Expert commentary

Jaroslaw Pilch, head of office space and tenant representation at Savills, comments:

“The continuing trend of downsizing office space is a direct result of companies moving to a hybrid work model. Tenants are looking for savings and efficiencies, prompting them to renegotiate contracts and stay in their current locations. High vacancy rates and declining demand are forcing developers to put new developments on hold or repurpose them. The office market in the Tri-City is currently undergoing a significant transformation, adapting to new tenant needs.”

Construction activity down, but strategic projects underway

At the end of June, some 23,000 sqm of office space was under construction, down 66% year-on-year. The largest project with construction work underway is the second phase of Gdynia’s Waterfront complex, with which developer Vastint will deliver 14,500 sqm to the market. Completing the frontage of Grunwaldzka Avenue in Gdansk’s Wrzeszcz district will be an office and retail building under construction with 1,500 sq. m. of workspace. Alzare Office.

Four investments (three in Gdansk and one in Gdynia) with a total area of more than 48,000 sqm are currently on hold.

Tenant activity and demand structure

In the first half of 2024, total activity on the leasing side amounted to 55,800 sqm, down 19% compared to the first half of 2023. Most space was leased in Gdansk (46,700 sqm), while tenant activity in Gdynia amounted to 8,600 sqm.

Renegotiations accounted for about 43% of total demand, new leases (including owner-occupancy agreements) for 54%, and expansions for 3%. There were no pre-leases, which may indicate that tenants are cautious in the face of market uncertainty.

The most active sectors were IT (35% share of demand), manufacturing (18%) and business services (13%), which together generated almost two-thirds of demand for office space.

Vacancy rate drops and rents stabilize

At the end of June 2024, the vacancy rate in the Tri-City stood at 12.5%, down 180 basis points year-on-year, despite being the highest level in the market’s history. In Gdansk, the rate was 10.8% (86,600 sqm of available space), in Gdynia it was 17.6% (38,200 sqm), and in Sopot it was 19.5% (6,900 sqm).

Net absorption reached 13,400 sq. m, a significant trend reversal from the negative absorption of -4,700 sq. m in the first half of 2023

“The rise in vacancy rates in the Tri-City to a record 12.5% is the result of a shift to a hybrid labor model and a decline in investment activity. Companies are renegotiating contracts, optimizing costs, which is affecting developers, who are putting new projects on hold. Despite the difficult situation, the IT sector and other key industries continue to generate demand, giving hope for a gradual stabilization of the market.

Piotr Skuza, Associate Director | Regional Manager Office Agency

Asking rents remain stable, with a slight increase recorded for Class A buildings. At the end of the second quarter of 2024, rates in prime locations in the Tri-City ranged from EUR 13.00 to EUR 15.00/sqm/month. The increase in rents is due to the gradual absorption of vacant space and rising costs of finishing works.

Increase in service charges

Due to continued high inflation and energy costs, maintenance fees in the Tri-Cities have increased and now range from PLN 21.00 to PLN 29.00/sq.m./month.

Key market data for H1 2024:

  • 1.05 million sq. ft. – total supply of office space
  • 23,000 sq. m. – area under construction (down 66% year-on-year)
  • 5,000 sq. m. – newly delivered space (down 27% year-on-year)
  • 12.5% – vacancy rate (down 180 basis points year-on-year)
  • 55,800 sq. m. – Total occupancy (down 19% year-on-year)
  • 13,400 sq. m. – Net absorption (compared to -4,700 sq. m. in H1 2023).

Market trends and observations

The Tri-City office market is experiencing significant changes due to new labor realities and tenant behavior:

  1. Continuing trend of office space reduction – This is a direct result of the growing popularity of the hybrid work model. The vacancy rate has risen to a historic high, reaching 12.5%.
  2. Preference for renegotiating and staying in current locations – Tenants are more likely to reduce their leased space by renegotiating terms with existing landlords, which contributed to a decline in demand of about 19%.
  3. Development projects on hold – Office developers have suspended construction projects they started earlier due to a drop in demand. It has become particularly difficult to sign pre-let leases.
  4. Redesigning planned developments – Office projects planned for the next few years are now being converted into PRS (Private Rented Sector) developments or apartments for sale.

Future prospects

Despite the challenges, the Tri-City office market is showing signs of stabilization. Positive net absorption and gradual absorption of vacant space suggest the potential for a market recovery in the long term. Key to further growth will be developers’ decisions on stalled projects and the market’s ability to adapt in the face of changing work patterns.