Regional office markets in Poland – May 2021

After a slow start to the year, leasing activity across key regional office markets in Poland increased by nearly 70% in Q2.

July 30, 2021

After a rather weak start to the year, the further lifting of Covid-19 restrictions combined with a mass vaccination program has given rise to cautious optimism on the leasing market in the second quarter. This is confirmed by the growing activity of tenants in regional markets, who leased nearly 70% more space compared to Q1 2021. Nevertheless, the persistently high share of renegotiations illustrates the hesitancy of most tenants in taking strategic decisions with regards to office portfolio due to the uncertainty related to the pandemic.

Since many companies are now analysing office space requirements in response to the changing working model, we observe a great deal of interest in shorter term contracts of between 12 and 36 months. Tenants are using these solutions as they want to secure their operating activity before they develop an optimal real estate strategy tailored to the requirements of a particular business and their employees’ preferences.

After fairly rapid increases in volume at the end of 2020, the first half of 2021 brought stabilization on the sub-rental market. At the end of Q2, over 168,000 m² was available for sublet outside Warsaw, 54% of which was located in Wrocław and Kraków.

In H1 2021, 11 office buildings with a total area of 126,500 m2 were delivered to the market. The largest volume of new supply was recorded in Kraków (42,400 m2), followed by Poznań (35,900 m2) and Tri-City (35,000 m2). Currently, there is over 760,000 m2 of modern office space under construction across the eight major regional markets in Poland, which is planned to come onto the market by the end of 2023. The highest developer activity was seen in Wrocław, Katowice, Tri-City and Kraków. Almost 200,000 m2 is scheduled for completion in H2 2021, but we should take into account that some projects may be put on hold or pushed back to the following year – especially in the case of markets experiencing a rapid increase in vacancy rates.

At the end of Q2 2021, the vacancy rate for the eight major regional markets stood at 13,4%, an increase of 0.8 p.p. on Q1 2021 and over 3 p.p. up on Q2 2020. Over the last 12 months, most of the regional markets recorded increases in vacancy rates, with Łódź recording the highest (+5.2 p.p.), followed by Lublin (+4.9 p.p.) and Kraków (+4.9 p.p.). Poznań was the exception as the city’s vacancy rate decreased by 1.6 p.p. y/y to 12.9%.

At the end of Q2 2021, the highest rents among the main regional markets were recorded in Kraków (€ 14-15.5 / m² / month), while the lowest was in Lublin (€ 10.5-11.5 / m² / month). Tenants can still benefit from favorable incentives packages, especially when it comes to investments that are still in the construction phase.

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