GDP growth, rising tenant activity, transparency of the real estate market and the availability of different investment products at attractive prices are driving the growth of Poland's seven biggest office markets.
Warsaw, 20 April 2016 – According to analysis by international advisory firm JLL, the Big 7 Polish office markets - Warsaw, Kraków, Wrocław, Tri-City, Katowice, Poznań and Łódź - are developing dynamically and remain on the radar of both capital investors operating on the real estate market and companies, i.a., from the business services sector.
Tomasz Trzósło, Managing Director, JLL Poland, says: “Warsaw is the biggest business and financial centre in both Poland and Central and Eastern Europe. The city plays host to business operations from global corporations as well as the biggest developers and investment funds. Other major cities are also developing and managing to attract companies from the business services sector, and international capital investment on the real estate market. Currently, not only Warsaw, but also Kraków, Wrocław, Tri-City, Katowice, Poznań and Łódź offer interesting opportunities to purchase commercial buildings. This dynamic development of office markets is bolstered by the favorable economic conditions in Poland as well as the positive forecasts for further GDP growth.”
Key factors for the rapid development of Poland's seven biggest office markets
- Market scale and GDP growth
According to forecasts by Oxford Economics, Poland's GDP is likely to grow by 3.5-3.6% between 2016 and 2018, far above the growth predictions for the EU as a whole. With more than 38 million inhabitants, Poland is a larger market than those of the Czech Republic, Slovakia and Hungary combined. In terms of population, Poland is the sixth largest country in the European Union.
- Real estate market transparency
According to Global Real Estate Transparency Index 2014, Poland was recognized as the 17th most transparent real estate market in the world and was ranked above Spain, Norway, Austria or Italy as well as other countries from the Central and Eastern Europe region.
Strong office tenant activity and a high level of net absorption
Poland attracts international giants including well-known companies from the finance, accounting, services, telecommunication and IT sectors who prepare long-term plans for Poland and, as a consequence, have become long-term tenants of office schemes.
“In 2015, the Polish office market witnessed record-breaking take-up with lease agreements totaling 1.5 million sq m concluded during the year. New entrants onto the market as well as the development of companies already operating here drove Warsaw's 2015 net absorption to an all-time high of 280,000 sq m, one of the best results in Europe,” comments Anna Bartoszewicz-Wnuk, Head of Research and Consulting at JLL Poland.
Today, the office market in Poland is tenant-favourable and allows them to choose from modern office buildings either existing or under construction. By the end of 2015, the vacancy rate was 12.3% in Warsaw, 5.5% in Kraków, 8.6% in Wrocław, 10.8% in Tri-City, 13.2% in Katowice, 15.9% in Poznań and 6.9% in Łódź.
“However, this picture is somewhat different when office space that can be regarded as unattractive given the current market conditions is taken out of the equation. When this is done, the vacancy rate is actually lower and is below 10% in the majority of the Big 7 cities”, says Anna Bartoszewicz-Wnuk.
- Attractive real estate pricing
Tomasz Puch, Head of Office and Industrial Investment at JLL Poland, says: “Compared to Western European countries, Poland offers real estate projects at favorable prices. The attractive pricing of Polish office schemes is visible not only in higher yields but also in significantly lower capital values per sq m. As of the end of 2015 prime office yields in Warsaw were approx. 5.25%; in Kraków and Wrocław - 6.25%, in Tri-City and Poznań - 7% while in Katowice and Łódź - 7.5%. In comparison, the European average office prime yield - a weighted average for 24 major markets in the region - was 4.53% in Q4 2015.”
- Market liquidity and availability of diversified investment products
“Developer activity in Poland remains high. A significant share of space under development in the overall supply volume is typical for the growing markets of the CEE region where office space density is lower than in Western Europe. For example, Warsaw has an office density ratio of 2.7 sq m per capita which is significantly lower than other Western European cities with a similar number of residents, such as Barcelona (sub 4 sq m), Vienna (over 6 sq m) or Hamburg (over 8 sq m),” adds Anna Bartoszewicz-Wnuk.
The Polish office sector is dominated by experienced developers who understand tenant requirements and who provide the market with high-quality, modern and secure products with long-term lease agreements.
“Stock-wise, the Polish office market has been growing at an annual rate of nine per cent and provides investors with a diversified proposition in terms of both quality and pricing – from flagship, high-quality products to opportunistic products, and value-added projects. Therefore, funds with different investment strategies, including those searching for prime projects within their class as well as funds who are willing to take more risk to gain a higher return, can expect to complete successful acquisitions”, says Tomasz Puch.
Real estate investor appetite for Polish office market is high. What is interesting is the fact that the volume of office investment transactions concluded on markets outside Warsaw has grown in recent years and hit a record high of €800 million in 2015.
“This year’s major transaction between Echo Investment and Redefine Properties further illustrates the attractiveness of Polish cities. The deal comprises a 75% stake in Echo Investment's commercial real estate platform in Poland, including – apart from retail schemes - office buildings: A4 Business Park in Katowice, Astra Park in Kielce, Malta Office Park in Poznań, Oxygen in Szczecin, Park Rozwoju in Warsaw and West Gate in Wrocław. Taking into consideration investor activity, it is likely that Poland's office investment transaction volume in 2016 can exceed the excellent result of €1.8 billion recorded in 2014 and even 2006's record-breaking volume of €2.2 billion– if all the ongoing deals will be concluded as planned”, summarizes Tomasz Puch.
At a glance - The “Big 7” office markets
Warsaw is the biggest office market in both Poland and Central and Eastern Europe (excluding Russia). Office stock totaled 4.66 million sq m in Q4 2015, while take-up hit a record-breaking 834,000 sq m in 2015. The biggest lease agreement was signed by Samsung (over 21,000 sq m in Warsaw Spire). Furthermore, net absorption also reached an all-time high of 280,000 sq m in 2015. The vacancy rate totaled 12.3% by the end of the year while prime headline rents in the City Centre were between €21-23.5 / sq / month.
Kraków is the second biggest office market (736,500 sq m) in Poland and the main CEE location for companies from the business services sector. It occupies ninth position in Tholons Top 100 Outsourcing Destinations (the highest ranked European city). In 2015, office lease agreements for 226,000 sq m were concluded in Kraków. This was the best result in the market’s history. Approximately 155,000 sq m was leased by the business services sector. The biggest lease agreement was signed by Shell (22,000 sq m in DOT Office). The vacancy rate was 5.5% by the end of 2015 and was the lowest among the Big 7 cities. Prime headline rents in Kraków were between €13.8-14.5 / sq m / month.
By the end of 2015, total office supply in Wrocław was approx. 670,000 sq m. Last year’s office take-up reached 127,000 sqm. The biggest lease agreement was signed by IBM Global Services Delivery Centre Polska (20,000 sq m in Wojdyła Business Park). Furthermore, a very important event on the market was the announcement of UBS' decision to locate a shared services centre in the city. By the end of the year, vacancy rate was 8.6% and prime headline rents were between €14-14.5 / sq m / month.
The Tri-City office market includes Gdańsk, Gdynia and Sopot. At the end of 2015, the market had 570,000 sq m of modern office space on offer. In 2015, take-up totaled over 107,000 sq m and the biggest lease agreement was signed by State Street (15,000 sq m in Alchemii II, Gdańsk) – a new brand on the Tri-City market. In addition, ThyssenKrupp also selected Tri-City, illustrating the region's attractiveness to global corporations. By the end of 2015, the vacancy rate was 10.8% while prime headline rents were between €12.75-13.50 / sq m / month.
Katowice is the fifth largest office market in Poland (397,400 sq m). Last year’s office take-up was 62,500 sq m and the biggest lease agreement was signed by Tauron (10,000 sq m in Katowice Business Point). A noteworthy trend on the Katowice office market is the activity of Polish tenants. By the end of the year, the vacancy rate was 13.2% while prime headline rents were between €12.5-13.5 / sq m / month.
By the end of 2015, the office stock in Poznań amounted to 387,000 sq m. The market registered a significant growth in tenant activity – take-up totaled 65,000 sq m, a threefold increase on the result recorded in 2014. The biggest lease agreement was signed by BZ WBK (13,000 sq m in Poznańskie Centrum Finansowe and over 11,000 sq m in Business Garden Poznań). By the end of 2015, the vacancy rate was 15.9% while the prime headline rents were between €14-14.5 / sq m / month.
Łódź with its office stock of 305,000 sq m is the seventh biggest office market in the country. Poland's biggest lease agreement in 2015 was signed in Łódź for 24,000 sq m by mBank in Przystanku mBank. Office take-up was 70,000 sq m. By the end of the year, the vacancy rate was 6.9% (the second lowest of the Big 7) while the prime headline rents were between €11.5-12.75 / sq m/ month.
 This represents the change in the occupied office stock within a market during one year. It is calculated on the basis of top-down estimates of occupied stock derived by subtracting vacant stock from total stock.
 Office data as of the end of 2015