Cushman & Wakefield: Take-up of office space hits almost 200,000 sq m in Warsaw in Q2 2020, despite the lockdown
Global real estate services firm Cushman & Wakefield has summarised H1 2020 on the Warsaw office market.
- There is currently approximately 680,000 sq m of office space under construction across Warsaw.
- More than 106,000 sq m of office space came on stream in the first six months of the year.
- In H1 2020, gross take-up was down by 17% on the same period in 2019.
- Warsaw’s vacancy rate stood at 7.9%, representing a 0.4 pp increase on the same period in 2019.
- Office rents remained flat at EUR 24/sq m/month in the city centre and at EUR 15/sq m/month in non-central locations.
Warsaw’s total office stock expanded to 5.69 million sq m in H1 2020, up by 106,800 sq m. The largest office completions in the January-June period included the two phases of Varso, Chmielna 89, DSV HQ, and Biura przy Willi, another phase of the Browary Warszawskie project.
Although no legislation limiting construction works was introduced during the lockdown, completion of some projects has been postponed from the second to the third quarter of 2020 due to protracted administrative procedures, limited labour availability and potential disruptions to supply chains, says Jan Szulborski, Senior Consultant, Cushman & Wakefield.
The office development pipeline totals nearly 680,000 sq m which is due for delivery in 2020-2022. Cushman & Wakefield estimates that 2020 will see completion of close to 361,000 sq m, more than double 2019’s volume. Given pre-let levels, these projects are very likely to come to fruition as scheduled. New supply planned for 2021 is estimated at 339,000 sq m, with some projects that have not secured pre-lets likely to be delayed until 2022.
A supply gap is on the cards for 2022-2023 as decisions to commence new projects have been shelved until the economic situation in Poland and the world stabilizes. Projects fully financed using own funds may be an exception here, adds Jan Szulborski.
The lockdown period and the uncertainty of the economic impact of the coronavirus pandemic pushed some tenants to temporarily withhold their decisions in pending lease negotiations. Gross take-up climbed to 334,800 sq m in H1 2020, representing a 17% decrease on the same period in 2019, with most transactions having been commenced in the pre-pandemic environment. The largest deals included the PZU Group’s pre-let of 46,500 sq m in Generation Park Y, DSV’s lease of 20,035 sq m closed with the buyer of their building in Mokotów, and the renegotiation of a 19,010 sq m lease by Poczta Polska in the Domaniewska Office Hub.
The structure of occupier demand in H1 2020 was similar to that recoded in H1 2019 as new leases accounted for 62% of all deals closed in the surveyed period while renegotiations and expansions made up 30% and 8%, respectively.
The deteriorating health of the economy pushed Warsaw’s vacancy rate up by 0.4 pp quarter-on-quarter to 7.9%, albeit still lower year-on-year compared to where it was in the same period in 2019. Nevertheless, this still represents a slight statistical increase as the real estate market takes some time to respond to all economic developments.
The largest hikes in vacancies were recorded in Mokotów (+14,900 sq m / 14.1%), the East (+5,130 sq m / 8.6%) and the City Centre (+5,900 sq m / 5.7%). Another notable trend was the growth in office space for sublease. In Q2 2020, Warsaw had an estimated nearly 50,000 sq m of office space available for sublease, which volume is not included in the statistics for available office space.
Prime headline rents remained unchanged at EUR 24/sq m/month in the city centre and at EUR 15/sq m/month in non-central locations.
“Rental rates remained unchanged as deals were closed on pre-pandemic terms. A correction to commercial conditions is likely in the coming quarters if demand for office space weakens and the economy remains stuck in low gear,” says Katarzyna Lipka, Head of Consulting & Research, Cushman & Wakefield.
Due to the lockdown caused by the outbreak of the Covid-19 pandemic, most companies embraced remote working and scaled down business activity. In addition, the Polish economy is likely to slide into recession for the first time since 1989, which will reshape the economic landscape and have a knock-on effect on the office real estate market in the coming months. According to the latest outlook by Oxford Economics, Poland will see its GDP shrink by 3.5% year-on-year in 2020. The official data from the Central Statistical Office shows that consumption was down in this period by 4.5% year-on-year. Nevertheless, both indices are expected to bounce back strongly in the next quarters, along with a further easing of restrictions, says Katarzyna Lipka.
The full version of the report can be downloaded here: https://info.cushmanwakefield.com/l/263412/2020-08-04/2t2l4c
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWakeCE on Twitter.