"Companies continue to adapt offices to the commonly implemented hybrid work system. The high costs of arranging new space mean that more and more tenants decide to prolong their contracts and stay in the current location. This is especially visible in Warsaw. The process of optimizing the workspace is definitely accelerating, which is increasingly often associated with reducing the occupied space", says Michał Porzycki, director of the Tenant Representation Department at Walter Herz. "Tenants are experiencing an increase in office maintenance costs. Before making the final decision on contract renegotiation or relocation, they meticulously analyze the costs of the occupied offices, as well as fees in new locations they plan on moving into, in order to choose the most economically advantageous option", says Porzycki.

According to Walter Herz, in the first half of 2023, there was a noticeable decrease in interest in renting offices in Warsaw. At that time, 326 thousand sqm of office space was contracted on the Warsaw market. Compared to the first half of 2022, the demand for offices in Warsaw decreased by one-third.

Despite the decrease in the absorption of the Warsaw market, the vacancy rate slightly decreased to around 11.4 per cent, and in the central business zone, it dropped to 9.9 per cent.

In the regions, the demand for offices is still high

On the eight largest regional markets (Kraków, Wrocław, The Tri-City, Katowice, Poznań, Łódź, Lublin, Szczecin), apart from Warsaw, the total volume of lease transactions registered in the first six months of 2023 amounted to 341 thousand sqm. The demand was about 12 per cent lower than in the corresponding period of 2022. In the first quarter of this year, 175 thousand sqm of space was rented by tenants, and in the second, 166 thousand sqm of offices were leased. The markets in Wrocław and Kaków are characterized by the greatest absorption.

"The growing percentage of vacant office space on the regional markets means that rents remain at the current level. In Warsaw, on the other hand, where the availability of offices is decreasing, there is a growing pressure to increase rental rates, which have slightly increased in the central locations. We expect a further increase in rents, as well as in operating costs on the Warsaw market", informs Mateusz Strzelecki, Partner and Head of Tenant Representation at Walter Herz consulting company.

High inflation, which brought an increase in construction costs, service charges and office interior design, has a negative impact on tenants' final decisions, as well as on planning new investments. The authors of the report indicate that the first half of this year was marked by a further slowdown in developer activity on the nationwide market.

"Suspending the implementation of new projects in the office sector has been visible for over two years. As a result, there is more and more talk about the supply gap on the Warsaw office market, which will be seen in the upcoming months, especially in the central business area. Due to the limited access to financing new investments and the high value of money, developers will continue to limit initiating construction of new projects in the near future", says Mateusz Strzelecki.

Few new office investments

In the first six months of the year, only 18.7 thousand sqm of office space emerged on the Warsaw office market. The Park 9, Wał Miedzeszyński 628 and the first office building in the Bohema complex have been completed.

Only about 250 thousand sqm of office space is under construction in Warsaw. That’s more than at the end of 2022, when 185 thousand sqm of offices were being built. However, compared to the boom years, when 800-850 thousand sqm of offices was under construction on the Warsaw market, investment activity dropped sharply. According to Walter Herz data, over 225 thousand sqm of office space is currently under construction in the district of Wola and over 22 thousand sqm in Mokotów.

This year, Echo Investment started the construction of the first stage of Towarowa 22 mixed-use complex (31 thousand sqm) in Warsaw, while Lincoln Property begun The Form project (30 thousand sqm). In addition, the following projects are under construction: Lakeside (22,7 thou sqm), Vibe A and B (15 thousand sqm), Lixa D and E, Studio (23 thousand sqm), The Bridge (47 thou sqm), as well as Drucianka Campus project (42 thousand sqm) based on the revitalization of Warszawska Fabryka Drutu, Sztyftu i Gwoździ factory and Upper One complex (35,9 thousand sqm) in place of Atrium International building, which is currently under demolition.

Among the scheduled projects there are Upper One 2, Adgar Park West D 3, The Park B8/B10, Skanska's project on the plot of the current Ilmet, Spark A, Sobieski Tower, Poleczki Business Park - Stockholm, Lixa G and Diamond Business Park I/J.

More completed offices in the regions

Regional markets offer more new supply than Warsaw. In the first half of 2023, a total of over 116 thousand sqm of office space was delivered in the regions (68 thousand sqm in the first quarter of the year and 48 thousand sqm in the second quarter). Among the completed projects there are Ocean Office Park B and Fabryczna Office Park B5 in Kraków, Centrum Południe 3 and Brama Oławska in Wrocław, Nowy Rynek E in Poznań and Officer in the Tri-City.

At the end of June, the office vacancy rate in the eight major regional markets increased to over 17 per cent. The largest number of vacant offices is in Łódź, and the least amount is in Szczecin.

According to Walter Herz, the Warsaw market in mid-2023, offered almost 6.3 million sqm of modern office space, while all of the resources of the largest regional office markets in Poland amounted to 6.5 million sqm.