“The first quarter of this year, or to be more accurate towards the end of the quarter, was dominated by changes. Companies have temporarily moved their operations online and implemented a remote working model on an unprecedented scale. Adapting to this new reality is a big challenge, but also a powerful boost for technological transformation and optimization of the work model”, comments Mateusz Polkowski, Head of Research and Consulting at JLL.

Home office and office demand? One does not exclude the other

According to JLL data, in the first quarter tenants leased almost 139,000 sqm in Warsaw, a similar performance to the result of the first three months of 2019.

“Some lease transactions may be shifted, but it is worth emphasizing that tenant activity remains high. This demand is partly fuelled by the fact that many contracts are coming to an end, and tenants must either renew their agreements or relocate to other office projects. We also predict that the percentage of renegotiations and renewals in the market will increase. In addition, Warsaw is still enjoying the interest of investors, which bodes well for the market in the long term”, says Jakub Sylwestrowicz, Head of Tenant Representation, JLL.

The largest lease transactions of Q1 2020 include a renewal in Konstruktorska Business Centre (17,500 sqm, a confidential tenant from the insurance sector), a pre-let in Fabryka Norblin (8,500 sqm, a confidential tenant); a pre-let in Warsaw Unit (4,300 sqm, CBRE), and a pre-let in Varso 2 (3,800 sqm, Orsted Polska).

“The first quarter of the year was also interesting with regards to the take-up structure. Tenants again focused their attention on the City Centre and Mokotów, which together accounted for nearly 70% of concluded transactions. While the prestigious central part of the capital will soon offer one of the most spectacular office projects in the CEE region, Mokotów is underpinning its market with scale, attractive rental rates, as well as a constantly improving infrastructure and the diversity of functions present in this area”, adds Jakub Sylwestrowicz.

Supply – Warsaw’s skyline is changing

Only one building - Varso 1 - was completed during Q1 2020, but the market is still waiting for some spectacular new projects, such as The Warsaw Hub, Mennica Legacy Tower, Chmielna 89, and Varso 2.

“Some of the completions may be postponed, but this doesn’t change the fact that almost 43% of the 770,000 sqm under construction is already pre-leased. The vast majority of under-construction projects (approx. 80%), are located in the central part of the city. This means that soon we will be dealing with a very limited number of lease options for companies looking for an office in new buildings outside the city centre”, summarizes Mateusz Polkowski.

Investment market

Q1 2020 was very intense for Warsaw’s investment market. “The total investment volume on the capital’s market exceeded €440 million. Warsaw accounted for eight out of eleven transactions closed during the first three months of this year in the Polish office market”, says Tomasz Puch, Head of Office and Industrial Investment, JLL.

Vacancy rates and rents

The vacancy rate fell to 7.5% in Warsaw (4.9% in Central zones and 9.1% in Non-Central zones of the city), which is a fall of 1.6 p.p. y-o-y and 0.4 p.p. q-o-q. Such vacancy rates have resulted in a dearth of large lease options throughout the city, especially in the centre, and encourages pre-letting activity as it is increasingly difficult to secure the desired office space. Any delays in the completion of new buildings will only exacerbate the supply constraints currently being seen in Warsaw.

Prime rents in Warsaw are currently quoted at €18.0 to €24.0 / sqm / month, while prime assets in the best non-central areas lease for up to €16.0 / sqm / month.