In Q3 2022, the total office stock of Poland’s largest markets (Warsaw, Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) reached 12.7 million sq m.
Economy performance
According to Moody’s Analytics, Poland’s average annual GDP growth will reach 3.7% in 2022 and 0.9% in 2023, indicating an economic slowdown. The country’s labour market remains tight with an unemployment rate of 5.1% reported in September 2022 by Statistics Poland (GUS). The inflation rate hit 17.9% in October, the highest level since 1996.
“Both the weaker economic growth and steadily rising living and business costs are an indication that the Polish economy is beginning to slow down, largely due to rising energy costs, supply chain issues and the worsening consequences of Russia’s invasion of Ukraine,”
- says Katarzyna Lipka, Head of Consulting & Research, Cushman & Wakefield.
Regional cities see office supply improve
According to Cushman & Wakefield, regional cities saw 332,000 sq m come on stream in January-September 2022, representing an increase of 125% over the same period in 2021. The largest completions in the first three quarters of 2022 included Katowice’s office towers: TDJ Estate’s .KTW II (39,900 sq m) and Cavatina’s Global Office Park A1 and A2 (27,300 sq m and 29,900 sq m, respectively), as well as Echo Investment’s Midpoint71 in Wrocław (36,200 sq m) and Cavatina’s Quorum Office Park D in Wrocław (16,200 sq m). New office deliveries in Warsaw for the first three quarters of 2022 amounted to 228,100 sq m.
And development pipeline shrink
Poland’s office development pipeline has recently shrunk considerably, especially in Warsaw, where there is only around 150,000 sq m under construction compared to close to 750,000 sq m in early 2020. Office stock under construction in regional cities amounts to 470,000 sq m, representing a 45% decrease from the pre-pandemic 850,000 sq m. The pace of development activity has slowed amid fewer new starts in the last 24 months, rising office construction and fit-out costs, uncertainty caused by the war in Ukraine and the overall economic downturn in Poland and globally.
“Warsaw’s total new office supply in 2022 is expected to hit close to 240,000 sq m, 10% below the five-year average. With the development activity remaining subdued, the Warsaw market is likely to experience a major supply gap in 2023-2025. In 2022, regional cities are expected to see 427,000 sq m come on stream - close to the five-year average - but from 2023 onwards they are also likely to see lower supply levels,”
- says Vitalii Arkhypenko, Consultant, Consulting & Research, Cushman & Wakefield.
Occupier activity remains strong
Total leasing activity in the capital for the first nine months of 2022 amounted to 608,100 sq m, up by over 54% on the first three quarters of 2021 and just 11% below the pre-pandemic peak year of 2019. Robust take-up in Warsaw was powered by both the improving rental market and the build-up of transactions closed by large tenants from the financial, business services and IT sectors as 562 deals were finalised in the first three quarters of 2022, representing a year-on-year increase of close to 43%.
Regional city office take-up for the nine months to September 2022 hit 450,600 sq m, up by 19% on 2021 but down by 12% compared to 2019. The gradual recovery in leasing activity was driven by the continued growth of the business services sector, which accounts for a substantial proportion of tenants in regional cities.
Office rents remain on an upward trajectory
Rents in Warsaw and regional cities have come under upward pressure due to rising office construction and fit-out costs. Warsaw’s rental growth was driven by strong occupier demand for new offices in the city centre and the limited availability of such space. Prime office rents averaged EUR 22-26/sq m/month in the Centre, reaching a maximum of EUR 28/sq m/month, while in non-central locations they were in the range of EUR 13.50-16.50/sq m/month. Average prime office rents in central locations in regional cities stood at EUR 12.50-15.50/sq m/month.
