Warsaw Spire is one of the largest ongoing office projects in the Polish capital Courtesy of Partner of Promotion

The Polish office sector remains one of the brightest spots in a European market haunted by the ongoing sovereign debt crisis, with strong fundamentals and its ability to attract international occupiers allowing it to continue growing this year, where others have stagnated or shrunk.

According to a recent report by CBRE, there is over 6 million sqm of modern office space in nine major Polish cities, 160,000 sqm of which was delivered in the first six months of this year. Over 1 million sqm is currently under construction, scheduled for delivery in 2013 and 2014.

Moreover, while rents for office space in Europe continued to fall in the second quarter of this year (by 0.2 percent q/q, according to CBRE’s European rental index), rents in Poland have remained stable.

“The first half of 2012, similarly to the two previous years on Poland’s real estate market, was an exceptionally good period, especially if considering the volume of leased office space,” said Tomasz Czuba, director of the office leasing department at Jones Lang LaSalle.

Capital activity

Warsaw was one of the busiest markets in Europe in Q2 in terms of tenant activity, with lease agreements signed for more than 172,800 sqm of space. New contracts accounted for 67 percent of all transactions.

“The highest rents in the Polish capital remained at a stable level in comparison with the end of 2011,” said Mr Czuba.

Almost 280,000 sqm of office space is due to be completed in Warsaw in 2012, making it one of the most active cities in Europe, according to the CBRE report.

The largest office projects under construction include the Warsaw Spire, Gdanski Business Centre and Konstruktorska Business Centre.

Tenants’ market

Looking ahead, the supply of office space in the capital is expected to start favoring occupiers.

If the number of planned office projects is completed according to schedule by the end of next year, Warsaw should turn into a typical tenants’ market, where tenants will be able to dictate their conditions, said Rafał Wdowczyk, a senior office property negotiator at CBRE in Warsaw.

Moreover, 2014 will be the start of a new five-year leasing cycle, following on from the credit crunch of 2009, when only 350,000 sqm of office space was leased during the whole year. This means tenant activity may be lower in 2014 in comparison to today, said Mr Wdowczyk.

“This should definitely build the negotiating position of tenants wanting to renegotiate or relocate,” he added.

In addition, companies in the financial sector – and particularly brokerage houses – are scaling back operations in Warsaw as the government runs out of assets to privatize and the boom in stock market listings continues to subside.

“Assuming that all the planned projects in the Wola area [of Warsaw] will be delivered on time, we can expect that rents in the CBD may fall slightly. Office rents for [the Warsaw district of] Mokotów should remain stable,” Mr Wdowczyk said.

“Today companies are still actively looking for space in Warsaw. There is no major slowdown in the amount of office space activity in the city center or Mokotów,” he added.

BPO boosts regions

Beyond Warsaw, business services firms are helping to drive office market activity.
Experts say tenants from the BPO and offshoring, shared services, and research and development sectors are eager to locate their centers in Poland’s regional cities, where costs are lower and well-qualified staff readily available.

Daniel Bienias, director of the office agency and tenant representation at CBRE, says the global economic situation, far from weakening Poland’s office market, is working in its favor, since occupiers are locating or expanding in the country’s regional cities to take advantage of lower costs.

“Regional office rents should remain on a stable level. Currently many local markets [are experiencing] a kind of a rare balance between the supply and demand for office space.” said Mr Bienias.

Poland’s office market is thus in a rude state of health compared to many in Europe, with Warsaw as ever carrying the flag supported by the country’s largest regional cities.