office space is located outside the center, with the largest non-central office zone being Sluzewiec, which accounts for 17 percent of the city’s total supply.

A total of 63,700 sq. m. of new office space was delivered to the market in the first half of the year, compared to 60,900 sq. m. delivered in the entire 2023. The largest completed projects were the third phase of the Lixa complex developed by Yareal (26,300 sqm), the renovation of Saski Crescent (15,500 sqm) and the Vibe A building developed by Ghelamco (15,000 sqm).

Savills experts point out in the report that at the end of June there was 281,000 sqm of Warsaw office space under construction, 83 percent (234,100 sqm) of which was located in the central zones, including 198,600 sqm in the Centrum zone and 35,500 sqm in the CBD. Since the beginning of the year, construction has started on more than 92,400 sq m of office space located in six buildings, including the largest: V Tower (renovation; 30,700 sqm), Skyliner II (23,000 sqm) and VENA (15,400 sqm).

HALF YEAR MARKED BY RENEGOTIATIONS

From January to the end of June, tenants in Warsaw signed leases for 316,400 sqm of office space, down just 2 percent from the same period in 2023. In the first quarter, demand was around 138,000 sqm, and in the second quarter it rose to 178,400 sqm. Off-center offices were the most popular, accounting for 60 percent of total demand (190,100 sqm). In the pool of signed contracts, more than half – 51 percent. – were renegotiations. New contracts accounted for 41 percent, expansions 7 percent and pre-leases only 1 percent.

– Currently, the market is often faced with high finishing costs, which can make it difficult for tenants, especially those looking for smaller offices, to fine-tune their leases. They expect support in furnishing the space to a high standard, while the most important thing for owners is financial efficiency. One solution, of course, is to extend the lease term to seven or even ten years, but this often does not satisfy tenants. An alternative may be to choose flexible office space, which offers a very high standard and which can be rented for a short period of time right away. We are confident that flexible offices will go from strength to strength and become increasingly popular, especially among tenants interested in smaller spaces –

says Jaroslaw Pilch, Head of Tenant Representation, Office Agency, Savills Poland.

GREEN BUILDINGS ON THE RISE

At the end of the first half of the year, there was 680,400 sqm of vacant office space in Warsaw, which translated into a vacancy rate of 10.9 percent (down 20 bps quarter-on-quarter and 50 bps year-on-year). Savills experts point out that currently only two zones have a rate that remains above the 100,000 sqm ceiling. – In the Służewiec zone (207,900 sqm and 19.6 percent) and Centrum (160,600 sqm and 8.9 percent). The least vacant offices at the end of June were recorded in the Pulawska Street corridor (vacancy rate of 5.3 percent).

– With the requirements of EU guidelines, environmental goals are becoming increasingly important to office tenants. With companies striving for climate neutrality, there is no turning back from building and using “green buildings.” Significantly, Warsaw is able to respond very well to these needs, with about 70% of its office space in stock certified to BREEAM, LEED or WELL standards. This makes it much easier for tenants to choose an office that meets the highest environmental standards. By the first half of 2024, at least 85 percent of the city’s leased space was in certified buildings –

comments Daniel Czarnecki, Head of Landlord Representation, Savills Poland.

Offer rents in prime locations in the Central Business District (CBD) at the end of the analyzed period averaged between 22.50 and 26.00 EUR/sq.m./month, and in some buildings exceeded 27.00 EUR/sq.m./month. In Służewiec, the largest non-central zone, after slight increases for the best offices, one had to pay between 13.25 and 15.00 EUR/sq.m./month.

See the report Market in Minutes: Warsaw Office Market H1 2024.