Strong H1 performance from offices in Poland’s regions

During the first six months of the year, over 514,000 sq m of modern office space was leased in Poland, more than half of it accounted for by major markets outside Warsaw.

“As a result of the further lifting of restrictions combined with a mass vaccination campaign, cautious optimism is returning to the market,” said JLL’s director of regional markets Karol Patynowski.

In the second quarter of 2021, companies leased nearly 70% more office space in the country’s major regional markets than in the first quarter. Demand outside Warsaw exceeded 264,000 sq m.

Tenant activity was greatest in Kraków (74,100 sq m), the Tri-City area comprising Gdansk, Gdynia and Sopot (72,200 sqm) and Wrocław (45,900 sq m).

IT and modern business services companies were the dominant sectors.

The largest lease transactions outside Warsaw included Rockwell’s renegotiation and expansion totalling 19,500 sq m at the A4 Business Park in Kraków, 12,300 sqm leased by 3M at MidPoint 71 in Wrocław, and 11,400 sq m renegotiated by IBM in the Korona complex in Kraków.

Renegotiations accounted for 46% of activity while pre-lets comprised 10%.

There are now fewer sublettings although there had been a rapid rise in these at the end of 2020.

The average vacancy rate in Poland is 12.9%, up 3.9 pp compared to H1 2020. The vacancy rate in the eight main regional markets is 13.4%, while in Warsaw it stands at 12.5%.

“At the end of Q2, over 168,000 sq m was available for sublet outside Warsaw, 54% of which was located in Wrocław, Kraków and Tri-City. In total, there is approximately 300,000 sq m available for sublease in Poland”, says senior research analyst Ewa Grudzień.

The highest rents outside Warsaw were recorded in Kraków (€14-15.5 / sqm / month), while the lowest was to be found in Lublin (€10.5-11.5 / sqm / month).

The total office stock in Poland now stands at over 12 million sq m. The balance between Warsaw and regional markets is pretty much evenly distributed (less than 6.1 million sq m compared to over 5.9 million sq m).

A total of 1.1 million sq m of modern office space is currently under construction in Poland.

In H1 2021, 11 office buildings with a total area of 126,500 sq m were completed outside Warsaw. “Developer activity outside Warsaw remains strong, and in fact at a higher level than in the capital. A further 760,000 sq m, which is under construction in the country’s eight major regional markets, is scheduled to be delivered by the end of 2023,” Grudzień said. “The highest levels of development activity are currently being seen in Wrocław, Katowice and Tri-City,”

Across the country, office properties worth around € 800 million changed hands in the first half of the year.

Outside Warsaw, the total value of office investment transactions was €375 million – “moderate,” said JLL head of office investment Marcin Sulewski but still 10% higher than the H1 average of the last decade.

Poland’s largest office deal concluded in the first six months of 2021, was the sale of Buma Group’s portfolio in Kraków and Wrocław for approximately €200 million to Partners Group.

Almost 50% of regional investment activity was in Kraków, with 27% in Tri-City, including Torus’ sale of its Alchemia Neon in Gdańsk.

“Given the transactions currently in the pipeline, we estimate that total office volumes for this year should be close to 2020’s result”, Sulewski said.