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News Release

Jones Lang LaSalle summarises Q2 2010 office markets in Krakow, Wroclaw, Lodz, Poznan, Tri-City and Katowice

H1 2010 saw continuing concessions to potential lessees. Due to limited office supply in the pipeline, we expect a gradual shift towards more landlord-favourable conditions at the beginning of 2011.

As at the end of Q2 2010, modern office stock in the six major office markets (excluding Warsaw) amounted to 1,730,000 m2, with over 45% of total supply concentrated in Krakow and Wroclaw (around 420,000 m2 and 362,000 m2 respectively).

Mateusz Polkowski, Senior Research Analyst at Jones Lang LaSalle says: “Q2 2010 saw an upward trend in new office supply with around 88,500 m2 entering the market (only around 38,700 m2 of modern office stock delivered in Q1 2010). This trend looks sustainable in the future. According to the latest Jones Lang LaSalle’s forecasts, another 88,000 m2 are due for delivery in H2 2010 in major regional markets (for the whole 2010 a level comparable to 2009 with around 227,000 m2 coming to the market). The new completions from Q2 were initiated under very different economic conditions. By contrast, most developers who obtained construction permits after 2008 are tending to adopt a „wait and see approach”, withholding projects until a clear recovery on the demand side of the market. It effectively means that those new office developments will be added to the market no sooner than at the end of 2011 or even in 2012. Until then, more restrictive approach towards the financing of new developments from H2 2008-2010 will be mirrored in the office supply in 2011, which will realistically bottom out at 130,000 m2”.

The total office stock under construction in major regional markets was 276,000 m2 as of the end of Q2 2010 with construction activity most pronounced in Krakow, Wrocław and Łodź (62,000, 65,000 and 49,000 m2, respectively, currently under construction, excluding projects “on hold”).

Karolina Margielewska, Research Analyst at Jones Lang LaSalle adds: “In Q2 2010 the upward pressures on the vacancy rates were observed on most regional markets. Typically, the increase in the vacancy rate resulted from a delivery of new office buildings, which to a great extent remained vacant. The following q-o-q increases in the vacancy rates were registered across Poland: Krakow (from 8,9% to 11,4%), Wrocław (from 3,8% to 5,9%), Łódź (from 17% to 24%) and Katowice (from 5,5% to 14,6%).
By contrast, downward trends in the vacancy rates were in Poznań (8,8% vs. 11,4% registered in Q1 2010) and Tri-City (9,7% vs. 10,6% in Q1 2010).
Taking into consideration both the existing office stock and planned for delivery in H2 2010 as well as the economic indicators beginning to be broadly positive there is increasing confidence that this recovery trend will continue. We are confident that the office market conditions will shortly shift towards landlord-favourable conditions with Wroclaw being the first market to experience this”.
Prime headline rents currently range from €11-13.5 /m2/ month in Lodz, to €15 /m2/ month in Krakow and Poznan. We expect prime headline rents to remain stable in H2 2010, with upward pressure on the headline rents in 2011 in most regional markets.