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Cushman & Wakefield: Summary of the Warsaw office market in 2018

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- In 2018, investment volume on the Warsaw office market hit a record high of EUR 1.7 billion across 28 transactions;

- Office yields below 5%, the lowest on record;

- Occupier activity remains strong in Warsaw with 858,000 sq m transacted, an all-time high;

- New office supply totalled only 233,000 sq m delivered across 20 new projects;

- Net absorption was down by 8% on 2017’s record level;

- In 2018, coworking providers opened a total of 37,600 sq m of coworking space in 15 facilities across Warsaw.

Global real estate services firm Cushman & Wakefield presents a summary of 2018 on the Warsaw office market.

“Investment activity hit a record high on the Polish commercial real estate market in 2018, surpassing the EUR 7 billion mark. The office market also set new highs with its investment volume at EUR 2.6 billion, accounting for 37% of 2018’s total and reflecting a growth of 88% year-on-year.

The Warsaw office market boasted the strongest investment activity totalling EUR 1.7 billion with 28 transactions closed in 2018. Other Polish cities saw 13 deals for a total of EUR 850 million.

2018 was also a record-breaking year in terms of office yields which in Warsaw broke the barrier of 5.0%, standing at 4.75%, an all-time low in the history of the Polish commercial real estate investment market. Of all regional cities, Krakow saw the highest values with prime office yields at 5.75%.

Given the strong performance of the Polish economy and availability of investment product, we expect the office investment market to continue its bull run in 2019 with prime office yields likely to compress further for Class A office buildings with long-term leases,” says Michał Wachowicz, Consultant, Capital Markets, Cushman & Wakefield.

At the end of 2018, Warsaw’s total office stock stood at 5.46 million sq m. Despite last year’s supply gap, which is expected to carry into 2019, new supply totalled 232,700 sq m delivered across 20 office projects, down by 70,000 sq m on the five-year average for 2012–2017. Last year’s largest completions on the Warsaw market included Proximo II (19,950 sq m), Equator IV (19,200 sq m) and Centrum Biurowe Koneser (17,300 sq m).

“At year-end 2018, there was nearly 730,000 sq m of office space under construction. Of that total, more than 82% was underway in central locations. New office supply is, however, expected to be relatively low at 230,000 sq m in the next twelve months. In addition, supply forecasts for 2020 have been revised downwards as delivery of several large-scale projects has been postponed to 2021,” said report author Jan Szulborski, Consultant, Consulting and Research, Cushman & Wakefield.

Office take-up hit a record high in 2018 with 858,000 sq m transacted, which represented a 4% increase on 2017. Key lease transactions included Deloitte’s 22,100 sq m renegotiation at Q22, WeWork’s 14,200 sq m deal in Mennica Legacy Tower’s western building and Cambridge Innovation Center’s lease at Varso II.

At the end of 2018, Warsaw’s vacancy rate stood at 8.7%, down by 2.9 pp year-on-year, the lowest since 2012. Robust occupier activity was reflected in high office absorption which hit 345,000 sq m in 2018, only slightly below the level posted in the peak year 2017.

Despite the low vacancy rate in the fourth quarter of 2018, prime headline rents remained flat at EUR 23.5–23.75/sq m/month in Warsaw’s Central Business District.

“The Warsaw office market witnessed several major and positive developments in 2018. Gross take-up was exceptionally high at around 858,000 sq m, while absorption amounted to 345,000 sq m and was 50% higher than the new supply at the end of 2018. This pushed the city’s vacancy rate down to a historic low of 8.7%. In addition, developers enjoy favourable conditions and are driven to break ground on new projects by the growing activity of coworking operators, a large share of expansions in office take-up and a rising number of firms gaining a foothold in Warsaw. A stable office supply growth is a critical factor for the Warsaw market. A market where tenants have choice will grow at a rapid pace as availability of office space has a positive, tangible effect on demand. Given the current low vacancy rate, a paucity of offices which could begin to cause concern is likely to result in weaker leasing activity in the long term,” said Krzysztof Misiak, Partner, Head of Office Agency, Cushman & Wakefield.