Poland: Office Rental Market in 2023 Through a Lens
The last few years in the office rental sector have been difficult for both landlords and tenants, due to factors such as pandemonium, inflation and economic uncertainty. Developers were also cautious in starting new construction investments in Poland. Data for 2023 shows that the office rental market has transformed, tenant expectations and leasing models are changing. What implications will this have for the office leasing industry in the coming years?
An increase in tenant activity
According to analysts at Newmark Polska, total office tenant activity in 2023 in Poland’s largest cities amounted to more than 741,300 m2, representing 19% growth over the previous year and even a slight, 7% growth over the pre-pandemic period (2019). In turn, according to a report by Cushman&Wakefield, the structure of transactions indicates that there is a preponderance of deals made with new tenants in previously leased space (tenant turnover), as well as renegotiation and renewal of existing leases over occupying new or expanding occupied space. One can also notice lower transaction values than before the pandemic. Still high prices and rising costs in the construction market are discouraging tenants from leasing new space requiring finishing.
Developers remain cautious
The Newmark report cited above indicates that over the past 12 months, developers delivered a total of nearly 300,000 m2 of office space for delivery. At the same time, a significant drop in the volume of office space under construction was observed, which at the end of 2023 amounted to about 300,000 m2. – which is almost 47% less than a year earlier and more than 73% less compared to the record year 2017 (1.1 million m2 of office space under construction).
ESG and optimization
It is clear that there will be no simple return to the pre-pandemic situation. Some companies still prefer the hybrid working model, which translates into tenants’ expectations for a smaller leased object area than once, and increased expectations for optimization and “green” technological solutions in offices. Preferred among potential tenants are offices located in buildings characterized by high energy efficiency. This is directly correlated with the fact that rental rates in such buildings have stabilized at an average of 16.00-17.00 euros/m2 per month. However, as Newmark analysts note, upward pressure on rents can already be observed in newly constructed office buildings.
Increasing vacancy rates.
2023 will also see a significant increase in vacant space (known as vacancy) compared to previous years. This is due to the factors described above – tenants need less and less office space for efficient operations and prefer newer, optimized buildings, leaving previously occupied, older office buildings. The vacancy rate at the end of 2023 was nearly 1.2 m2, a total of 17.5% of all office space. It should be noted, however, that the vacancy rate varies from city to city (from around 10% in Warsaw to as much as 20% in Łódź), with vacancy rates exceeding 10% in all markets except Szczecin.
What will 2024 bring?
Real estate analysts agree that 2024 will be a continuation of the already observed trend toward demand for energy-friendly, optimized, hybrid work model-adapted office space. At the same time, despite the reduced activity of developers in creating new office buildings, the high vacancy rate indicates that there will be no shortage of office space for lease in the next year. This will also prevent a sharp increase in rental rates in the coming months. Increased vacancy rates may improve tenants’ negotiating position in the coming months and make landlords more willing to agree to lower rents and higher finishing budgets.
As a reminder, our real estate attorneys provide specialized legal advice on office leases – from negotiation to lease finalization.
The author used the following studies:
- Newmark Polska press release, “Record demand for offices”,
- Colliers, “Highlights of 2023 and Colliers forecasts for 2024. After a period of challenges and slowdown, the office market is facing stabilization,” https://www.colliers.com/pl-pl/news/najwazniejsze-wydarzenia-2023-i-prognozy-na-rok-2024-rynek-biurowy,
- “Cushman & Wakefield summarizes 2023 on the office market in Poland,” https://investmap.pl/cushman-and-wakefield-podsumowuje-2023-rok-na-rynku-biurowym-w-polsce-raport.a307591
DKP Legal
