At the end of 2023, Poland’s eight largest regional city markets (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, Szczecin) had a combined office stock of almost 6.7 million sqm, of which more than 279,600 sqm was delivered in the last 12 months through 21 office projects. The strongest development activity was, however, recorded during the third quarter, which saw office completions accounting for over 42% of last year’s total new supply. The largest office buildings completed in 2023 included Ocean Office Park B (Kraków, Q1), Craft (Katowice, Q3), Nowy Rynek E (Poznań, Q2) and Kreo (Kraków, Q3).

The last quarter of 2023 was another consecutive quarter of shrinking office space being commenced. At the end of December, there was approximately 300,000 sqm under construction, down by more than 22% from the third quarter of 2023, by nearly 47% year-on-year and by over 73% from the 2017 peak of almost 1.1 million sqm.

“Faced with significant levels of office space available in existing buildings and widespread office optimization, developers remain cautious regarding launching new projects, especially those without pre-lets”, says Joanna Bartoszewicz, Senior Advisor, Office Tenant Representation, Newmark Polska.

In the fourth quarter of 2023, leasing activity in the key regional city markets reached nearly 210,300 sqm - up by over 6% on the previous quarter and last year’s best quarterly result. Total take-up for 2023 as a whole surpassed 741,300 sqm - an increase of almost 19% year-on-year and 7% from the pre-pandemic 2019 peak. Despite the growing demand for office space, tenants remain firmly focused on optimising office occupancy while targeting highly energy-efficient buildings with green credentials.

Leasing activity in 2023 hit its highest in Kraków, which saw 201,300 sqm of office transactions. The runner-up was Wrocław with 165,550 sqm transacted while office take-up in Tricity amounted to more than 143,900 sqm. These three cities accounted for nearly 69% of the total leasing activity across the regions in 2023 as a whole.

“Prime office rents in the core regional city markets remain at €16.00-17.00/sqm/month. This is especially the case with office buildings featuring modern technologies and meeting environmental and social (ESG) requirements as their landlords are generally less willing to negotiate rental rates. Office projects underway are experiencing upward pressure on rental rates”, adds Urszula Sobczyk, Head of Valuation, Newmark Polska.

In 2023, new leases accounted for 45% of the total office take-up, followed by renegotiations and renewals which contributed 41%. The remaining 14% came from owner-occupier deals (6%), expansions (5%) and pre-lets (3%). Leasing activity during the fourth quarter was dominated by renegotiations which had an over 55% share in the total take-up. Renegotiation activity is expected to remain relatively elevated in the coming quarters, with tenants seeking to avoid office relocation and fit-out costs.

At the end of December 2023, the overall vacancy rate in the key regional city office markets stood at 17.5%, up by 0.2 pp over the quarter and by 2.2 pp year-on- year. Vacancy rates were above 10% in all the markets but Szczecin, including above 18% in four regional cities.

“Office availability in existing buildings remains on an upward trajectory and amounted to nearly 1.2 million sqm at the end of the fourth quarter. Additionally, regional markets offered also a substantial amount of office space available for sublease”, comments Agnieszka Giermakowska, Research & Advisory Director, ESG Lead, Newmark Polska.