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News Release

Warsaw

Jones Lang LaSalle summarises Q1 2010 office markets in Krakow, Wroclaw, Lodz, Poznan, Tri-City and Katowice


Warsaw, 12th April 2010 – A combination of sporadic demand and numerous office completions adversely impacted the Polish provincial office market in 2009. Nevertheless for Q1 2010 we are seeing the first signs of an improvement.

Graph: Modern Office Stock and Vacancy Rates

As at the end of Q1 2010, modern office stock in the six major office markets (exclusive of Warsaw) amounted to 1,641,000 sq m, with over 45% of the supply concentrated in Krakow and Wroclaw (around 400,000 and 344,000 sq m respectively).

Anna Bartoszewicz-Wnuk, Head of Research & Consultancy at Jones Lang LaSalle says: “In Q1 2010, approximately 38,700 sq m of modern office space came to market in six office developments in Krakow, Tri-City and Katowice. The remaining quarters of 2010 are however, likely to see a gradual increase in market completions, with, according to the latest Jones Lang LaSalle’s forecasts, another 190,000 sq m due for delivery (a level comparable to 2009 with around 227,000 sq m entering the market). It should be highlighted, that the new completions were initiated under very different economic conditions. Most developers who obtained construction permits after 2008 are tending to adopt a „wait and see approach”, withholding projects until there is a clear recovery on the demand side of the market. It means that those new office initiatives will be introduced to the market no sooner than at the end of 2011 or even in 2012.”

Anna Bartoszewicz-Wnuk adds that a restrictive approach towards the financing of new developments will be mirrored in the office supply in 2011. In Q1 2010, modern office stock under construction reached a level of 399,000 sq m, down approximately 20% y-o-y (vs. around 493,000 sq m registered in Q1 2009). Around 69% of construction activity in the major regional markets is concentrated in Krakow, Lodz and Wroclaw (around 105,000, 88,000 and 82,000 sq m respectively). Recently, Poznan has also enjoyed increased interest, with around 52,000 sq m remaining under construction.

Q1 2010 saw continuing concessions to potential lessees. Due to limited office supply in the pipeline we expect a gradual shift towards more landlord-favorable conditions at the end of year. This will particularly refer to Wroclaw which features limited availability of institutionally acceptable office space (in both existing office stock and planned for delivery in 2010) of just around 30,000 sq m.

As of the end of Q1 2010 vacancy rates remained stable in Krakow and Poznan (averaging 8.9% and 11.4% respectively), whilst slight downward pressures were registered in Wroclaw, Lodz and Katowice (around 3.8%, 18% and 5.5% respectively). Tri-City is an exception to this with a vacancy rate at 10.7% in Q1 2010, up from 7.8% in Q4 2009. The increase resulted from a delivery of new office buildings, and their commercialization was affected by weakening demand since Q3 2008. Nevertheless recent evidence in these markets suggests that a recovery in corporate demand is underway with new requirements beginning to surface. With economic indicators beginning to be broadly positive there is increasing confidence that this recovery trend will continue.

Prime headline rents currently range from €12-13.5 /sq m/ month in Lodz, to €15 /sq m/ month in Krakow and Poznan. “We expect prime headline rents to bottom out within the next few months. The combination of low rental levels and a wide choice of available lease options, mark a good time for signing lease agreements. We therefore expect an upward pressure on the headline rents in 2011, in most regional markets.” - concludes Anna Bartoszewicz-Wnuk.