The total office stock of Warsaw at the end of the first quarter approached the level of 6.24 million sq m, of which over 93 thousand sq m. sq m of modern space was put into use between January and March 2022. The largest completed investment was the Forest office complex. In the 120-meter tower built by HB Reavis there were over 51.5 thousand. sq m offices, most of which have already been leased at the construction stage.
The authors of the report emphasize that despite many challenges, the Warsaw office market is slowly returning to its pre-pandemic activity. In Q1, the demand for new offices continued its upward trend, which resulted in a record total volume of signed contracts, which exceeded 270,000. sq m In terms of lease, the first quarter definitely belonged to companies from the financial sector. The largest newly signed contract turned out to be the lease of approx. 30 thousand. sq m by the banking institution on the campus at Arkadia. Once again, Plac Unii will be the seat of all companies from the ING Capital Group. In the complex so far occupied by ING bank, the group has leased almost 23.5 thousand. sq m surface. In addition to offices, the bank intends to set up a modern training and conference center there, and will allocate some of them to the Innovation Lab. PKO Bank Polski will change the seat, which will occupy the entire office and retail complex of Skysawa at ul. Świętokrzyska. Under a long-term lease agreement, the developer PHN will hand over the entire building to the bank in the fourth quarter of 2022.
A major investment event in the 1st quarter was the acquisition of The Warsaw Hub by Google. The IT giant spent over PLN 3 billion on the flagship project of Ghelamco. This is an important and positive signal for the office sector in the context of lower volumes observed in the last two years, which resulted from the pandemic and almost overnight office vacancies.
The report prepared by BNP Paribas Real Estate shows that the demand structure in Q1 was dominated by new contracts. They accounted for over half of the contracts signed. Experts estimate that this is one of the heralds of an impending supply gap, when tenants are trying to use available resources and secure them for the future. In the structure of demand, around 27 percent. was due to renewals of leases, and 13 percent. were expansions, the rest were new deals.
The observed increase in interest in tenant's offices, unfreezing negotiations and returning employees to offices, and in the background less activity of developers, inflation, increase in construction costs, prolonged periods of finishing space due to torn supply chains and the outflow of Ukrainian employees from the Polish labor market - this is a mixture that resulted in In the years 2023 and 2024 there will be a supply gap in Warsaw, an increase in the attractiveness of existing office buildings and the growing popularity of various forms of flexible offices.
In the coming quarters, the supply gap will be one of the main factors shaping the lease structure in Warsaw. Tenants will more and more often decide to negotiate in existing locations and extend contracts. And these, overshadowed by the lack of new supply, high construction, finishing and maintenance costs, will most likely be concluded for a period of 3 to 5 years - emphasizes Ewa Nicewicz, consultant from the Office Space Leasing Department, BNP Paribas Real Estate Poland.
The report shows that at the end of the first quarter, slightly more than 12 percent. offices in Warsaw were empty (12.2 percent). Recovering demand for offices caused a decrease in vacancy rates in the Central Business District from 14.3%. in the fourth quarter of 2021 to 11.2 percent. at the end of the first quarter of 2022. The West zone is at the other extreme, where the resources of vacant space increased from 8.2 percent. at the end of December 2021 to 11.3 percent. at the end of March 2022.
The lively demand and shortages of new office space will translate into a marked decline in the vacancy rate. The resource that will be taken into account will be older buildings, the owners of which will either decide to renovate and modernize the office function, or to change functions (e.g. to PRSs, which have a chance to accelerate their development due to the increased demand observed in recent years). weeks), or the prospect of optimizing rental rates, as many of them are not technologically advanced enough to effectively reduce maintenance costs, adds Klaudia Okoń, consultant from the Business Intelligence & Consultancy Hub department.
Contract renegotiations, optimization and lower rents in older buildings are to allow tenants to compensate for higher service fees.
Warsaw offices favor the development of operators of serviced offices and coworking spaces. Despite the return of employees to offices, two years of the pandemic, and in addition the uncertain future dictated by the war in Ukraine and the economic situation, are sufficient arguments to treat flexibility, including office flexibility, as an important element of long-term business strategies. In the first quarter, Warsaw enriched itself with a new operator of flexible office space, BeIN Offices became a tenant of the Central Point office building. It will occupy 1.9 thousand sq m on the eighth and ninth floors. sqm, where it will arrange offices for joint work.
Currently, there are about 100,000 in Warsaw. sq m of space available for sublet. This product, a metaphor for market uncertainty, came to the fore in the outbreak of the 2020 pandemic. After the forced home office period, many tenants switched to hybrid operation or extended the existing hot-board system. As a result, the tenant's office space was optimized, creating space for use by others, and in return offering a finished space and a flexible lease period. A short lease term may be a motivator for companies that cannot afford a long-term commitment to a lease agreement, due to the need to structure the company and the uncertain situation on the global market or for entities, which are going through a period of dynamic development and have not yet reached their critical mass. The first quarter of 2022 seems to confirm that sublet will remain an alternative for tenants for some time to come.