Warsaw office market slowly stabilising

Many companies are continuing with hybrid working while considering which model to settle on. However, we are also seeing increased tenant activity both in terms of new agreements and interest in flexible office spaces. This does not change the fact that there is a record low level of space under development in Warsaw and, according to our forecasts, there will not be a return to pre-2020 construction levels in the next three years. Looking ahead to the next few quarters, however, higher vacancy rates will prompt landlords to rethink their leasing strategies and ramp up their operations,

concludes Piotr Kamiński, Head of Office Leasing, JLL.

Q3 saw the highest tenant activity so far this year. In the aftermath of the pandemic, companies are still cautious about leasing office space, but we see the share of new agreements in total take-up rising to 54%. This demonstrates that companies are becoming bolder in their decisions regarding the next steps for their property portfolios,

says Mateusz Polkowski, Head of Research & Consulting, JLL.

It is worth noting that ongoing redefinitions of long-term office strategies, coupled with growing interest in the Warsaw market on the part of companies from the modern business services sector, may positively influence the volume of lease transactions in the following months,

adds Mateusz Polkowski.

Increasing tenant activity in the traditional market is causing more and more large companies to temporarily use flex spaces while waiting for their desired office space. As the increase in supply of flexible space has markedly slowed in the past months, the average occupancy level of many operators already exceeds 80%. This translates into relatively stable prices and, as a consequence, an increase in the coming quarters looks on the cards,

explains Adam Lis, Flexible Office Solutions Manager, JLL.

A significant increase in the new office supply in Warsaw is not expected by the end of the year. The number of sqm under construction is decreasing quarter by quarter due to the low activity of developers in launching projects. Over the last few months, construction of only one new tower project has started in Warsaw - The Bridge, developed by Ghelamco Poland,

says Piotr Kamiński.

Current tenant activity, which has not fully returned to pre-pandemic levels, combined with the delivery of several more developments, means the vacancy rate in Warsaw office buildings is at a four-year high, hitting 12.5% at the end of September – up 2.9 p.p. y-o-y. We do see stabilisation, but we still have to wait for a real noticeable decrease in the rate,

comments Mateusz Polkowski.

It is worth noting that owners of some office buildings under construction are deciding on offering their first tenants much more favourable conditions as regards rates, incentives and other elements of the agreement,

adds Mateusz Polkowski.

The Warsaw office market dominates this year in terms of investor activity. Since the beginning of the year, the value of office investment deals concluded in Warsaw exceeded EUR 860 million - that's about 70% of 2021’s office transactions in Poland. Investors' attention is focused on prime schemes, which are most likely to attract and retain tenants. In recent months, several of the most prestigious office buildings have changed hands, as exemplified by Echo Investment's sale of the Offices at Warzelnia project to Deka Immobilien for EUR 152,3 million. But investor interest is not limited to the centre. The last quarter of the year opened with the sale of another Echo Investment project, Moje Miejsce I in Mokotów, for over EUR 47,3 million. At the turn of the year, we expect further transactions outside the very centre of Warsaw, which will further confirm the attractiveness of this location and the liquidity of the office assets there,

comments Marcin Sulewski, Head of Office Investment, JLL.