Offices
2022 was the year of mitigating the consequences of the war in Ukraine and high office construction and fit-out costs, and the continued adoption of hybrid working. The key challenges of 2023 include the limited availability and high costs of funding for new office projects, and the need to look for savings facing both tenants and landlords.
At the end of Q3 2022, Poland’s total office stock was over 12.7 million sqm. More than 100,000 sqm is expected to be delivered to the market by the end of December 2022, albeit only in regional cities. In 2023, the high costs and restricted availability of debt finance will continue to dampen new office development throughout Poland, especially in Warsaw, where the supply pipeline is likely to deliver only around 60,000 sqm. In addition, approximately 32,000 sqm will be returned to the market following the refurbishment of the Warta Tower. Regional cities are expected to see around 400,000 sqm added in 2023. Poland’s total office stock is on course to surpass 13 million sqm in 2023, with regional cities expected to overtake Warsaw in terms of market size.
Occupier activity remains relatively strong. Office take-up in Poland hit over one million square metres in the first three quarters of 2022, with another approx. 350,000 sqm expected to be transacted in the last quarter of the year. Tenants’ interest continues to focus on offices that can be flexibly customized to their evolving needs. Rising office costs have bolstered demand for technologies that can reduce utility usage and bring down electricity bills in particular.
The first three quarters of 2022 witnessed 11 transactions for over 10,000 sqm each: seven in Warsaw, three in Poland’s key regional cities and one in Bydgoszcz. Pre-lets, renewals and renegotiations accounted for most of the deals.
Key occupier transactions in Poland, Q1-Q3 2022
Source: PORF, Newmark Polska
The share of renegotiations in the total office take-up has clearly increased since early 2022, reaching close to 40% in Warsaw. This trend is expected to intensify, among other things, due to high office fit-out costs and undersupply, especially of large offices in the centre of the capital.
With office fit-out costs remaining persistently high and a rising demand for modern energy efficient solutions, longer leases for 7-10 years rather than the typical period of 3-5 years are being increasingly favoured as landlords need to recoup higher outlays and tenants are showing a growing awareness of more sustainable office usage.
The hybrid work model has taken root in the Polish office market, with tenants increasingly expecting landlords to be flexible and to quickly respond to their changing needs. As a result, hybrid office leases combining traditional lease and flexible offices, e.g. coworking space, are becoming increasingly popular.
Looking ahead we will see a new form of lease emerge given the growing environmental and social awareness of both landlords and tenants, and the implementation of the CSRD with its new non-financial reporting requirements. New lease agreements will include both key lease terms and provisions on green rules and solutions. Green leases will pave the way to cut operating costs, mitigate environmental impact and achieve ESG strategy goals.
Author: Anna Osiecka, Associate Director, Office Tenant Representation, Newmark Polska
