The latest commercial property updates for Poland have been released by Cushman & Wakefield, revealing that the office market in the Polish capital of Warsaw has seen demand return to similar levels as in 2019.

While the amount of empty office space in London has increased by around 50% since 2019, the Warsaw office market saw a shrinking volume of space under construction and increasing pressure on rents in 2022.

However, according to C&W, the Warsaw market could see a significant tenant recovery as contracts signed in the record period of 2018-2019 come up for renewal.

Tenant activity increased despite market uncertainty
Total tenant activity (new office leases agreed) in 2022 was 860,100sqm, more than 33% higher than in 2021 and only 2% lower than pre-pandemic 2019’s record performance.

The high demand in 2022 was a result of both the accumulation of large-scale deals by tenants from the financial, business services and IT sectors. This is confirmed by the number of transactions finalized in 2022, which totalled 860, an increase of nearly 39% compared to the same period in 2021.

Katarzyna Lipka, head of consulting & research at Cushman & Wakefield, said: “In 2022, new contracts (52%) and renegotiations (39%) accounted for the highest share of demand, while expansions accounted for only 8% of total tenant activity.”

“In the next 12 months, the Warsaw office market will see contracts concluded in the record years of 2018-2019 coming up for renewal. The increased number of renewals expected to start this year may have a positive impact on the demand for office space throughout 2023. Nevertheless, the prospect of economic slowdown may translate into tenants becoming more cautious about their business plans and as a consequence, leasing office space,” commented Joanna Blumert, head of occupier services at Cushman & Wakefield.

Blumert added: “In addition, as a result of changes in the market regarding the working regime and rising inflation over the past three years, we will see a number of tenants optimizing costs, including extending contracts to amortize higher capital expenditure for office finishing. The structure of the concluded deals will also change, with the share of renegotiations over relocations growing.”

Lower development activity now a reality
In 2022, developers completed 237,000sqm in 12 office projects, bringing the total stock of office space in Warsaw to around 6.27m sqm. There is currently about 181,500sqm under construction in Warsaw. According to C&W estimates, the capital’s office market will expand by just 66,000sqm this year, which will mark the start of a ‘supply gap’ that could last until 2025.

At the end of 2022, the vacancy rate for offices in Warsaw continued on its downward trend. The availability of office space in December totalled 726,400sqm, down 52,000sqm on the same period in 2021. The vacancy rate in Q4 2022 was 11.6%, down 0.6% (q-o-q) and a decline of 1.1% (y-o-y).

With a reduction in new supply in 2023, there will be a continued downward trend in the rate of available office space, which will allow markets to absorb any excess available office space in the existing stock.

However, the report warned that, despite office rents increasing in Warsaw last year, the energy crisis and the increase in construction and fit-out costs, has put a limit on landlord’s profit margins.

In Q4 2022, rates for prime office space in Warsaw were €22-26sqm/month in the central areas and €13.50-16.50sqm/month in non-central locations.

Retail property market stabilises in 2022
According to Cushman & Wakefield, the retail real estate sector saw the continued expansion of retail parks in 2022, accounting for 70% of new supply delivered to the market. However, the next few months may experience a downturn in consumer sentiment, with lower retail sales, and in turn, reduced turnover for retail tenants.

Lipka stated: “The rising inflation rate had a detrimental effect on disposable incomes in Poland, with many forced to revise their shopping plans. Although overall retail sales grew by 5% year-on-year, the second half of the year was marked by a slowdown in spending. This trend looks set to continue into 2023 with retail sales dropping by up to 5%.

“Changes in sales levels vary by product category. Last year, the largest year-on-year increases in retail sales were experienced by textile, apparel, and footwear (22%), followed by pharmaceutical, cosmetics and orthopedic equipment stores (12%). Car dealers, on the other hand, experienced the largest declines, down 9.6%.”

Retail parks are thriving in Poland

Footfall in shopping centres and retail parks in December 2022 reached a monthly average of nearly 510,000 people per retail facility. This is more than 5% higher than in 2019, despite an increasingly competitive market, which has seen nearly 800,000sqm added to retail stock over the last three years.

However, rents for retail units on the main shopping streets of Poland fell by 5% year-on-year in Q4, while rents for prime units in the shopping centre sector were unchanged and rents in retail parks recorded a 9% year-on-year increase.