According to Savills latest Warsaw office market research report, the supply of modern office stock in the city exceeded 4.1 million sq m at the end of 2013 and is expected to reach 5.0 million sq m within the next three years.
According to Savills latest Warsaw office market research report, the supply of modern office stock in the city exceeded 4.1 million sq m at the end of 2013 and is expected to reach 5.0 million sq m within the next three years. The international real estate advisor observes that almost 300,000 sq m of new supply came onto the market in 2013 with a further 643,000 sq m currently under construction. This growing supply pipeline, Savills notes, will support the ongoing high demand for office space in Warsaw where take-up totalled 632,500 sq m in 2013, reflecting a 5% growth year-on-year, and is predicted to reach 600,000 sq m to 650,000 sq m in 2014.
Tomasz Buras, head of office agency at Savills Poland, says: “Development activity in Warsaw has increased significantly over the past 12 months in response to growing demand for office space, which is largely being driven by existing occupiers. Some are opting to upgrade and move into higher quality, modern offices whilst others are expanding and looking for larger premises to house their staff or consolidating their operations under one roof.”
The report identifies that the majority of lettings in 2013 were for new office space, with a high percentage (24%) of pre-let transactions. The share of renewals and renegotiations remained relatively low (below 30%), which is evidence that occupiers are keen to move to newer generation buildings.
Savills suggests that the increased development activity will lead to a rise in vacancy levels in the first instance before the new stock can be absorbed, to approximately 14% on average by year end, assuming that the absorption will be in line with its long term average. Surprisingly, vacancy in the Mokotów district, the largest non-central business district in Warsaw, is expected to decline from over 12% at the end of 2013 to circa 8% by the end of 2014.
Wioleta Wojtczak, research consultant in Savills, says: “Only 28,700 sq m of new office space will be delivered in Mokotów district in 2014. This is the lowest level since 2004 and more than five times less than in 2013, hence we expect the vacancy rate in this district to decrease to 8% by the end of the year.”
In terms of office rents, prime headline rents currently stand at between €22 and €23 per sq m per month in Warsaw City Centre and at between €14 and €14.75 per sq m per month in non-central locations, reflecting a 14% and 6% drop year-on-year respectively. Savills anticipates that especially effective rents will be pushed down further over the next 24 months. This is due to the rising supply levels causing vacancy levels to also rise so that landlords need to offer attractive packages of incentives to attract tenants.