Warsaw will see the arrival of approximately 75,000 sqm of offices in 2023, 82,000 sqm in 2024
The Warsaw office market will see projects with a total area of around 75,000 sqm in 2023 and 82,000 sqm in 2024, compared to 236,800 sqm last year, estimates consulting firm JLL. At the end of Q4 2022, nearly 190,000 sqm were under construction.
In 2023, projects with a total area of about 75 thousand sqm will hit the market. The coming quarters will bring a moderate increase in construction activity, so 2024 will also see a very limited number of new projects entering the market. We have not seen such a significant reduction in new supply coming to the market in more than 20 years, according to a JLL report.
Geopolitical tensions, the energy crisis, inflationary pressures and the economic slowdown are the main factors that will characterize the economic environment in 2023. This has implications for commercial real estate players and the decisions they make. Experts observe a high degree of caution in the market, which is related to construction costs, hybrid work, and the expected slowdown on the demand side for offices in 2023 - all of which influence prolonged decision-making processes on the part of developers, investors and office tenants alike, JLL further reported.
"Demand for high-quality offices remains stable, as evidenced by the declining vacancy rate in newly completed buildings. Due to the gap in new supply this year and next year in Warsaw, it will be a challenge for tenants looking for large spaces to find the right office. Some tenants will not be able to carry out their plans and will be condemned to either renegotiate leases in their current locations. Precautionary tenants will start the process of finding a solution for their office well, at least 2-3 years in advance. The year 2023 is also one of the last times to secure leases at the rent levels we have become accustomed to over the past few years - rent increases are inevitable. Most regional markets will undergo the same transition but with a delay of about a year," said Tomasz Czuba of JLL.
According to JLL, the market is witnessing the so-called "fly to quality," a trend showing that companies are interested in top-quality office space in buildings that meet the highest standards related to sustainability and are located in the best parts of the city. Some companies will choose to stay in their current locations and optimize their space, so we can continue to expect a high share of lease renegotiations - similar to 2022.
Both tenants and property owners will face higher costs of maintaining space. Rising energy prices and labor costs will translate into higher maintenance fee rates across all property types. According to preliminary estimates, the increase in fees over the previous year will average 30% (in some cases even more than 60%), with new buildings recording lower cost increases on average. JLL experts assume that the energy market crisis will be a temporary situation that will normalize within a year. Nevertheless, even in the short term, the maintenance of office space will be a significant cost item in every tenant's budget, the report further presented.
In all of last year, 236,800 sqm of new office space was completed in Warsaw, of which only 8,700 sqm was completed in the fourth quarter. Most new space was completed in COB (99,100 sqm), Centrum (88,700 sqm) and Mokotów (32,000 sqm). Several flagship office projects were completed, including Varso Tower (63,800 sqm, HB Reavis), Forest Tower (51,500 sqm, HB Reavis), P180 (32,000 sqm, Skanska) and SkySAWA (31,300 sqm, PHN).
Source: JLL and ISBnews