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Commercial Market in Poland Research

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Commercial Market in Poland Research RESEARCH PolandCOMMERCIAL MARKET 2019 Warsaw Office market 5.6 m sq m 800,000 sq m 878,000sq m existing office stock office space under construction leased office space in 27 projects 162,000 sq m 7.8% new supply in 17 projects vacancy rate At the end of 2019, total Warsaw office stock respectively. It is worth mentioning that, at the however, represent a weakening in developer amounted to some 5.6m sq m. Over the past time of completion of the new projects, an activity since, currently, there are year, 17 projects delivered 162,000 sq m to the average of 70% of the offered space had approximately 800,000 sq m of office space market - one of the lowest results in the history already been preleased. under construction. If these projects are of the local market (the last such figure was completed on schedule, 2020 will see In 2019, approximately 56,000 sq m of the recorded in 2011, when only 120,000 sq m was historically high volumes of new supply annual supply was completed in Warsaw’s completed). The largest projects completed in reaching the market, comparable to the record central districts, with almost twice as much 2019 were; Wola Retro with an area of year of 2016. Daszyński roundabout continues being delivered in non-central locations, of 24,500 sq m (Develia), Echo Investment’s to be the area with the most vigorous which Jerozolimskie Corridor and the West 18,700 sq m Moje Miejsce B1, and two development. At the end of 2019, eight Zone had the largest share. buildings owned by Skanska Property Poland: large-scale investments totalling approximately Generation Park Z and Spark B, supplying The relatively limited new supply delivered to 330,000 sq m of office space were designated 17,300 sq m and 15,700 sq m of office space the Warsaw market in 2019 does not, as being under construction there, of which CHART 1 Supply under construction by location and completion date (2019) 2020 2021 2022 CBD City Centre (excl. Daszyński roundabout) Daszyński roundabout East Jerozolimskie Corridor Mokotów (excl. Służewiec) Służewiec West sq m 0 50 000 100 000 150 000 200 000 250 000 300 000 350 000 Source: Knight Frank 2 COMMERCIAL MARKET IN POLAND RESEARCH the small amount of new space delivered in CHART 2 Office take-up in Warsaw 2019 and the limited availability of office space in existing buildings. Pre-let agreements New lease agreements and expansions Renegotiations High tenant activity combined with limited new supply has brought about a decrease in the 1 000 000 vacancy rate, which stood at 7.8% at the end 900 000 of 2019 (435,000 sq m of office space for 800 000 immediate lease). This represented a 0.9 pp. 700 000 decrease compared to the corresponding 600 000 2018 figure, and was the lowest level since 2012. The highest amount of vacant space 500 000 was available in the Służewiec area 400 000 (180,000 sq m) and in central locations 300 000 (117,000 sq m). 200 000 2020 may well be a record year in terms of 100 000 new supply to the Warsaw office market. sq m 0 Thus, a vacancy rate increase is expected in 2011 2012 2013 2014 2015 2016 2017 2018 2019 the second half of the year, although this Source: Knight Frank increase is unlikely to be significant since a substantial part of the space under the largest were two Ghelamco Poland almost all agreements were concluded in construction (over 70%) has already been projects: The Warsaw Hub (61,000 sq m) and schemes located in Służewiec subzone. These secured by lease agreements. Warsaw UNIT (57,000 sq m). That said, the two zones accounted for more than half of the largest project under construction in Warsaw total take-up volume in 2019. Undoubtedly, Due to the exceptionally low volume of newly remains HB Reavis’ Varso Place, located in the this impressive result was influenced by a constructed space, net absorption in 2019 Central Business District and set to offer over number of significant, individual lease was at one of the lowest levels in recent years, 115,000 sq m of office space in three agreements signed in 2019: e.g. the pre-lease amounting to approximately 200,000 sq m. buildings, one of which will be the tallest tower of 45,600 sq m by mBank in Mennica Legacy This result was almost half the figure for 2018. in the European Union. Tower, and the renegotiation of 44,850 sq m Nevertheless, given the supply scheduled for by Orange Polska in Miasteczko Orange. completion in 2020, which has been highly 2019 continued to see strong, record-breaking Renegotiations accounted for the highest preleased, and the continued stable demand demand for Warsaw office space, with some share of the 2019 lease volume – 34% (almost for Warsaw office space, the decline in net 880,000 sq m subject to lease. The areas of 300,000 sq m). The figure is also a record for absorption is set to be short-lived. greatest interest to tenants were the City such agreement types in the Warsaw office Centre Zone, where vast majority of demand Increasing construction costs, high demand market. Another record-high level was came from contracts signed for space in for office space, and a low vacancy rate have witnessed in pre-lease contracts signed in buildings located in Daszyński roundabout all contributed to a small increase in asking buildings under construction – 26% subzone; and the Mokotów district, where rents since the beginning of 2019 – most (225,000 sq m) – a figure influenced by both notably in new office buildings. CHART 3 Annual supply, net absorption and vacancy rate in the Warsaw office market Annual supply Net absorption Vacancy rate 450 000 16% 400 000 14% 350 000 12% 300 000 10% 250 000 8% 200 000 6% 150 000 4% 100 000 50 000 2% sq m 0 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f f - forecast Source: Knight Frank 3 Regional cities Office market 5.6m sq m 547,000 sq m 693,000 sq m total office stock new supply in 2019 office take-up in 2019 420,000 sq m 950,000 sq m net absorption in 2019 supply under construction 2019 turned out to be a ground-breaking one for the largest regional office markets. By the end of the year, the combined total office stock in the eight biggest regional cities exceeded Warsaw’s stock, reaching 5.6m sq m. Moreover, together with the increase in stock, the demand for office space is also growing. At the end of 2019 the annual take-up had reached some 700,000 sq m - the highest historical result. The growth in demand has translated into high developer activity. Another record- breaking figure was recorded with the exceptionally high annual new supply reaching almost 550,000 sq m. It seems likely this trend may persist due to the high volume of supply under construction – the figure of 950,000 sq m being similar to the result seen at the end of 2018. CHART 1 Existing stock and office space under construction(Q4 2019) Existing stock Office space under construction Kraków Wrocław Tricity GZM* Poznań Łódź Lublin Szczecin sq m 0 — 500 000 — 1 000 000 — 1 500 000 — 2 000 000 — *Górnośląsko-Zagłębiowska Metropolia includes: Katowice, Gliwice, Tychy, Dąbrowa Górnicza, Bytom, Zabrze, Ruda Śląska, Chorzów, Sosnowiec Source: Knight Frank 4 COMMERCIAL MARKET IN POLAND RESEARCH CHART 2 New suppy, take-up and vacancy rate in major regional office markets (2019) KRAKÓW In 2019, 16 office buildings with a total area of 155,000 sq m were delivered to the Kraków New supply Annual take-up Vacancy rate office market. This is the second highest result in the history of the local market and, at the 100 000 — 150 000 — 200 000 — 250 000 — 300 000 — sq m 0 — 50 000 — same time, the highest result among the largest regional cities. As a result, the city’s total stock exceeded 1.4m sq m, allowing Kraków to maintain its leading position among regional markets. Furthermore, by the end of December 2019, there was approximately 250,000 sq m of office space under Kraków 10.7% construction in Kraków, of which almost 70% was due for completion by the end of 2020. Kraków has also been breaking its own records for demand. A revival in developer activity is the response to the growing demand Wrocław 12.5% in the office sector. At the end of 2019 the transaction volume was 30% higher than the 5-year average take-up volume, and had reached a record-breaking result of 267,000 sq m. Despite a significant transaction Tricity 4.9% volume, the vacancy rate stood at 10.7% (an increase of 1.2 pp. q-o-q and 2.1 pp. y-o-y) – this is largely due to the high volume of annual new supply that was not fully leased prior to completion. GZM 6.6% Poznań 10.8% WRO C Ł AW At the end of December 2019, Wrocław, with a total office stock of some 1.2m sq m, remained the second largest regional office market in Poland. Strong developer activity was still being Łódź 11.2% observed in the Lower Silesian capital in 2019. The new supply delivered to the local market in 2019 was historically high (over 147,000 sq m) – and at a similar level to the end of 2018.
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