Cushman & Wakefield’s Report: Regional City Office Markets in Poland in Q3 2019

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Global real estate services firm Cushman & Wakefield summarizes the third quarter of 2019 on Poland’s regional city office markets in its latest report MARKETBEAT – REGIONAL CITY OFFICE MARKETS Q3 2019.

In the first three quarters of 2019, the regional city investment volume reached EUR 1.06bn, matching the level recorded in the whole of last year. Cushman & Wakefield forecast this year’s total volume to hit EUR 1.3–1.5bn, 25-40% above the equivalent level in 2018. Prime office yields stand at 5.50%–6.00% in Krakow and Wrocław, and at 6.75–7.25% in Gdansk, Poznań, Katowice and Łódź.

The largest transaction of 2019 was the acquisition of a 70% interest in an office portfolio comprising 105,000 sq m from EPP by Henderson Park UK. Two other major deals were done by Philippine-based ISOC, which acquired the 38,000 sq m Argon office building in Gdansk from Torus and the first phase of Vastint’s Business Garden (38,600 sq m) in Wrocław, said Marcin Kocerba, Associate, Capital Markets, Cushman & Wakefield.

At the end of Q3 2019, the total office stock of Poland’s eight core regional cities (Krakow, Wrocław, Łódź, Tricity, Katowice, Poznań, Lublin and Szczecin) reached 5.39 million sq m (+12% y/y). Of all the regional cities, Krakow and Wrocław are the only markets with office stock above the one million sq m mark: 1.34 million sq m and 1.11 million sq m, respectively. If all projects in the pipeline come to fruition, the upcoming months are likely to see a ranking reshuffle for Poznań (555,100 sq m), Katowice (531,200 sq m) and Łódź (517,700 sq m).

New regional office supply hit 76,000 sq m in Q3 2019. The largest office completions included Skanska Property Poland’s Nowy Targ with a total of 19,400 sq m in Wrocław, Cavatina’s Carbon Tower (17,600 sq m) in Wrocław and Avestus’ Imagine I & II (14,800 sq m) in Łódź. Regional cities expanded by a total of 313,500 sq m (-26% y/y) in the period from the beginning of the year to the end of September 2019. The largest volumes of new office space were delivered in Krakow (nearly 90,000 sq m) and Poznań (76,000 sq m). The development pipeline across the surveyed regional cities currently stands at approximately 930,000 sq m of office space.

Given the fourth quarter outlook, this year’s total office supply is likely to climb to nearly 600,000 sq m, marking the strongest annual regional city performance on record, said Katarzyna Lipka-Nawrocka, Associate Director, Research and Consulting, Cushman & Wakefield.

The leasing volume topped 517,000 sq m in January-September 2019 (+23% y/y), with 34% (178,000 sq m) and 33% (170,000 sq m) transacted through lease renegotiations and pre-lets, respectively. The largest regional city transactions of Q3 2019 included UBS’s 19,300 sq m pre-let in Fabryczna Office Park B2, the renegotiation of the 17,100 sq m lease by Motorola Solutions Systems in Green Office, Jeppesen Poland’s renegotiation and expansion to 9,500 sq m in Arkońska Business Park A3 & A4, and the renegotiation of IBM’s 8,650 sq m lease in A4 Business Park I.

Given the robust occupier demand for office space throughout 2019, this year’s total office take-up is likely to surpass the record high of 675,000 sq m posted in 2017, added Katarzyna Lipka-Nawrocka.

At the end of Q3 2019, the regional city vacancy rate averaged 9.1% (-0.6 pp y/y). The highest vacancy rates were in Łódź (12.1%) and Poznań (11.4%), while the lowest were in Tricity (4.8%) and Szczecin (6%). Rents on regional city office markets remained flat over the last quarter at EUR 12-15/sq m/month.

The report is available under this link.