At the end of the first quarter of 2024, the total stock of modern office space in Warsaw reached more than 6.24 million sqm, with new supply exceeding 48,700 sqm. During this period, three new office buildings were put into use and the modernization of one building was completed. Among the largest completions were another two buildings within the LIXA office complex (D and E with a total area of more than 26,000 sqm, Western Center) and Saski Crescent (15,500 sqm, Central Business District), which returned to the market in a new design. Throughout 2024, new supply could exceed 100,000 sqm, and although it will be almost 70% higher than last year, it will still be the second lowest level in the history of the Warsaw office market.
At the end of March 2024, nearly 280,000 sqm was under construction, roughly the same as in the fourth quarter of last year. More than 41,000 sqm was in office buildings undergoing major modernization.
- In the coming years, we will increasingly see intensive efforts to modernize and change the functions of existing facilities and replace older office buildings with modern buildings. It is worth noting that carrying out modernization is also an excellent opportunity to improve the energy efficiency of an office building in accordance with standards under EU regulations. The result is then lower energy consumption, which translates into lower operating costs for tenants and a reduction in the negative impact on the environment," says Agnieszka Giermakowska, Director of the Market Research and Advisory Department, ESG Leader, Newmark Poland.
In the first three months of 2024, gross demand in the Warsaw office market amounted to nearly 139,400 sqm, down more than 11% compared to the first quarter of 2023 and down 45% from the fourth quarter. During the period under review, none of the signed leases exceeded 10,000 sqm.
- Due to the decreasing availability of lease options in central zones, tenants were more interested in locations outside the center of the capital in the first quarter of 2024, which accounted for more than 64% of the total registered demand (89,300 sqm). In turn, leases for a total of 50,100 sqm were signed in the central zones. New agreements accounted for the largest share of the demand structure - 45%. The remaining 55% consisted of renegotiations and contract renewals (36%), expansions (10%), captive transactions (6%) and pre-leases (3%). The most active tenants in the Warsaw office market in the past quarter were companies from the manufacturing sector (13.0%), IT (12.7%) and retail (10.4%), says Anna Szymańska, director of the Office Space Department at Newmark Polska.
At the end of March 2024, the vacancy rate in Warsaw stood at 11.0%, up slightly from the previous quarter (by 0.6 p.p.) and down year-on-year (by 0.6 p.p.). A total of nearly 725,000 sq.m. of vacant modern office space was available to tenants. Interestingly, office buildings built in central locations after 2020 offer just over 55,000 sqm of office space, which translates into a vacancy rate of around 7.1%, significantly lower than the average for Warsaw as a whole.
- The Warsaw market is seeing a further widening of the gap between rental rates. For older office buildings, landlords increasingly have to offer very attractive rents to attract tenants. In contrast, in the most popular locations and office buildings offering smart technology and ESG solutions, rents remain quite high and landlords are less willing to make significant concessions. At the end of the first quarter of 2024, monthly office rents in the most attractive buildings in the center of the capital remained in the range of 22-26 euros per sqm, while outside the center they were 16-18 euros per sqm. - Urszula Sobczyk, Director of the Valuation Department of Newmark Polska, adds.
