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According to the latest report by global real estate adviser Cushman & Wakefield, “Property Times: 2015 – a record year for the office market”, 2015 was record-breaking in terms of both transaction volume and net absorption, reaching 836,500 sq m and 283,000 sq m, respectively. Despite high levels of supply, vacancy rates fell by 1 pp. down to 12.3%. The experts at Cushman & Wakefield expect the office market to continue its growth in 2016. However, high levels of supply may cause the vacancy rates to rise over 15%.
The Warsaw market saw in 2015 the highest leasing activity in history, with lease agreements for the total of more than 836,500 sq m signed. The most popular zones were Upper South (28% of the total volume) and Fringe (27%), which increased its market share by 10 pp. compared to 2014. 2015 was also record-breaking in terms of net absorption, which amounted to nearly 283,000 sq m, 56% more than 2014.
The largest lease agreements concluded in 2015 were the pre-let of office space in Warsaw Spire Tower by Samsung (21,100 sq m), the leasing of 17,500 sq m by PZU in Konstruktorska Business Center and the renegotiation of mBank’s agreement in Pałac Jabłonowskich (17,500 sq m).
The total office stock in Warsaw reached 4.66 million sq m at the end of 2015. Last year, almost 277,600 sq m were delivered to the market, of which almost 79% in non-central locations. Major buildings completed in 2015 include Postępu 14 (HB Reavis, 34,300 sq m) and Royal Wilanów (Capital Park, 29,800 sq m). Other projects included the modernisation of Spektrum Tower (Europa Capital, 27,300 sq m) and Domaniewska Office Hub located next to Galeria Mokotów (PHN, 27,000 sq m).
Vacancy rates in Warsaw fell for the second quarter in a row, down to 12.3% as of the end of 2015. It is the lowest value recorded since Q1 2014. At the end of the year, 571,600 sq m of space was available to the tenants, led by Upper South (181,200 sq m) and Fringe (106,600 sq m).
According to the report, the current market situation favours the tenants, which is reflected in rental rates. Prime rents for office space in central Warsaw fell in 2015 to EUR 24 per sq m per month (down by EUR 1 per sq m as compared to December 2014); only in unique, highest-standard locations could the landlords count on better rates. In non-central locations, the average rents amounted to EUR 13-16.5 per sq m per month. Due to the high supply of space, the developers continue with aggressive pricing strategies. Tenant incentives, such as rent-free periods and fit-out contributions, allow the occupiers to significantly lower the total leasing costs.
“The data for 2015 indicate a rapid development of the market, and good economic outlook continues to drive new space absorption. The current situation is enjoyed especially by the tenants, as it makes it possible to optimise the operating costs, while at the same time allowing them to lease higher-standard space at the same price. Decreasing vacancy rates clearly demonstrates that many companies, which had earlier occupied low-class buildings, took advantage of this opportunity. What is more, several international companies are entering the Polish market or extending their presence, such as KMD, who leased over 6,000 sq m in the Gdański Business Center,” said Bolesław Kołodziejczyk, Senior Consultant, Consulting & Research, Cushman & Wakefield.
Forecast for 2016
According to Cushman & Wakefield’s report, high pipeline supply projected for 2016 will probably drive the vacancy rates up, exceeding 15%. This will influence rent rates, especially in lower-class office buildings or located in less popular locations. This year is expected to be record-breaking in terms of supply, and as much as 45% of ca. 460,000 sq m of new space is to be delivered in central locations. The transaction volume, while lower by approx. 10% compared to 2015, should still exceed the average for the last five years.
“Warsaw continues its record-breaking trajectory a 3rd year in a row defying a number negative forecasts at the beginning of 2015. As rental rates drop to affordable levels SMEs and Public sector companies are relocating from "C" class into modern office space. Warsaw is also beginning to attract more BPOs and SSCs due to its access to a wider skilled labor pool. This trend is expected to continue through 2016,” said Richard Aboo, Partner, Head of Office Department, Cushman & Wakefield.