Although development activity in the regional city markets remains relatively strong, the office development pipeline shrank by over 25% quarter-on-quarter. At the end of Q1 2022, stock under construction comprised close to 550,000 sqm, of which 20% was pre-let.

“The ability to launch new office projects is currently heavily dependent not only on the level of occupier activity and office requirements but also on the availability and costs of building materials, as well as the situation on the labour market (high labour costs and staff shortages). The office development pipeline is expected to continue to shrink in the months ahead,” says Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska.

At the end of Q1 2022, the combined office stock of Poland’s eight largest regional office markets (Kraków, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) surpassed 6.27 million sqm following the completion of over 243,500 sqm, the best-ever first-quarter result for regional cities.

The new supply was delivered across 16 office buildings, including 10 with an area of over 10,000 sqm each. The largest completions in Q1 2022 included buildings A1 and A2 of the Global Office Park in Katowice (55,200 sqm total), .KTW II in Katowice (39,900 sqm), Midpoint71 in Wrocław (36,200 sqm), Format in Tricity (16,000 sqm) and CZ Office Park D in Lublin (15,000 sqm).

Kraków and Wrocław were the first Polish regional cities to see their stock surpass the 1 million sqm mark. Tricity, with over 992,000 sqm of office space at the end of Q1 2022, is expected to join their ranks in 2022. At the other end of the spectrum, Lublin and Szczecin offer a combined area of just over 410,000 sqm. The remaining cities (Poznań, Katowice and Łódź) account for approximately 31% of the total regional city office stock.

In Q1 2022, leasing transactions in the core regional city office markets reached almost 153,500 sqm, up by 57% on Q1 2021.

Q1 2022 take-up surpassed 20,000 sqm in four regional cities: Wrocław, Kraków, Katowice and Tricity, whose leasing volumes amounted to 38,350 sqm, 31,100 sqm, 29,400 sqm and 22,500 sqm, respectively. These cities accounted for over 79% of the total take-up in the regional city office markets. The lowest leasing activity was in Szczecin and Lublin, which saw 8,300 sqm and 5,200 sqm of office transactions, respectively.

Over half of the office take-up came from IT and financial services firms – 30.9% and 20%, respectively. Manufacturing came in third place, accounting for 15.7% of the total leasing volume.

Similarly to Warsaw, the regional city office markets also reported a decrease in lease renegotiations and renewals. In Q1 2022, such deals accounted for 22.1% of the total regional take-up, down by 3.9 pp on Q1 2021 and by 21 pp compared to the whole of 2021. New leases made up 59.2%, while the remaining 18.7% was spread across pre-lets (8.3%), expansions (4.8%) and owner-occupier deals (5.6%).

At the end of Q1 2022, the overall vacancy rate in the core regional office markets stood at 15.5%, up by 1.4 pp on Q4 2021 and 2.6 pp year-on-year. Vacancy rates rose in Katowice, Lublin, Łódź and Tricity, but edged down in Kraków, Poznań, Szczecin and Wrocław. The combined office availability in the eight regional city office markets amounted to over 970,000 sqm, with the largest volumes of vacant space in Krakow and Wrocław.

All the regional city office markets in Poland are experiencing upward pressure on rents and developers and landlords are scaling down lease incentives, especially in buildings and locations with limited office availability.