REPORT issue 05.2020 Cavatina Holding's Global Office Park project in Katowice The ABC's of Poland's Office Market Building and leasing big in Warsaw • Regional boom • Emerging office markets • Market in numbers • Office trends to watch REPORT Introduction Poland’s office Warsaw: big projects under construction, large deals signed stock has more as the city remains Central and Eastern than doubled over Europe’s most vibrant the last decade office market Sustainable success Poland’s office market boom goes on The Polish office property market has seen tremendous growth in recent years, driven by the country’s good macroeconomic situ- Medium-sized cities: ation and the ongoing expansion of both do- more development and leasing activity expected mestic and foreign companies responsible in the coming years as for massive job creation. At the end of 2019, the markets emerge as Poland’s total existing stock of modern of- interesting alternative fice space reached almost 11.2 million sqm, office locations according to Cushman & Wakefield data. This means that it had more than doubled over the preceding decade, going up from most important figures and trends defining well as the most spectacular projects and the over 4.7 million sqm recorded at the end Poland’s office real estate market as it keeps transactions. The city has already become of 2009. changing and adapting to both domestic the undisputed leader in the CEE region Just five years ago, the stock stood at developments such as the rapid improve- and is now also arguably one of the most slightly more than 7.4 million sqm. Since ment of Polish cities’ transport infrastruc- attractive office destinations in Europe. For then, annual office space demand and ture and global phenomena including the some global investors, the Polish capital supply levels have consistently remained green building and workplace revolutions. has been the first-choice destination on the very high with the former even setting new We are focusing on Warsaw (A), the biggest continent. records of late. As the world fights the new regional cities (B) and some of the smaller However, the boom in the Polish office coronavirus disease and fears of a global but quickly growing urban centers (C), property market is not limited to Warsaw. slowdown persist, concrete forecasts are as well as on issues that will in the near The largest regional cities in the country difficult to make, but assuming that the pan- future matter a lot in all locations across the – Kraków, Wrocław, the Tri-city agglomera- demic proves only a temporary disruption, country. tion, Poznań, Katowice and Łódź – have the sector – for now still based on strong Warsaw remains by far the largest and been strengthening their positions, largely fundamentals – will certainly continue its the most important office market in Poland, due to the growth of the BPO/SSC sector. solid performance. one that has been witnessing the most The strength of those markets has been a In this report, we are taking a look at the development and investment activity, as big asset of the Polish office sector which, 56 MAY 2020 WBJ Large regional cities: plenty of development, Mennica AIMING HIGH leasing and investment Legacy New office towers activity as the markets Tower become truly established office destinations springing up in Warsaw The significant number of very big projects that are currently being built in Warsaw is perhaps the best proof of the very good condition of the city’s of- fice market. Indeed, never before has so much new office space been under construction in high-rise schemes in the Polish cap- ital. This year alone, three such developments – Mennica Legacy Tower (Golub GetHouse/Mennica Polska), Skyliner (Karim- pol) and The Warsaw HUB (Ghelamco Poland) will be Skyliner completed. Ghelamco is now also working on a skyscraper investment called Warsaw UNIT and Skanska is build- ing the skyscraper phase of its Generation Park complex. Both companies have further high-rise projects in their pipelines. Meanwhile, PHN last year started constructing its Skysawa scheme. For its part, HB Reavis will next year finish construction work on its Varso Tower Varso Tower under development which will completion not only tower over the Warsaw skyline, but will also be the tallest office building in the entire EU. unlike the markets in many other countries The Warsaw of the region, offers plenty of development HUB and investment opportunities outside the capital city. Meanwhile, a number of medium-sized Polish cities – including Lublin and Szczecin – have emerged on Poland’s office map 310 as interesting alternatives to their bigger meters regional peers. As some of the biggest Polish the height of HB Reavis’s cities face qualified labor force shortages, Varso Tower, soon to those smaller markets – offering access to become the tallest office well-educated employees and benefiting building in Poland and in from infrastructural investments – could the entire EU soon attract more tenants and developers alike. We are taking a glance at some of the emerging office markets that will be worth watching in the coming years. >>> WBJ MAY 2020 57 REPORT Warsaw Capital dominance Warsaw is still home Ato the biggest projects, lease deals 1. Record transaction The biggest office lease deal to have ever been signed in Poland took place in Warsaw last year. Spectacular figures have defined the Financial institution mBank, which office property market in Warsaw in had decided to consolidate its recent years, with the Polish capital now Warsaw operations, pre-let 45,600 seeing a record-high take-up level and sqm in the Mennica Legacy Tower a record-low vacancy rate. Develop- building that Golub GetHouse and ers have hardly been able to deliver a Mennica Polska are developing in sufficient amount of space to meet the the city’s Wola district. Other huge huge demand. A total of 878,000 sqm of transactions included bank PKO office area was leased in the city in 2019 BP's lease of over 24,200 sqm in (a 2 percent increase on the record year the Chmielna 89 building in central 2018), which brought the rate of unoc- Warsaw, which is being developed cupied space to 7.8 percent, the lowest by Cavatina. level in seven years. The demand has largely been driven by consolidation and relocation process- es in the banking and insurance sectors where companies leased big last year. As many as 12 lease deals signed in Warsaw in 2019 exceeded 10,000 sqm, and four Warsaw’s of them exceeded 20,000 sqm. It is now very difficult to find an office area office vacancy in the city that would be sized several thousand square meters and could be rate is now available this year. In 2019, just 162,000 lowest since sqm of new space was completed in the capital (down 30 percent y/y). 2012 However, the supply gap witnessed of late is currently coming to an end. A combined 423,000 sqm in 19 projects will be delivered in Warsaw this year. The five biggest of those schemes will account for almost half of that volume (202,000 sqm). 58 MAY 2020 WBJ 4. New office locations emerging While Wola and the CBD will likely remain the largest con- centrations of new office space in Warsaw in the coming years, a number of major projects could soon also be launched in several (less popular until recently) locations in the city. Those will include the northern part of central Warsaw where HB Reavis is now developing 2 . Focus on the center a large scheme called Forest and a few other developments The bulk of the development 3. Służewiec makes a comeback are in the pipeline. The eastern activity (over 80 percent) in Praga district, too – made more Warsaw is now taking place The Służewiec neighborhood in the Mokotów dis- attractive through the construc- in central locations, including trict in Warsaw’s south, which features over 1.1 tion of the second subway line – in the CBD and the City Centre million sqm of office space and was until 2015 could see more investment. For West zone. The latter zone the biggest office zone in Warsaw, keeps turning example, there is room for new alone – encompassing the into a more attractive multi-function area. Criti- high-rise office buildings in the Rondo Daszyńskiego area and cized for its office monoculture, Służewiec saw Port Praski area, located just parts of the Wola district lying less office development activity over the past next to the National Stadium. closest to the CBD – accounted few years and now has the highest vacancy rate for more than 50 percent of all (16.6 percent) in the city. However, the situation is space under construction at the improving as more residential and hotel proj- end of 2019. The completion ects, as well as infrastructural investments, get of a new subway station and completed there. Office demand in the neighbor- the availability of large post-in- hood increased to almost 200,000 sqm in 2019 dustrial sites have opened new and there are signs that the zone will soon attract investment opportunities there more investors as investment products in other in recent years. parts of Warsaw become scarcer. 5.59m sqm the total stock of existing office space in Warsaw, Q4 2019 SOURCE: CUSHMAN & WAKEFIELD 5. Aging buildings’ owners’ strategies With developers working on huge amounts of new office space in Warsaw, the owners of many of the older properties are increasingly under pressure to rethink their strategies. Many ten- ants have already decided to move to new, more modern projects, vacating space in aging build- ings delivered 15-30 years ago.