Three office projects were delivered in Warsaw in the three months to September: Varso Tower (63,800 sq m), P180 (32,000 sq m) and Poleczki 32 (3,300 sq m). Despite challenges facing the Warsaw market, several large projects were announced in recent months - these include Vibe near Daszyńskiego Roundabout, Drucianka Campus in the Praga district and a joint venture of HB Reavis and Cyfrowy Polsat to develop office buildings at the site of Praski Port.
Vacancy rates fall and will continue to trend downwards for at least the next two years
“Warsaw’s vacancy rate remained on a downward trajectory throughout the first half of 2022. In July-September 2022, it stood at 12.1%, up by 0.2 pp quarter-on-quarter but down by 0.3 pp year-on-year. The growth in vacancies in the three months to September was driven by the completion of new large developments where a relatively high proportion of space remains vacant,”
- comments Katarzyna Lipka, Head of Consulting & Research, Cushman & Wakefield.
Occupier activity on the rise despite market uncertainty…
Total leasing activity in the first three quarters of 2022 amounted to 608,100 sq m, up by over 54% on the same time in 2021 and only 11% below the peak year of 2019.
“Robust take-up 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%,”
- adds Jan Szulborski, Senior Consultant, Consulting & Research, Cushman & Wakefield.
… and rental growth
Office rents in Warsaw have come under strong upward pressure due to geopolitical uncertainty and rising construction and fit-out costs, with the strongest pressure registered for projects in the pipeline.
In the third quarter of 2022, prime office rents stood at EUR 22.00-26.00/sq m/month in the Centre and at EUR 13.50-16.50/sq m/month in non-central locations. In addition, landlords are showing increased flexibility in negotiations of financial terms such as lease lengths, rent-free periods and fit-out contributions.
Cushman & Wakefield: What’s next?
2022’s total new supply is expected to reach close to 240,000 sq m, 10% below the five-year average. Next year will see approximately 55,000 sq m added to the Warsaw office market, which will also begin to experience an undersupply of office space that is likely to continue till 2025. In addition, several new projects are expected to be officially announced and commenced in the centre of Warsaw in 2023, bolstering office supply in 2025-2026.
Cushman & Wakefield also forecasts that the vacancy rate will resume its downward trend in the coming quarters amid strong occupier demand and new supply constraints.
“Office demand is expected to remain strong due to the upcoming renegotiations of leases made in 2018 and 2019. The downside risk to this scenario is that occupier sentiment around investment plans may change or worsen in the coming quarters due to geopolitical uncertainty, rising office fit-out costs and the expected shrinking office availability due to a lack of new supply,”
- concludes Katarzyna Lipka.
Looking ahead, Cushman & Wakefield expects costs to continue to put upward pressure on headline rents, further fuelled by the gradually shrinking availability of office space in prime office locations and buildings.
