An overview of modern office stock, new completions, leasing volumes and vacancy rates paints a picture of caution on Poland’s regional city office markets, reveals “At A Glance – Regional City Office Markets Q1 2024”, the latest report from BNP Paribas Real Estate Poland.
Regions on course to outpace Warsaw
Only 31,000 sqm of new supply was delivered through two projects during the three months to March 2024, bringing the combined office stock of Poland’s eight largest regional cities to 6.7 million sqm at the end of the first quarter. The new completions were Echo Investment’s Brain Park C (13,000 sqm) in Krakow, which is the second largest office market in Poland after Warsaw, and Cavatina Holding’s Quorum Office Park A (18,000 sqm) in Wrocław – the third biggest.
According to reports from developers, regional cities are expected to see higher supply levels than the Polish capital in the coming quarters, with 280,000 sqm scheduled for completion in Warsaw by the end of 2026 compared to approximately 335,000 sqm of new deliveries on the regional markets. Looking further into the future, office construction activity comprising new projects and extensions will depend on occupier demand and macroeconomic indicators.
Low take-up
Occupier demand weakened in early 2024. The total leasing volume for the first quarter of 2024 reached nearly 140,000 sqm, down by 36% from the previous quarter and by 17% on the same time in 2023. The strongest leasing activity in January-March 2024 was recorded in Krakow (44,000 sqm), Wrocław (25,000 sqm) and Poznań (24,000 sqm).
New leases and renewals accounted for equal proportions of occupier transactions.
“Facing high relocation and fit-out costs, as well as economic uncertainty, many tenants renewed their leases in 2022-2023. In January-March 2024, new leases and renewals accounted for an almost equal proportion of office take-up at approximately 47% each. Four of the five largest transactions of that period were lease renewals,” comments Ewa Nicewicz, Senior Consultant, Office Agency, BNP Paribas Real Estate Poland.
With substantial volumes of vacant office stock - both standing and under construction, rental rates are expected to remain flat at EUR 16-17 per sqm per month in the coming quarters, say report authors.
Office vacancies
Regional city office vacancy rates continued to set new highs in the first quarter of 2024. At the end of March 2024, office availability on the eight key regional city markets amounted to approximately 1.19 million sqm, equating to a vacancy rate of 17.8%. This represented an increase of 0.3 pp over the quarter and 1.9 pp compared to the same time in 2023.
The highest vacancy rate of 21.3% was in Łódź, with the lowest of 5.5% reported in Szczecin. Looking ahead, vacancy rates are, however, forecast to edge down by the end of 2024 amid a slowdown in development activity and fewer new projects breaking ground in the regional cities, notes BNP Paribas Real Estate Poland.
A 4-day work week on the horizon
Regional city office markets are likely to be impacted by a transition to a 4-day work week. Some companies are already trialling or mandating compressed work schedules - these include Herbapol, which has announced the introduction of a four-day work week for all its employees with effect from 1 January 2025. Can such work arrangements be extended to the whole of Poland?
“According to Eurostat, Poland has the second-longest working hours in the European Union. Polish people work on average 40.4 hours a week, but this does not always translate into productivity. UK studies have found that a 20% shorter work week with full pay reduces stress levels, raises worker morale and significantly improves work-life balance, all without sacrificing productivity,” says Małgorzata Fibakiewicz, Head of Office Agency, BNP Paribas Real Estate Poland.
The prospect of a four-day work week may, however, lead to employers’ and the government’s concerns about Poland’s competitiveness and productivity in comparison with Western European countries.
