At the end of the second quarter of 2024, the combined office stock of Poland’s eight largest regional city markets was more than 6.73 million sqm. In the six months to the end of June 2024, more than 61,000 sqm of office space was delivered across seven new projects, a decrease of over 47% year-on-year. Of that total, 49% (30,000 sqm) came on stream in the second quarter. Key completions included Quorum Office Park A (18,200 sqm, Q1) and B10 (14,150 sqm, Q2) in Wrocław and Brain Park C (13,000 sqm) in Kraków.

“Due to high vacancy rates in standing office buildings, developers are cautious about commencing new projects, which is expected to result in low supply levels in the coming quarters – just over 90,000 sqm is scheduled for delivery by the end of this year,” says Karol Wyka, Executive Board Director, Head of Office Department, Newmark Polska.

At the end of June 2024, there was approximately 214,000 sqm under construction, down by almost 10% in the first quarter of 2024 and by over 53% year-on-year. Construction activity is unlikely to pick up until 2025, with a key development driver being further expected interest rate cuts by the European Central Bank.

Office occupier activity remains stable but relatively moderate. The second quarter of 2024 saw more than 146,000 sqm transacted on the core regional city office markets - a figure comparable to that recorded in the first quarter (nearly 140,000 sqm). Gross office take-up for the first half of 2024 hit 286,000 sqm, down by over 14% year-on-year.

“Leasing activity in January-June 2024 hit its highest in Kraków, which saw 93,500 sqm of office transactions. The runner-up was Tricity with nearly 56,000 sqm transacted while office take-up in Wrocław was close to 50,000 sqm. These three cities accounted for almost 70% of the total leasing activity across the regions in the first half of the year,” ads Karol Wyka.

The average lease size for the period April-June 2024 was more than 1,000 sqm, representing an increase of over 12% from around 900 sqm in the first quarter, with the average for the first half of the year at close to 950 sqm. Most leases (70%) finalized in the first six months of the year were for office units under 1,000 sqm which attracted the strongest occupier interest.

The sectors that generated the most demand in the first half of 2024 were IT and manufacturing, which accounted for 30% and 18% of the total office take-up respectively. Professional services came third with 15%.

“Broken down by transaction type, renegotiations and renewals continued to increase their share of the total regional office take-up in the second quarter of 2024, up from 46.6% in the first quarter of 2024 to more than 51%. In the first half of 2024, renegotiations made up 49% of the total, followed by new leases and relocations (41%). The remaining 10% came from expansions (5%), owner-occupier transactions (4%) and pre-lets (1%),” says Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.

The overall vacancy rate on the core regional city office markets edged down during the second quarter of 2024 - for the first time since the third quarter of 2022. At the end of June 2024, it stood at 17.7%, down by 0.1 pp over the quarter but up by 0.9 pp year-on-year. The biggest upward year-on-year movements in vacancy levels were recorded in Wrocław (+2.1 pp), Szczecin (+1.9 pp) and Kraków (+1.8 pp). The combined office availability on the eight key regional markets hit a record high of nearly 1.2 million sqm.

“In the second quarter of 2024, prime office rents remained largely unchanged over the quarter at €16.00-17.00/sqm/month. The highest rental rates were in office buildings offering innovative technology, ESG and energy-efficient solutions. With service charges remaining persistently high, both tenants and landlords are investing in office upgrades to achieve substantial savings,” says Urszula Sobczyk, Head of Valuation, Newmark Polska.