Office market in Warsaw – H1 2021

Due to the ongoing COVID-19 pandemic, many companies continue to use a hybrid working model, which directly affects the office market in Warsaw.

July 23, 2021

As with most of 2020, H1 2021 was marked by uncertainty. The return of lockdown in March, as well as information about the emergence of a new COVID-19 variant, have prevented many companies from allowing their employees to return to the office. Most tenants continue to use a hybrid working model, combining the possibility of using office space with working from home.

The uncertainty and changes surrounding working modes have directly affected the Warsaw office market. The most notable effect that has recently emerged is the ten-year low in developer activity in the capital city. Currently, there is only 370,000 m² under construction – the lowest level since 2010. This is the consequence of both the current economic situation, as well as the reduced demand for offices. These two factors have resulted in a rise in vacancy rates.

Nevertheless, reduced levels of new supply, delivered to the market over the next few years, may still translate into limited opportunities to lease space in new buildings.

Since the beginning of the COVID-19 pandemic, the sub-rental market has seen significant development in both the Warsaw market and most Polish cities. However, there was a slowdown in the number of sublet offers coming onto the market in H1 2021. In Warsaw, over 120,000 m² of such space is currently available.

In H1 2021, companies signed traditional lease agreements for a total of 249,300 m², a result that was 26% lower than in the first half of last year. Undoubtedly, companies, as a consequence of the pandemic, are now taking a much more conservative approach to leasing office space. However, ongoing processes together with an increasing interest in the Warsaw market, on the part of companies from the modern business services sector, may have a positive impact on the volume of lease transactions in the upcoming months.

In H1 2021, 10 buildings with a total area of 226,300 m² were delivered to the market. The largest new developments included Warsaw Unit (59,300 m², Ghelamco Poland), Skyliner (48,500 m², Karimpol) and Generation Park Y – the tower (44,000 m², Skanska Property Poland).

By the end of June 2021, it had increased to 12.5% (13.8% in central zones and 11.4% in the non-central), an increase of 4.6 p.p. y-o-y and 1.1 p.p. q-o-q, respectively.

Currently, the highest transaction rents for prime properties are stable at €18 to €24/ m²/ month in the city centre and €16/ m²/ month outside of the area. In the upcoming months, we can expect the current base rates for prime spaces to be maintained. Although no changes in the rents offered have been observed in the majority of such buildings, there is an increasing range of incentives for tenants, and in particular for fit-out budgets. Some office buildings that are currently under construction, are an exception among prime-type buildings. Their owners, wanting to sign the first agreements, are willing to settle on much more favourable terms regarding rates, incentives and other elements of the contract.

The first quarter proved to be one of the best-ever for Poland’s office sector. Turnover in Q1 2021 was boosted by the Buma portfolio transaction as well as a number of transactions in Warsaw. Activity in Q2 was nonetheless muted with total transaction volume for H1 coming in at approx. €799 million, down 40% on H1 2020 but still 4% above the 10-year average. Transactions concluded in Warsaw accounted for 53% of the turnover.

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