According to “Office Occupier: Office Market in Regions, Q1-Q4 2021”, a report published by real estate advisory firm Newmark Polska, similarly, as with the capital city, positive sentiment was also visible on the eight major regional office markets outside Warsaw. Last year’s take-up surpassed 594,000 sqm; and of that total, over 67% was in Krakow, Wrocław and Tricity. Occupier activity in regional cities continued to be driven by the business services sector. Developers are active, but remain cautious about starting new projects. With office availability remaining high in some cities, office tenants have more options to choose from.
“Despite recent market developments, leasing activity remains healthy in the regional city office markets and is expected to continue to accelerate, driven by the anticipated growth of the business services sector. Similarly as with the capital, regional cities are also experiencing an increased appetite for premium quality and high tech offices,” says Agnieszka Giermakowska, Research & Advisory Director, Newmark Polska.
By the end of Q4 2021, the combined office stock of Poland’s eight major regional office markets surpassed 6 million sqm and new supply reached 226,300 sqm.
The largest office completions in 2021 included 3T Office Park (38,200 sqm, Gdynia, Q4), Nowy Rynek D (35,800 sqm, Poznań, Q2), Palio A (16,500 sqm, Gdansk, Q1), Tertium Business Park III (13,350 sqm, Krakow, Q2) and Krakowska 35 (11,800 sqm, Wrocław, Q2).
Krakow and Wrocław were the first Polish regional cities to see their office stock surpass the 1 million sqm mark. Tricity is expected to join the two above in 2022. Lublin and Szczecin are the smallest regional markets with a combined stock of just under 400,000 sqm. The remaining cities (Poznań, Katowice and Łódź) account for approximately 30% of the total regional office stock.
Although development activity in the regional office markets remains relatively strong, the office development pipeline is down by around 20% compared to the five-year average of approximately 900,000 sqm. At the end of Q4 2021, stock under construction comprised approximately 740,000 sqm, of which 22% was secured under pre-lets or letters of intent. Looking ahead, new construction will depend on not only how the macroeconomic situation unfolds, but first of all on the level of occupier activity and requirements for office space.
In 2021, total take-up in the main regional office markets amounted to more than 594,500 sqm, representing a 2.1% increase on 2020. Last year’s leaders in terms of demand for office space with more than 100,000 sqm transacted in each city were Krakow, Wrocław and Tricity, whose leasing volumes amounted to 156,000 sqm, 135,400 sqm and 108,000 sqm, respectively. The three cities accounted for over 67% of the total take-up recorded in the regional markets. The lowest leasing activity was in Szczecin and Lublin, which saw 9,200 sqm and 7,400 sqm of office deals, respectively. Additionally, five out of eight transactions for over 10,000 sqm in the regional office markets were also concluded in Krakow and Wrocław. The remaining three were in Łódź, Katowice and Poznań.
Similarly, as with Warsaw, the regional office markets also reported a marked increase in lease renegotiations and renewals. In the whole of 2021, such deals accounted for close to 43% of the total regional take-up, up by 5 pp on 2020 and by 10 pp compared to 2019. New leases made up 33%, while the remaining 24% was spread across pre-lets (14%), expansions (8%) and owner occupier deals (2%).
Take-up continued to come predominantly from the business services sector, which accounted for almost 40% of last year’s total leasing volume in Poland’s regional office markets.
At the end of Q4 2021, the overall vacancy rate in the main regional office markets stood at 14.1%, up by 0.6 pp over the quarter and 1.4 pp year-on-year. Vacancy rates surpassed 10% in all the largest regional cities, excluding Szczecin. Office availability reached more than 853,600 sqm, of which close to 70% was in Krakow, Wrocław and Tricity, where tenants currently enjoy greater opportunities to secure suitable offices and more favourable lease conditions. Given the significant office pipeline scheduled for 2022 (approximately 400,000 sqm), vacancy rates are expected to remain above 10% in most regional markets in the coming quarters.
Prime office rents remained flat across the eight largest regional office markets. With availability remaining high both in existing buildings and projects underway, rental rates are expected to hold firm over in the quarters ahead.
About Newmark Polska
Newmark Polska, a Newmark Global Partner, is a member of the Newmark Global Network. As one of Poland’s premier integrated commercial real estate services companies, the group provides conflict-free tenant representation, in addition to capital markets, market research and advisory, valuation, design and project management and workplace strategy services. Newmark Polska is led by Piotr Kaszyński, based in Warsaw, with additional offices in Wroclaw, Tricity and Krakow. The team leverages Newmark’s (Nasdaq: NMRK) global platform, which offers a comprehensive suite of services that seamlessly powers every phase of the property life cycle from offices around the world. To learn more about Newmark Polska, visit: www.nmrk.pl
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