Savills: 12 months Pandemic on the Office Market in Warsaw

During the year that has passed since the Covid-19 pandemic arrived in Poland, the office real estate market in Warsaw experienced a significant decline in demand, space under construction and an increase in vacancy rates. The office sector has had a difficult 12 months behind it, but this period has not stopped companies from feeling the need to have an office, according to consulting firm Savills.

With more than 167,000 sqm of new office space coming on stream in the first quarter of 2021, Warsaw’s total office stock surpassed the 6 million sqm mark. Office supply was boosted by the completion of two office towers near Daszyńskiego Roundabout: Skyliner (48,500 sqm) and Generation Park Y (44,200 sqm).

According to Savills data, office development pipeline stands at 407,000 sqm, the lowest figure in 10 years. More than 180,000 sqm is expected to be delivered by the end of this year, mostly in projects that broke ground in the pre-pandemic environment. Increased caution with regard to commencing new projects is likely to result in a supply gap in 2022–2023, says Savills.

In the first quarter of 2021, Warsaw’s office take-up climbed to 109,250 sqm, down by 20% on the same period in 2020, when the impact of the pandemic was not fully felt yet. According to Savills latest report, total leasing activity amounted to 574,000 sqm in the past 12 months, the lowest figure since 2011.

Due to Covid-19, the share of pre-lets plunged from 20% during the pandemic period from April 2020 to the end of March 2021 to just 10% in the first quarter of 2021 alone. Despite this, the largest transaction to complete in the first three months saw the Warsaw Transport Authority (ZTM) pre-lease 9,800 sqm in Fabryka PZO for its head office. The share of regears stood at a high of 32% in the first quarter of 2021, a trend that had been expected to intensify due to the pandemic, but the increase was weaker than originally anticipated. Regears accounted for 37% of the total leasing volume in the past 12 months.

The vacancy rate in Warsaw increased to 11.4% at the end of the first quarter of 2021. Despite the fact that in the last 12 months the level of vacancies in the capital city has increased significantly (by 3.9 pp), it is still clearly lower than in the period of the last supply boom in 2016 (14.2%).

Lower tenant activity is starting to put pressure on the cost of renting office space, but headline rents remain stable for the time being. Companies looking for a ready-made office space for a shorter period can now choose from a wide range of sublets. Office property owners seek tenants by increasing incentive packages that can be counted on when signing a contract. They include, among others periodic rent exemptions or space arrangement surcharges.

“An analysis of the past 12 months provides some insight into the impact of Covid-19 on the office market. The rate of vaccination and the risk of further waves of infections are, however, causing a great deal of uncertainty of what lies ahead. The pandemic certainly continues to shape the office market. Some companies are withholding their decisions regarding office leases or exploring opportunities for savings and more flexibility. At the same time, there is growing confidence in the office. Despite a high level of remote work, companies are unlikely to give up the idea of having a physical office altogether. The office market appears to have survived the pandemic and will continue to grow soon, while office landlords and developers now have a better understanding of tenants’ new needs,” says Daniel Czarnecki, Head of Landlord Representation, Office Agency, Savills.