Experts predict that throughout 2024, the level of new office space being delivered will remain low. Although 48,700 sqm was introduced to the capital's market in the first three months of the year, only 67,000 sqm is under construction with a completion date of the end of the year. This marked decline in developer activity is the result of rising costs associated with high interest rates and the hybrid labor model perpetuated during the pandemic.
The low level of supply translates into prolonged lease agreements. "The Warsaw office market is witnessing more and more renegotiations and extensions of contracts in existing locations," - Małgorzata Fibakiewicz of BNP Paribas Real Estate Poland emphasizes. The high cost of adapting space and concern over ESG compliance are contributing to longer lease terms, with more and more contracts being signed for 7-10 years.
In 2023, record inflation combined with rising electricity and gas costs have significantly increased the cost of maintaining office properties. Increasing requirements to maintain environmental and technological standards have also affected maintenance fees, which on average have risen by about 25 percent compared to the previous year.
After the first three months of 2024, the rate of increase in maintenance fee rates has slowed noticeably, due in part to the stabilization of electricity prices. However, these costs continue to place a heavy burden on tenants, forcing property owners to look for ways to optimize operating costs.
The second half of 2023 also saw an increase in rents in top-tier properties and in prime locations. Currently, average rates in the Central Business District range between 22.5-26 euros/sqm per month, while in Sluzewiec they are between 13 and 15 euros/sqm.
At the end of the first quarter of 2024, the vacancy rate was 11 percent, down 0.6 p.p. from the same period in 2023. In Warsaw as a whole, there is now nearly 690,000 sqm of office space available for lease, with more vacancies located outside the center. The vacancy rate in older buildings is also rising, due to the relocation of many tenants to new office buildings and the optimization of leased space by companies that have adopted a hybrid work model.
Experts at BNP Paribas Real Estate Poland note that the current construction of new office buildings is more evenly distributed between the center and non-central office centers. By the end of 2026, 280,000 sqm of new office space is planned to be delivered, of which 62,000 sqm includes the modernization of older office buildings.
Three buildings are currently in the renovation process: V-Tower, University Business Center II and G5 Prime Offices. Between January and March of this year, four projects were handed over: Lixa E & D, the Makro Cash and Carry building and Saski Crescent, which has also undergone upgrades over the past year to make the building more usable and better for the environment.
"The Polish commercial real estate market is currently facing a wave of modernization of older buildings. This includes both the mature office and retail segments, as well as the youngest one - warehouses." - Klaudia Okoń of BNP Paribas Real Estate Poland emphasizes. The average age of an office building in Poland is 10-15 years, while in Western Europe the average is in the 40-50 year range. However, current EU requirements are so stringent that even buildings built just two-three years ago may require necessary adjustments.
