FM newsroom – Poland, office market. The Warsaw office market take-up in the third quarter of 2024 was comparable to that recorded in the same period in 2023. Experts say muted development activity, falling vacancy rates and shrinking land availability will likely encourage investors to launch redevelopment projects.
Supply levels are likely to remain low until 2026
According to the latest Marketbeat report issued by Cushman & Wakefield at the end of the third quarter of 2024, Warsaw’s total office stock stood at 6.26 million sqm. Office projects delivered in the three months to September 2024 included Viridis B (Polkomtel, 7,000 sqm) and Bohema Office D and E (2,600 sqm and 1,700 sqm respectively).
“There are currently seven projects under construction, totalling 207,000 sqm and scheduled for delivery in the coming years. This volume is well below the average supply levels recorded in 2012-2023. Cushman & Wakefield estimates that approximately 103,000 sqm of new office space will be added to the Warsaw office market this year across nine office buildings” – Ewa Derlatka-Chilewicz, Head of Research Poland, Cushman & Wakefield informed Property Forum.
High borrowing costs and only gradually improving institutional investor activity have significantly dampened office construction in Warsaw. This downturn is likely to continue until the end of 2026. Most projects which are expected to break ground in the next 12-24 months will be in prime locations so that developers can maximise their returns.
Vacancy rate is likely to remain on a downward trajectory
At the end of the third quarter of 2024, Warsaw’s overall vacancy rate stood at 10.7%, up by 0.1 pp year-on-year but down by 0.2 pp from the previous quarter. This equated to nearly 671,000 sqm of unoccupied office space, marking a decrease of approximately 10,000 sqm compared to the second quarter of 2024.
With new office supply expected to be constrained in 2024-2026, the city’s vacancy rate is likely to remain on a downward trajectory, enabling the Warsaw market to absorb surplus office space from existing stock.
Vacancy rates vary by location, with the highest of 12.3% reported for non-central zones. In contrast, at the end of September 2024, the City Centre reported a vacancy rate of 8.9%, down by 4.0 pp compared to where it was at the end of 2021.
The city centre continues to attract the largest tenants
Total leasing activity for the first three quarters of 2024 exceeded 492,000 sqm, a figure comparable to that posted in the same period last year. In addition, with 537 office leases finalised in the year to date, take-up in terms of transaction numbers also remained largely unchanged year-on-year. Occupier activity is expected to remain stable in the coming quarters.
From January to September 2024, new leases dominated the structure of demand in Warsaw, accounting for approximately 44% of all deals, while owner-occupier deals made up 7%. Additionally, renewals had a significant share at 42%, with expansions contributing around 7% to the total leasing volume.
The largest transactions of the third quarter of 2024 included Santander Bank’s pre-lease of 24,500 sqm in The Bridge, a confidential media company’s pre-lease of 10,100 sqm in the Office House and an owner-occupier’s deal for 8,000 sqm in Domaniewska Office Park Beta.
Office location, quality and occupancy rate are key drivers
The upward pressure on rents on the broad market was driven in the last 24 months by a record-high indexation rate for lease agreements indexed to the HICP rate (8.4% and 6.2% year-on-year, for the eurozone in 2022 and 2023, respectively).
In the third quarter of 2024, prime office rents in Warsaw remained unchanged since the end of 2023 and stood at €22.00-26.00/sqm/month in the Centre and €13.50-16.50/sqm/month in non-central locations.
