Cushman & Wakefield summarizes 2019 on Wrocław’s office market

• In 2019, Wrocław’s office market expanded by 147,300 sq m, bringing the city’s total office stock to 1.18 million sq m.
• The relatively strong supply in the last two years pushed the vacancy rate up by 3.6% to 12.7%.
• 56,000 sq m of new office space will be delivered to the market in the next 12 months.
• This year’s limited office supply will restore the supply demand balance.
• Headline rents stand at EUR 15/sq m/month, up by 1.7% on 2018.
• The next 12 months are shaping up to be a period of market stability.

At the end of 2019, Wrocław’s total office stock reached 1.18 million sq m following the completion of 147,300 sq m in the last 12 months. It is the second year in a row that Wrocław has seen its office stock expand by nearly 150,000 sq m.

Wrocław continues to attract attention from global business services and technology companies. The city beckons the business services sector with world-class professionals, a high-skilled and efficient labour pool, and moderate employment costs. Wrocław’s strong and stable office market is an incentive for them to step up investment activity. Its office stock more than doubled in the last five years, but its vacancy rate and rental rates remain relatively stable, says Marcin Siewierski, Regional Head, Office Agency, Cushman & Wakefield.

Last year’s largest completion was the second phase, comprising six buildings with a total area of 76,800 sq m, of Vastint’sBusiness Garden Wrocław, which - with more than 113,000 sq m - became the city’s largest office complex. In addition, western Wrocław saw the opening of Cavatina’s Carbon Tower (17,600 sq m) and Reino/Buma’sCu Office B (10,600 sq m). Office completions in the city centre included Skanska’s NowyTarg (24,600 sq m) and Archicom’sCity Forum: City One (11,250 sq m).

Following a relatively strong development activity in the last two years, developers have scaled down the number of projects to be delivered in 2020-2021. The development pipeline now stands at nearly 116,000 sq m, of which only 56,000 sq m is scheduled for delivery in 2020. The last two years saw the highest concentration of development activity in western Wrocław. By contrast, office buildings to be completed in the next two years will be delivered in southern and central Wrocław.

Take-up

In 2019, occupier activity was subdued in Wrocław compared to the previous two years. Gross take-up climbed to 123,400 sq m, a level seen in the years 2014–2016. Half of all deals were for relocations. Renegotiations and expansions accounted for 36% and 14% of the leasing volume, respectively. In addition, approximately 40% of all the transactions were for office space under construction.

Wrocław is the third top performer, behind Warsaw and Krakow, in attracting investors and strengthening its position on Poland’s commercial real estate market. The city’s authorities continue to support programmes of cooperation with universities and actively assist start-ups and entrepreneurs in securing financing. Wrocław is also a leading city for foreign direct investments. It came second among mid-sized cities – best for business friendliness in the ranking “European Cities and Regions of the Future 2018/19”, prepared by fDI Magazine of the Financial Times group. Wrocław took the seventh spot among all the Eastern European cities. This shows that Wrocław has one of the best strategies of attracting investors and is seen Europe-wide as a good place to locate business services and high-tech projects, - adds Marcin Siewierski.

Vacancies

Despite healthy supply levels, net absorption hit a relatively high volume of 92,800 sq m in the last 12 months. However, with supply outstripping absorption, Wrocław’s vacancy rate surged to 12.7%, up by 3.6% on 2018.

Rents

Prime headline office rents stand at EUR 15/sq m/month, having posted an annual rental growth of 1.7% over the last 12 months. The highest are in the top quality office projects in the very heart of Wrocław.

Rental rates increasingly vary by class, age and standard of buildings. Asking rents stand at EUR 13-15/sq m/month at class A office buildings and at EUR 10-13/sq m/month at class B schemes. The next two years will see relatively moderate supply levels, which will enable the market to absorb office space delivered in the last two years and scheduled for delivery in 2020-2021. This will restore the supply demand balance, says Jan Szulborski, Senior Consultant, Cushman & Wakefield.

Outlook

This year is shaping up to be a period of stability on Wrocław’s office market, with several new projects in the very heart of the city expected to be announced.

Demand for office space will continue to be driven largely by the business services sector, which enjoys a favourable business environment in Wrocław. The limited development pipeline and stable occupier demand will push the city’s vacancy rate down. With the relatively small differences in rental rates between the city centre and key office hubs, central locations will attract robust occupier interest, - adds Jan Szulborski.