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In the Warsaw office market, 314 thousand sq m of space was added in 2020, according to the latest CBRE report. A total of 602 thousand sq m was leased, with renegotiations of contracts dominating. Despite initial negative forecasts in connection with the Covid-19 pandemic, the level of office space absorption remains positive and is even higher than a year earlier. CBRE experts point out that provided projects are delivered as planned in 2021, supply growth will reach 7.1%. Thus, the threshold of 6 million sq m of office space in the capital will be exceeded. The activity of tenants is also likely to increase, as decisions cannot be postponed indefinitely.
– In the office sector, it is difficult to forecast the future, because for the time being it is not known whether the new reality we are dealing with now will last for a long time. The role of the office will be more strongly oriented towards what we lack at home, namely interaction. On the one hand, employers’ leaning towards a hybrid working model may result in a reduced need for office space. But on the other, providing security in place and creating modern collaborative spaces. These two opposing trends may result in only a slight decrease in demand for office space – says Mikołaj Sznajder, Director of Office Space at CBRE.
Developers active, tenants hold back their decisions
Office space on the Warsaw market increased by 5.5% in 2020. In practice, this means 314 thousand sq m of new space. 17 projects, which are currently 86% leased, are responsible for this result. In 2021, CBRE experts expect supply to increase by 7.1%, provided that all planned projects are delivered on time. It is also to be expected that a smaller number of new projects will start this year and investors will focus on locations where demand for office space is still strong. Owners also often take decisions to modernise office buildings in the centre of the capital and in Służewiec – revitalisation will allow these buildings to match modern office standards.
The large increase in supply has not gone directly hand in hand with tenant activity, which in 2020 fell by around 30% year-on-year. A total of 602 thousand sq m was leased. Tenants most often decided to renegotiate their contracts, followed by pre-letting agreements. However, despite the lower results, the level of office space absorption, which in many cities in Western Europe by the impact of Covid-19 has fallen and is at a much lower level, is still on the positive side, which confirms the strong position of the capital market.
– In 2021, we expect a gradual reversal of the trend we faced a year earlier, i.e. holding back decisions. We can already see an unblocking of processes in the office sector. Additionally, investors from abroad, for whom Poland is a very attractive location, look favourably on our market – says Mikolaj Sznajder.
Rents stable, more vacancies
From the end of March to the end of December 2020, the vacancy rate in Warsaw rose by 2 p.p. to the level of 9.9%. More vacancy means more pressure on lease terms, but most landlords are not choosing to lower rents. Instead, they offer greater flexibility.