60,000 sqm of new office space is expected to be delivered to Krakow’s office market in the second half of the year, giving tenants a wide choice and plentiful opportunities to secure favourable lease terms. Companies reporting requirements for 1,000 sqm units have many options to choose from in Krakow, the capital of Lesser Poland, say Karolina Słysz, Advisor, Office Department and Artur Sutor, Partner and Head of Office Department, Cresa Poland.
Several large office projects have been rescheduled in Krakow from 2018 to late 2019 or early 2020. Will this supply concentration hinder their commercialisation?
Artur Sutor: Krakow’s office stock increased by approx. 16% over the year to approximately 1.35 million sqm at the end of the first half of 2019. The development pipeline amounts to 160,000 sqm, of which 60,000 sqm is expected to come on stream this year. That’s a lot, but Krakow has been experiencing rapid growth for years and new space, particularly in prime locations, is leased very quickly. Plenty of office space is contracted under pre-lets in the early stages of a project development. Krakow’s vacancy rate stood at 10% after the first half and is likely to edge up in the coming months due to strong supply, but looking ahead it will remain healthy.
Karolina Słysz: Now is a very good time for tenants to go out to the market to look for new offices. Tenants are currently in the driving seat in Krakow, with those seeking 1,000 sqm units having many options to choose from. Due to the large supply delivered to the market simultaneously, developers have to compete for tenants who are able to secure truly favourable lease terms. Asking rents will hold firm at EUR 12–15.5 per sqm in the city centre and at EUR 9.5–14 per sqm in non-central locations. Generous lease incentives are, however, likely to push effective rents down. Tenants are already able to secure higher fit-out contributions and several rent-free months.
Are companies taking advantage of this buoyant market?
KS: Not all companies realise what savings they could make through lease renegotiations or a relocation to a new office. Many tenants wait until the last minute or lease expiry. They treat a lease extension as just a formality and choose to remain in the building on the same terms and conditions, frequently taking up some more office space. They could, however, renegotiate leases after three years and obtain rent-free periods or some extra benefits. Renegotiations are an opportunity not only to talk about rental rates, but also to discuss and secure what is missing in a building such as a bike rental station, a canteen or a newsagent’s shop.
Which office locations in Krakow are most sought after by tenants?
AS: Companies based on the outskirts are relocating closer to the city centre to be more attractive to their employees and job candidates benefiting from easier access to public transportation and more service and entertainment options.
KS: That’s exactly what Assa Abloy, the global leader in door opening solutions did. They will open the GSSC Global Operations Center at the Equal Business Park in Wielicka Street this autumn.
What buildings located close to the centre of Krakow would you show your clients today?
KS: The centre of Krakow has a very limited supply of Class A office space due to the concentration of historic buildings in this area. High 5ive, a complex of five buildings developed by Skanska, boasts an excellent location in the vicinity of the Main Railway Station and the Galeria Krakowska shopping centre. Once fully built out, it will provide a total of 70,000 sqm of modern office space. The two buildings have already been completed in the first phase and the next two will see tenants move in next year. The construction of the fifth office building has not started yet. High 5ive attracts strong occupier interest.
The vicinity of Mogilskie Roundabout, the largest junction in Krakow, is also sought after by tenants, isn’t it?
KS: Yes, it is a very well-connected location which benefits from the proximity of the University of Economics, which provides a pool of skilled labour. The bare skeleton structure is being replaced by a mixed-use business complex Unity Center, which will comprise office buildings, a hotel and luxury apartments. The first office space will become available to tenants in 2020. In the vicinity of the roundabout, Warimpex developed Mogilska Office tucked between tenement houses. This small-scale office building offers 12,500 sqm and features terraces and green balconies in addition to ample glazing.
AS: We should also mention two other notable developments which are scheduled for completion this summer. One is Cavatina’s office building: Tischnera Office, which will provide 33,600 sqm of office space spread across ten floors and a spacious car park with approximately 700 parking spaces. This semi-circle office building will also feature a patio at the front and terraces on each floor from the third floor upwards. The other development is Fabryczna Office Park in Pokoju Avenue, in the Grzegórzki district, which will offer 42,000 sqm of office space in three buildings.
Krakow is the second largest office market in Poland. Will the capital of Lesser Poland continue to lead the way in the long run? Wrocław is catching up.
KS: But Krakow won’t be overtaken. Developers have already announced impressive new projects. Cavatina will develop two office buildings as part of its Klimeckiego Office on a plot in Klimeckiego Street: 7,800 sqm and 28,000 sqm. Of all projects, White Star’s The Park at 25 Saska Street will be the largest – a total of 100,000 sqm of office space will be delivered across eight buildings. Echo Investment is also planning another development, but the project remains confidential.
What makes you so sure that tenants will continue to lease new offices? Which sectors report growing requirements for office space?
KS: Demand for office space in Krakow is driven primarily by the rapid growth of the BPO/SSC and IT sectors. Those companies present in Krakow are reporting increased requirements for space. New supply is likely to attract robust occupier interest. Krakow has become a cradle of start-ups, thereby attracting high-tech investors and increasing demand for R&D centres.