Office Market Pulse - Summary of the Warsaw Office Market
Brookfield Partners systematically monitors all office spaces, regardless of building class. The Office Market Pulse report covers 7.94 million square meters of office space, approximately 1.7 million square meters more than competitive reports. This comprehensive market overview accurately reflects the current state of the Warsaw office market.
Warsaw Office Market Amidst Changes and Challenges in 2023
According to the Brookfield Partners report, "Office Market Pulse - Summary of the Warsaw Office Market," the total office space in the capital at the end of 2023 amounted to 7.94 million square meters. This includes 4.99 million square meters of Class A buildings (modern offices with high standards and amenities), 2.64 million square meters of Class B buildings (less modern but still providing a good standard), and 318 thousand square meters of Class C buildings (lower standard offices or facilities adapted for offices).
New Supply and Ongoing Projects
In 2023, approximately 67,000 square meters of office space were added in Warsaw, marking the lowest new supply in years. Notable completions included the Studio B building (approx. 16,400 square meters) and Lakeside (approx. 22,700 square meters). The construction landscape has seen a gradual decline since the onset of the pandemic in 2020, with 12 buildings totaling around 245,000 square meters currently under construction, slated for completion between 2024 and 2025, as highlighted by Filip Sarzyński, Partner at Brookfield Partners.
Several projects scheduled for completion in 2024 have yet to commence construction. However, if developers fulfill their commitments, the new supply from planned projects in 2024-2025 could reach approximately 160,000 square meters. Furthermore, if economic conditions stabilize and developers decide to continue projects in preparation until the end of 2026, around 350,000 square meters of new office space may be created.
In recent years, there has been a shift in development activity from the city center to both central and non-central office hubs. Noteworthy projects in progress include The Bridge (47,000 square meters, developer: Ghelamco), Drucianka B1 (25,000 square meters, Liebrecht & Wood), Upper One (35,900 square meters, Strabag), Studio (26,600 square meters, Skanska), Towarowa 22 - Office House (31,000 square meters, Echo Investment), and The Form (21,000 square meters, Lincoln Property Company).
Real Estate Market Demand in Warsaw
The initial months of 2023 witnessed low tenant activity in the Warsaw office market. Ultimately, in 2023, demand for modern office spaces reached 748,800 square meters, with around 250,000 square meters recorded in Q4. Throughout the year, approximately 800 lease agreements were concluded in Warsaw.
In terms of location, Centrum, Służewiec, and Central Business Area garnered the most tenant interest in 2023, accounting for about 55% of the leased volume in the Warsaw office market. The successful commercialization of the Varso complex, owned by HB Reavis, significantly contributed to this achievement. The Daszyńskiego Round area, currently witnessing the most office space development, also attracted substantial attention. Key projects in this vicinity include The Bridge, Office Building B within the Towarowa 22 multifunctional project, and The Form, all set to be completed between 2024 and 2025.
Challenges for Tenants
According to the "Office Market Pulse" report, prime rent rates for office space in Warsaw remained stable in 2023. In top office buildings in central areas, monthly rates ranged from 21.0 to 25.5 EUR/sqm. Tenants interested in modern offices with high standards and amenities should anticipate rising rental rates. On Mokotów, the largest office district outside the city center, rents for the most attractive modules ranged from 13.0 to 15.0 EUR/sqm monthly.
One widely discussed aspect in recent months has been the undeniable increases in operational fees faced by tenants. Prolonged high inflation in Poland and the eurozone, combined with an increase in the minimum wage and other fees, will impact service fee levels. In the coming months, tenants will have to cope with significant indexation of rents and further increases in operational fees, changes observed since last year.
Vacancy Rates
As of the end of 2023, the volume of available vacant space for rent across all classes in Warsaw was approximately 897,780 square meters, resulting in a vacancy rate of 11%. Vacant office space in Class A buildings totaled around 600,000 square meters, with a vacancy rate of 12% in this class.
Currently, approximately 276,000 square meters (11.6%) of modern office space is available in Centrum for tenants. Despite high rent rates, tenant interest is highest in this area. The most challenging areas to find tenants are Służewiec and southern Mokotów, where despite relatively low rent rates, there is vacant office space amounting to 317,000 square meters (19% vacancy).
A trend observed in 2023 was a clear decline in development activity in the office market. This decline can be attributed to factors such as the introduction of interest rate hikes and the entrenched hybrid work style during the pandemic, reducing the demand for office space. Despite unfavorable conditions, Warsaw saw the lowest new office supply in years (approx. 67,000 square meters) in the past year. Despite the challenging situation in the capital, interesting new office buildings were completed - summarized by Filip Sarzyński, Partner at Brookfield Partners.
The entire "Office Market Pulse - Summary of the Warsaw Office Market" report is available for download: Office Market Pulse.
