Office market

Although office buildings remain open, due to the government regulations regarding keeping a distance between workstations and safety, most office employees work remotely. At the moment there is no legislation limiting construction works in Poland. Nevertheless, due to protracted administrative procedures, limited labour availability, potential disruptions to supply chains and rising construction costs, completion of some office projects underway is likely to be delayed in the near term.

Office supply was weaker in Q1 2020 than in the same period in 2019 irrespectively of the ongoing pandemic and resulted from the distribution of office space scheduled for delivery in 2020. In Q1 2020, total office take-up amounted to almost 350,000 sqm, representing a 33.5% increase year-on-year. Prime office rents remained unchanged compared to the last quarter of 2019. There is currently more than 1.75 million sqm of office space under construction in nine regional city office markets; of that total, 44% is underway in Warsaw.

Office tenants have adopted a wait-and-see strategy and some have already put their relocation decisions on hold. Coworking operators are also suffering from the pandemic, but Cushman & Wakefield’s experts believe that they may, however, benefit from a rebound when the pandemic is over as companies will report an increased demand for flexible offices.

The high level of pre-lets in office buildings will minimize the risk of a significant increase in vacancies. According to Cushman & Wakefield’s forecasts, tenants will focus mostly on lease renewals and rental rates will remain at a relatively stable level. However, there will be growing pressure of occupiers on improvements to buildings, and technologies and the implementation of hygiene and safety procedures in office buildings will determine their lettability. That’s why in the new reality landlords are advised to begin implementing work solutions included in the Six Feet Office conceptual idea created by an interdisciplinary team of Cushman & Wakefield’s experts.

“In the coming months, tenants will face multiple challenges of work organisation and a new approach to occupied office spaces. Epidemic safety guidelines and legislation will force employers to look for new solutions to reduce employee density in offices. In addition, some tenants will consider office downsizing for financial reasons,” says Krzysztof Misiak, International Partner, Head of Cushman & Wakefield Poland.

Retail market

In Q1 2020, Poland’s total retail stock expanded by more than 72,000 sqm. The largest new retail openings included Galeria Chełm (17,500 sqm),  Stop Shop in Siedlce (14,100 sqm), Castorama and Agata Meble in Włocławek, and Selgros in Siedlce. However, due to the restrictions in force, new schemes were only partially opened, as permitted by law.

At the end of Q1 2020, there was approximately 500,000 sqm of retail space under construction, with a substantial proportion of which scheduled for delivery by the end of this year. Due to the pandemic, some new openings are likely to be delayed and early-stage projects may be cancelled altogether.

Since 20 April 2020, the Polish government has been gradually easing restrictions on the retail sector, but most of them will be lifted in the third phase of the government plan for a “return to normalcy”. The exact timing will depend on the progress of the pandemic.

The current situation will certainly transform shopping behaviour. 46% of Polish people are planning to shop more when the pandemic is over, but they will also need to regain a sense of safety. Retailers and tenants will no doubt review their strategies, which is likely to result in renegotiations of lease conditions, weaker demand for retail space and a growing volume of vacant space in shopping centres. Shopping centre landlords and managers are already developing a range of measures to ensure customer safety when restrictions are eased. Notable market changes will also include a growing e-commerce share of retail sales and the rise of new technologies that will transform the shopping experience.

“Without a doubt, the global retail market will be changed by COVID-19. The most notable changes will be in retail and organisation of retail space. The impact of the current situation will be felt for months ahead, if not years. That’s why the focus should be on solutions that will facilitate a return to normalcy and ensure long-term success,” says Joanna Klusek, Partner, Head of Retail, Asset Services Poland, Cushman & Wakefield.

According to Cushman & Wakefield’s experts, as the retail sector is suffering major losses, the cooperation of landlords and tenants is key. In addition, all market players should already start rethinking their strategies and plans of adjusting to the post-pandemic reality.

Warehouse market

The first quarter of 2020 ended on the warehouse market with good results on both the demand and supply side. The total leasing transaction volume reached almost 1 million sqm, the second-highest result in the history of the Polish warehouse market. The vacancy rate remained unchanged at 7%. Approximately 400,000 sqm of newly-built warehouse space was delivered to the market; of that total, 45% was completed in the Wrocław region. Another 2.1 million sqm of warehouse space is currently under construction.

Although the industrial sector remains in good shape, the first signs of a decrease in activity have already been reported. E-commerce tenants are experiencing growth, but many other industries such as retail and automotive are being affected by the overall slowdown, and some tenants are already negotiating rent reductions.

On the other hand, courier companies have recorded the number of orders above the pre-Christmas levels. With the rise in e-commerce volumes, demand for both big-box facilities and city logistics space is expected to remain unchanged.

Benefiting from Poland’s strong fundamentals, the Polish warehouse market is well-positioned to continue its strong momentum in the long term despite the current hurdles. The shift of many customers toward online will not weaken when the pandemic is over. An increase in popularity of online retail has been reported not only by industries that are already popular with e-shoppers (such as fashion) but also by sectors that were marginal before the crisis such as e-grocery. Another growth driver could be the relocation of some production from Asia and the desire to keep it in Europe, closer to end consumers. This is an opportunity for the CEE region, which remains competitive with Western Europe in terms of rental rates and labour costs.

“The current situation is very difficult for everyone, both tenants and property owners. Most are seeing it as a challenge and trying to evolve to respond to it. The industrial market is doing quite well compared to other commercial real estate sectors. Having said that, the overall picture is very complex. In some sectors, tenants are struggling with enormous business difficulties. Others are growing at a much faster pace than ever before, largely powered by the accelerated growth in e-commerce sales. The momentum of action and change is strong,” says Joanna Sinkiewicz, Partner, Head of Industrial & Logistics, Cushman & Wakefield.

Investment market

According to Cushman & Wakefield’s experts, the Polish commercial real estate market got off to a solid start to the first quarter of the year, with €1.72 billion worth of deals, the second-best result in the first quarter of a year on record.

The industrial sector was a driving force. Together with offices, it accounted for nearly 95% of the total transaction volume. Investors were also active on the retail market, but investment activity focused on retail parks, DIY and grocery stores. The retail investment volume was less than €40 million.

Despite the pandemic, many deals that were at an advanced stage before the crisis have been or will be finalized. According to Cushman & Wakefield, interest in new projects has, however, plummeted.

“Most investors have taken a ‘wait and see’ approach in their strategies. Large platform transactions that have been signed recently are expected to close in the coming quarters, which will greatly boost the investment volume for 2020. Despite this, we expect that 25-35% of deals planned for this year will not take place or will probably be postponed until next year,” says Soren Rodian Olsen, Partner, Head of Capital Markets, Cushman & Wakefield.