Three years after the pandemic, after switching to a hybrid work model on the office market, we can talk about investment stagnation. The economic situation in Poland and in the world, unfavourable for the implementation of new projects, inflation and the rising costs of construction and financing of investments have meant that investors now sporadically initiate the construction of new office projects. Caution in decision-making is very visible on the market, despite the fact that the demand for offices remains at a high level.

"In 2022, the demand on the office market returned to the levels from its best periods. Limited new supply and high interest in leasing resulted in a significant decrease in vacant space in Warsaw. This year, we expect a continuation of this trend, which will be followed by increases in rents. A slight increase in rental prices was already visible at the end of last year, and this year we are dealing with further price indexation. Unlike Warsaw, the pressure for price increases is not as strong in the regions, due to the greater availability of space", says Bartłomiej Zagrodnik, Managing Partner, CEO at Walter Herz.

Cost optimization

Walter Herz advisors expect that the demand for offices will decrease slightly this year due to the rising rent and fit-out costs. This is due to the increasingly common verification of the demand for workspace related to the hybrid work model. Tenants are reviewing the demand for offices, and optimizing the size of occupied space while raising their standards.

Walter Herz predicts that this year the level of interest in solutions that allow reducing maintenance charges and utility costs will also increase. Building owners will focus on implementing ESG solutions. They will make it possible to meet the increasingly stringent EU guidelines, but above all to introduce savings and reduce the costs of maintaining and operating real estate. Projects aimed at modernizing older office buildings will also be undertaken in the near future, due to the growing environmental requirements.

Warsaw with record-breaking demand

The demand for office space in Warsaw last year was record-high. It was at a similar level as during the market's greatest prosperity before the pandemic. The business relocated from across our eastern border also contributed to this result. According to Walter Herz data, in 2022, approximately 846 thousand sqm of offices in Warsaw were leased by tenants, one-third more than a year earlier. The companies aimed primarily at central locations, where about 60 per cent of space was contracted.

"However, it should be noted that in the last quarter of last year, tenants were exceptionally interested in offices located outside the centre of Warsaw, where almost twice as much space was leased, compared to the central area of the city. What it means is that companies are starting to look for savings, as evidenced by the growing share of contract renegotiations in the total rental volume", says Jarosław Zdzitowiecki, Associate Partner / Head of Tricity w Walter Herz.

In 2022, the Warsaw market increased its office resources by almost 236 thousand sqm of space. Among the delivered projects were Varso Tower skyscraper in the Varso Place complex with 64 thousand sqm of space and Forest Tower with over 51 thousand sqm and P180 office building with 32 thousand sqm of space and buildings in the Skysawa complex, which provided a total of over 31 thousand sqm

Deficit of Warsaw offices

There are half as many offices under construction as a year ago. Over 203 thousand sqm of space is under construction in the capital, while at the peak of the market boom in 2019 that number amounted to 800 thousand sqm. The construction of The Bridge, Lixa, Vibe and Drucianka Campus investments is underway, and preparations for implementation include such projects as, among others, Upper One, T22 and The Form.

According to Walter Herz, the increase in office supply in the capital this year and next year will drop to around 80 thousand sqm The high absorption capacity of the Warsaw market, on the other hand, causes a decrease in the vacancy rate, which currently stands at around 10.7 per cent. This is the opposite phenomenon to that observed in the largest European business centres, which proves the great potential of the location.

Regional markets with a lot of new supply

The situation in regional markets is slightly different than in Warsaw. More is being built, and the vacancy rate (over 15 per cent) is not dropping and may even increase with more delivered projects down the line.

At the end of 2022, there was about 620 thousand sqm of space under construction in the regions. Most in Wrocław - over 190 thousand sqm In Katowice, developers had 130 thousand sqm of space under construction, and in Cracow over 100 thousand sqm of new offices.

In 2022, over 405 thousand sqm of space was delivered in the regions, and almost 80 per cent more new offices than the year before were launched onto the market, but at the same time 25 per cent. less than during the boom. The markets in Katowice, Cracow and Wroclłw grew the most.

"2023 will be marked by optimization on the office real estate market. We expect a slight decline in demand due to deteriorating economic conditions and rising prices on markets across Poland. Both tenants and property owners are currently facing higher costs of maintaining space. Rising energy prices and labour costs translated into higher service charges. Therefore, this year, we will witness an even deeper adjustment of the size of the leased office space to the real needs of companies", says Mateusz Strzelecki, Partner, Head of Tenant Representation at Walter Herz.

The demand is offset by the increase in space in the regions

Last year, a total of approx. 624 thousand sqm of office space was leased on the regional markets outside Warsaw. It was slightly more than in 2021 and slightly less than in 2019, which was a record-breaking year in this respect. The highest tenant activity was recorded in Cracow, where contracts for almost 200 thousand sqm of offices were signed. 137 thousand sqm of space was contracted in Wrocław and in the Tri-City about 100 thousand sqm

Last year, can be considered successful in Wrocław in terms of the activity of both developers and tenants. There is over 154 thousand sqm of space under construction in the agglomeration, which is the highest number among the regional markets. In 2022, the resources of the capital of Lower Silesia increased by about 65 thousand sqm of modern office space, which means over three times better results compared to 2021. MidPoint and Quorum Office Park D are among the delivered projects, while Ininity and Centrum Południe III are under construction.

In Cracow, the first stage of Brain Park, the first building of The Park Kraków complex, MK29, the last building of High5ive and another office building in  Fabryczna Office Park were among the projects delivered in 2022. A total of about 100 thousand sqm of new offices was commissioned.

Approximately 115 thousand sqm of space is under construction on the Cracow market. The largest projects in progress are the following stages of Ocean Office Park complex. Kreo, Fabryczna Office Park, Brain Park, Mogilska 35, The Park Kraków.

In 2022, developers in the Tri-City commissioned 50 thousand sqm of offices. New supply on the Tri-City market was one-third lower than a year earlier. Format office buildings, Airport City Gdańsk Alpha, Palio Office Park B i Officyna were among the launched office buildings in Gdansk, while K2 project emerged in Gdynia.

At the turn of the year, there was about 80 thousand sqm of office space under construction in the Tri-City. Waterfront II in Gdynia and Punkt, C300, Palio Office Park C in Gdansk are currently underway.

2022 was better than the previous year for Katowice in terms of demand, with 63 thousand sqm of space rented to tenants. Last year, however, was a record-breaking year for the Katowice market in terms of the volume of space delivered for use, with over 127 thousand sqm of offices. Global Office Park and .Ktw II building with a total of almost 100 thousand sqm has been among the completed projects.

At the end of 2022, over 100 thousand sqm of offices were under construction on the Katowice market. Craft building and Eco City Katowice complex are among the implemented investments.

Last year in Poznań, lease agreements were concluded for over 48 thousand sqm of office space. The capital of Greater Poland province saw the considerable activity of tenants. In the last two years, no office buildings have been delivered in Poznań. Nowy Rynek building E is to be completed in the middle of this year. Andersia Silver project is also under construction and is scheduled for completion in 2025. In total, over 93 thousand sqm is under construction.

In Łódź, new supply combined with relatively low demand contributed to a significant increase in the vacancy rate, which at the end of 2022 amounted to 21 per cent. In 2022, developers delivered about 43 thousand sqm of modern office space. The largest completed projects were buildings C and D in Fuzja complex and React I project.

At the end of 2022, over 48 thousand sqm of office space was under construction on the Łódź market. Widzewska Manufaktura and another Fuzja building remain under construction.

The total stock of modern office space in the nine largest markets in Poland exceeds 12.7 million sqm.