“The current dynamics on the Warsaw office market is different from the one we had been used to in previous years. Demand between the first and third quarter decreased by 35% compared to the corresponding period in 2019. At the same time, the pandemic additionally contributed to the expected increase in the vacancy rate, which is largely related to the significant volume of new supply. It is worth remembering, however, that the projects planned for the next few years will not have the scale of those that are now being delivered or are under construction, which should compensate for possible shortfalls in demand”, explains Mateusz Polkowski, Head of Research and Consulting, JLL.

Demand

Between the first and third quarter of this year, a total of 447,000 sqm of space was leased in Warsaw. Once again, the most popular locations were the City Centre and Mokotów, responsible for 71% of the total demand for offices.

“The largest transaction in the last three months was a deal for 6,200 sqm. Moreover, the seven largest contracts were renewals, sometimes combined with expansion. Currently, tenants often decide to renew the lease for a short period of time and wait for a return to normalcy before making long-term commitments”, adds Mateusz Polkowski.

The largest lease deals so far this year include a record-breaking transaction on the Polish market, - a pre-let for 46,500 sqm by PZU in Generation Park Y (Skanska’s first tower building in Poland), a 20,000 sqm sale and leaseback deal by DSV in Mokotów, and a renewal and expansion for 19,800 sqm by Poczta Polska in Domaniewska Office Hub.

”A new trend on the Warsaw office market is the increased supply of space for subletting. Currently, approximately 118,000 sqm is available for companies interested in this type of space in the capital, of which approx. 60% is located in the central parts of the city. However, there are certain limitations related to the sublease of offices, i.e. in terms of fit-out, duration of the contract or the obligation to obtain the landlord's consent for a sublet transaction. Therefore, it is not an optimal solution for every tenant. In this situation, many companies are considering flex offices as an alternative. They can be a better solution for tenants waiting for the completion of their target office buildings, the space fit-out, or only setting the target model of the working environment”, explains Jakub Sylwestrowicz, Head of Tenant Representation, JLL.

Supply

From January to the end of the third quarter, 238,000 sqm of office space was delivered to the Warsaw market, with the largest new entry being The Warsaw Hub complex, developed by Ghelamco Poland. However, after a few years of increasing developer activity, the volume of space under construction is beginning to fall.

“In recent years, between 700,000 sqm and 800,000 sqm has been under construction, but now it is approx. 600,000 sqm. Developers are much more cautious about starting new construction projects, which may result in a supply gap, especially outside the city centre. This, in turn, will likely increase the attractiveness and competition for space in the best buildings located in these areas”, adds Jakub Sylwestrowicz.

Investment market – the third best result

“The Warsaw market accounted for 61% of the capital invested in the Polish office sector this year. In the period from January to September, eighteen office transactions were concluded in the capital, with a total value of nearly €940 million. This is the third-best result for the first nine months of a year in the last decade. At the same time, restrictions related to travelling and viewings have delayed to some extent the implementation of new transactions, despite investor interest in Warsaw”, comments Tomasz Puch, Head of Office and Industrial Investment, JLL.

It is worth noting that all office buildings that changed hands in the third quarter (Generation Park Z, Chmielna 89 (65%) and Concept Tower) are located in the west-central area.

Vacancy rate and rents

The current economic situation is having a direct impact on the vacancy rate in Warsaw. In the third quarter, it increased to 9.6% (8.4% in the central zones and 10.4% in the non-central zones), which is an increase of 1.8 pp. compared to the end of 2019 (and 1.7 p.p. on a quarterly basis). These statistics are accompanied by an increased supply of space for sublet. What is important, in the coming years, is that fewer new offices will be delivered to the market, which will translate into a gradual absorption of the available space.

Prime rents in Warsaw range between €18.0 and €24.0 / sqm / month in the centre and up to €16.0 / sqm / month outside of it.