New data from Newmark Polska suggests that occupier demand in Poland’s regional city office markets remained strong amid increasing office availability and a further fall in development activity during the first three months of the year.
The report said that the markets continue to adapt to the new normal created by the rise of hybrid working model, and the growing focus on flexibility in office layouts and uses.
The first quarter of 2023 witnessed a further decrease in developers activity with around 530,000 m2 under construction, down by over 8% since the fourth quarter of 2022.
'This trough - despite still relatively strong leasing activity - is due to the substantial share of lease renewals and renegotiations in the total transaction volume and large volumes of ready-to-occupy office space available in buildings completed in the last five years (close to 420,000 m2, which accounts for almost 41% of the total vacant space in the regional cities),' said Anna Szymanska, head of the office department at Newmark Polska.
At the end of the first quarter of 2023, the combined office stock of Poland’s eight largest regional city markets (Krakow, Wroclaw, Tricity, Katowice, Poznan, Lódz, Lublin, and Szczecin) was close to 6.5 million m2.
With over 68,000 m2 of office deliveries in the three months to March, the regional cities increased their lead over Warsaw, which has 6.26 million m2 of office space.
The first three months of 2023 saw four office completions: two in Krakow (Ocean Office Park B and Fabryczna Office Park B5), one in Tricity (Officer) and one in Wroclaw (Centrum Poludnie 3).
Total office take-up on the core regional markets in the first quarter of 2023 climbed to nearly 175,000 m2 and was comparable to the leasing volume recorded in the last quarter of 2022 (up by 0.2%), but was over 13% higher than in the first quarter of 2022.
In terms of occupier activity, the past quarter lagged behind only the first quarters of 2020 and 2017, which saw 213,700 m2 and 178,500 m2 transacted, respectively.
The sectors that generated most demand were IT and manufacturing, which accounted for 25% and 13% of the total take-up, respectively. Logistics came third with 7%.
At the end of the first quarter of 2023, the overall vacancy rate on the core regional office markets stood at 15.9%, up by 0.6 pp since the fourth quarter of 2022 and by 0.4 pp compared to the first quarter of 2022.
'With office availability still high in both existing buildings and projects under construction, rental rates hold firm and are expected to remain flat in the coming quarters. That said, landlords of office buildings featuring modern technology and ESG solutions are unlikely to give ground in rent negotiations,' said Agnieszka Giermakowska, research & advisory director, ESG lead, Newmark Polska.
