Poland’s office market: the outlook for 2020Real Estate Market
Originally Published in March 2018
2017 was a record year: all indicators confirm that the Polish office market experienced spectacular growth. Optimistic expectations were more than fulfilled. Total stock reached 9.7 million square meters. Although developers delivered less space than in 2016 (736,000 square meters), lease transactions amounted to 1.5 million square meters – more than ever. Investors are very active in Warsaw and in regional cities – 787,000 square meters of office space is under construction in the capital, over 300,000 in Kraków and more than 230,000 in Wrocław (total – 1.85 million).
This happened because Poland strengthened its position as a European leader of the shared services sector. We are seeing a snowball effect – already existing business process outsourcing (BPO), shared services centers (SSC), information technology (IT) and research and development (R&D) centers are attracting investment.
Poland also benefits from a Brexit effect – many international companies with offices in the United Kingdom plan to relocate to a European Union country; Poland seems to be one of the hottest destinations. Why? It is the biggest country in Central Europe, with significant economic growth (gross domestic product increased 4,6 percent in 2017) and rapidly developing infrastructure. Poland offers highly qualified, well-educated employees and modern office space for a fair price compared to countries in Western Europe.
Companies already located in Poland are constantly developing their structures; they need more and more office space. The unemployment rate in Poland has dropped to its lowest level since 1990 (6.6 percent), so firms have to compete hard to hire the best candidates. A well-located, modern, attractive office is one of the main tools in that competition.
The biggest change in Poland’s office market is that pre-lease investments have become less popular. Big, international companies that decide to relocate to Poland do not have enough time to wait for the entire investment and construction process; they take what the market offers. As a result, developers have decided to carry out more new projects, including large-scale ones. This is why the biggest developers have dominated the market – they can afford to take on such projects.
Also, efficiency rules – there are many new projects achieving 100,000 square meters or more. They are often multifunctional: office space is being built into shopping malls and hotels.
Where is the space for the growth on the market? Warsaw will remain the most attractive Polish city for investors (demand in 2017 exceeded 820,000 square meters). They will focus on the Wola district, the Aleje Jerozolimskie boulevard and the Dworzec Gdański railway station. The Służewiec neighborhood still offers the biggest supply in Warsaw; it will maintain its important role in the city’s office market due to attractive rental rates and a wide selection of modern office space. The right side of Vistula River still has to wait for office real estate investors.
Regional office markets have experienced rapid growth. Kraków, second in the ranking, has joined the “millionaire club” (total supply – 1,099,000 square meters), it is also the biggest BPO/SSC hub in Poland. Another new trend is that investors are becoming active in smaller cities such as Lublin, Rzeszów, Szczecin and Białystok.
Most new projects set to be delivered in 2018 are already leased. In 2019, the market will experience a new supply gap –most of the new projects will be delivered in 2020. This means that for the next two years, lessee benefits may be less attractive. This trend may impact older office buildings – their owners will have more opportunities to keep their current tenants.
2020 will be a key year for the Polish office market. If everything goes right and numerous new projects find their tenants, investors probably will not slow down. If things go less well, investors will focus on commercializing their existing developments. Such a trend could halt the investment process and affect leasing rates. It is a real challenge for Poland – if it maintains its high level of economic growth, if the universities manage to deliver many well-educated, highly qualified graduates, if local authorities cooperate successfully with companies and investors, then the positive scenario seems likely.
Comment by Bartosz Kozieł, Board Member, Nuvalu Poland