At the end of 2021, the total modern office stock in Warsaw exceeded six million square meters, strengthening the city’s position as a leader in the CEE region. In the last year, 16 buildings were completed with a total area of 324,600m2. The largest ones exceeding 40,000m2 are Warsaw UNIT (56,400m2), Skyliner (44,700m2) and Generation Park Y (44,200m2). This is the second-best result since 2000, just after 2016, where a total of 407,000m2 was delivered. Since 2018, City Centre West remains the most active zone with 184,300m2 of new space delivered in 2021, representing 57% of total completions. Central zones were responsible for 79% of newly delivered stock, while non-central zones accounted for only 21%.
Warsaw currently has 353,600m2 of office space under construction in 21 buildings. The largest projects under construction are: Varso Tower (66,300m2, 2022), The Bridge (47,000m2, 2024) and Forest (46,400m2, 2022). Invariably, central zones are the target of the most developers’ activity with 250,800m2 or 71% of the total. Between 2022–2023 supply in Central zones will growth by 8% while Non-Central zones will increase by 3%. Less than 92,600m2 of office space is currently under construction with delivery date for 2023-2024 which, along with the projected increase in demand and tenant activity from 2022, could contribute to a supply gap in the market in following years.
The negative impact of Covid-19 pandemic on demand and its structure is still visible, however we observe demand rebound. The total demand for office space in Warsaw in 2021 was 646,500m2. This is 7.4% more than the 2020 figure and only 26.4% less than the record demand in 2019. Together with increase in leasing activity, the first signs of positive tenants’ sentiment towards the office market can be seen – renegotiations accounted for 45% of demand, which is a positive trend, even with the low level of pre-leases (12%). New deals accounted for 37% and expansions for 7%. We forecast a rebound and gradual increase in demand for office space in 2022.
The most active sectors, which together accounted for over 53% of total demand, include: finance sector (16%), IT sector (14%), business services sector (14%) and public sector (9%). In addition, the public sector was the most active sector among pre-lets with a total of 29,600m2 leased (40% of pre-leases).
A significant trend, especially in the current economic conditions, is the increase in subleases offered in the market. Tenants are increasingly considering subleasing from another company in order to obtain attractive lease terms and shorten the potential length of the lease. In 2021, 18 sublease transactions were recorded for a total of 17,500m2.
Another aspect that intensified in 2021 was the growing interest of flexible space among tenants. More and more companies are considering this solution as a transitional or even as a destination for the development of their business valuing the specificity of this type of agreement. The pandemic has intensified these trends, which have been gradually gaining in importance in recent years anyway. Especially after a tough 2020 for serviced offices, when in the face of a pandemic tenants suddenly gave up their leases and moved to a home office.
At the end of 2021, there was 778,400m2 of vacant office space available in Warsaw which translates into 12.7% vacancy rate. Space available in central zones totalled 347,300m2 (12.9%) and in non-central zones it reached 431,100m2 (12.4%).
Lower demand and economic uncertainty combined with high supply of office space, which started construction before the outbreak of the pandemic, has increased overall vacancy rate from 7.8% to 12.7% over the last two years. This phenomenon is particularly evident in the central zones, which due to the large supply of space in recent years, combined with a significant decline in the share of pre-let transactions, has increased by 4.9 percentage points compared to the end of 2019 (119,100m2 of vacant space in buildings delivered in 2020-2021). Non-central zones performed more steadily with an increase of 3.1 percentage points.
In the near future, the city’s vacancy rate is expected to decrease and vacant space should be gradually absorbed by the market, which will be a direct cause of the current low level of developers’ activity and an increase in tenants demand.
Prime headline rents still remain relatively stable. In central zones they range from €22.50m2/month up to €25.00m2/month in top floors in tower buildings and in most iconic buildings in Warsaw’s central business district. In Służewiec – the largest non-central office zone – prime headline rents range between €13.00 and €15.00m2/month, except for buildings in the immediate metropolitan area, which quote higher rental levels. In the near future we forecast a stabilisation with a slight increase in rents, especially in central locations where tenants will be ready to pay premium for the prestige of the location and the building.
During the pandemic, headline rents remained stable, however the market has noted an increase in incentive packages granted to tenants resulting changes in effective rents. Increased rent-free periods and higher fit-out contribution, especially in newly delivered buildings with high vacancy (due to lack of pre-let agreements) is a common theme that helps landlords to attract potential tenants to the building and win the competition against higher vacancy rates.
We forecast a significant increase in leasing activity across the whole of Poland, and especially in its strongest market – Warsaw. A potential supply gap in the coming years and increased tenant activity should contribute to the absorption of existing office space, especially in newly delivered buildings. In the short term. rental levels are expected to remain relatively stable, with possible slight deviations in the case of iconic buildings. However, an upcoming supply gap and increasing costs should cause a potential increase in rental levels in the long term.