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Boom on the Warsaw office market continues

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Global real estate services firm Cushman & Wakefield presents an overview of the Warsaw office market for Q1 2017 in its latest report Warsaw Office Market: The Boom Continues.

  • Annual office supply expected to average 300,000 sq m in 2017–19
  • Demand for office space largely driven by IT, media and professional services
  • Rapid growth of the modern office market has led to a redivision of the Warsaw market into new office zones

Office zone boundaries redrawn

Cushman & Wakefield, a member of the Polish Office Research Forum (PORF), was actively involved in redrawing the map of Warsaw office zones which takes account of office market changes.

Bolesław Kołodziejczyk, PhD, Senior Consultant, Consulting and Research, Cushman & Wakefield, and author of the report, said: “New zone boundaries reflect Warsaw’s improving transport infrastructure, particularly the opening of the second metro line which has set out a new direction for developing new office projects. Warsaw’s former Fringe was renamed City Centre and expanded to incorporate office buildings in the vicinity of Towarowa Street and Gdański Railway Station. Służewiec Przemysłowy was delineated as a subzone of the Mokotów zone (formerly US zone) being the core area of office space concentration in this part of the city.”

Supply and take-up

Warsaw’s office stock rose to nearly 5.12 million sq m at the end of March 2017 following the delivery of 84,200 sq m of modern office space in Q1 2017, up by more than 28,800 sq m on the volume recorded in Q1 2016. Looking ahead, annual supply levels are expected to average 300,000 sq m in 2017–2019, approximately half of which will be completed in the city centre.

Kamila Wykrota, Partner, Head of Consulting and Research, Cushman & Wakefield, said: “Ten new office buildings were delivered to the Warsaw market in the first three months of 2017 compared with last year’s 21 office completions that provided a total of 407,000 sq m. New office supply concentrated in non-central locations, particularly in the Żwirki i Wigury zone (Business Garden’s five buildings providing 54,800 sq m) and the West zone. Both zones accounted for 76,700 sq m of new office space coming onto the market. This year’s supply is expected to exceed 300,000 sq m, 30% of which will be delivered in central locations."

“Gross take-up totalled 194,000 sq m in Q1 2017, up by 37% on the level recorded in Q1 2016. The volume of total leased space rose by more than 84,300 sq m, the best Q1 performance since 2008. We expect this year’s total leasing volume to exceed 750,000 sq m.”

Non-central locations accounted for nearly 52% of the total take-up with the largest volumes of leasing activity in Mokotów and Jerozolimskie zones: 38,600 sq m and 33,300 sq m, respectively. Benefiting from lower operating costs, compared with Western European countries, Warsaw continues to attract strong occupier interest with robust demand coming from the IT sector (10%), media businesses (10%) and professional services (9%).

Rents and vacancies

In Q1 2017, Warsaw’s average vacancy rate stood at 14%, the lowest level since the end of 2015 and down by 0.2 percentage points on year-end 2016. Forecasts suggest that office vacancies are likely to edge up by 0.5–1 pp in 2017. Healthy demand for office space in central zones brought the city centre’s vacancy rate down by nearly 2.3% to 13%, while non-central locations saw their vacancy rate rise from 13.6% to 14.6%. The highest vacancy rates were noted in Żwirki i Wigury (26.4%) and Mokotów (16.2%), and the lowest were in the North zone (2.9%) and in Puławska Street (9%).

Richard Aboo, International Partner, Head of Office Agency CEE, Cushman & Wakefield, said: “Prime headline rents remained unchanged in Q1 2017, standing at EUR 23.5–24 per sq m per month in the city centre and at EUR 13–16.5 per sq m per month in non-central locations. As both developers and owners continue to offer attractive incentive packages, effective rents are occasionally lower by as much as 25% than headline rents. Rents are expected to remain flat in upcoming quarters.”