Office market in the Tri-City is holding its breath

Optimization of the increasing costs of leasing offices by companies and operating costs by landlords, as well as a decrease in the supply of modern space, shape the dynamics of the office market in the Tri-City

– Since the beginning of the pandemic, the number of new investments on the Tri-City market has been decreasing. The future challenge will be the estimation of the increase in construction costs and service charges in new projects. Investors also have difficulties in obtaining bank financing, the cost of which has increased significantly. Therefore, in the upcoming years we will probably observe a further reduction in the implementation of new investments in the office sector in the Tri-City - says Jarosław Zdzitowiecki, Associate Partner/Head of Tricity at Walter Herz. “Last year, the demand for offices in the region was twice as high as the new supply, and the vacancy rate is one of the lowest in Poland in the Tri-City market. Next year, the selection of office space in the Tri-City will be very limited - says Jarosław Zdzitowiecki.

Returning to offices after the pandemic resulted in greater interest in relocation from older buildings to modern spaces equipped with, among others, the latest technologies for hybrid work mode in facilities that have implemented solutions that allow optimization of rental costs.

Office rental costs are going up

– The year 2022 has already brought a slight increase in average rental rates for modern space in central locations, and yet the vacancy rate in the Tri-City has decreased. This year, tenants can expect further indexation of rental rates and increases in operating costs – says Jarosław Zdzitowiecki.

Walter Herz notes that fit-out is also becoming more and more expensive. For new space, the fit-out budget is currently ranging between EUR 600 - 1,400/sq m, and in the case of adapting an existing office, depending on the degree of changes and the tenant's expectations, the assumed expenses range between EUR 400 - 800/sq m. Spaces with the most modern technological solutions are definitely more expensive, they can cost as much as EUR 2,500/sq m.

The budget for arranging space offered by landlords, as Jarosław Zdzitowiecki points out, is sometimes insufficient to adapt the space to today's market requirements. – In order to balance the high costs of finishing, lease agreements are now signed for a longer period, often 7 years. Tenants decide on such contracts in new office buildings due to the fact that they offer energy-saving solutions, which in the long run provide them with savings in terms of the overall rental cost – says Jarosław Zdzitowiecki.

Great popularity of modern offices

In 2022, over 100 thousand sq m. of office space was leased in the Tri-City. The level of demand was similar to the result from the previous year and the average from the last few years. Only Cracow and Wroclaw were more absorbent in the regions.

Last year, the Tri-City market grew by 53 thousand sq m. of space thanks to completion of Format, Airport City Gdańsk Alpha, Palio Office Park B and Officyna II projects in Gdansk, as well as K2 investment in Gdynia. The new supply was one-third smaller than in 2021.

According to Walter Herz, at the beginning of the year, there was 76 thousand sq m. of office space under construction in the Tri-City, over 50 thousand sq m. of which is to be commissioned before the end of this year.

In Gdansk, Intel Technology Poland - IGK6 project, Punkt, Oliwa 501, Matarnia Office Park II, Alzare Office, C300 and building C in the Palio investment are under construction, while the next phase of the Waterfront complex (9 thousand sq m.) is under construction in Gdynia.

Supply down, new investments are waiting

The Tri-City is one of the office markets in Poland, with stock exceeding 1 million sq m. of space. It ranks fourth among the largest business centers in the country, after Warsaw, Cracow and Wroclaw. In recent years, an average of 150– 200 thousand sq m. of modern office space per year has been built in the Tri-City. Now, it’s three, four times less. Further investments are in the planning phase. Their implementation depends on the conditions of the market and the stabilization of macroeconomic conditions.

Marina Office project in Gdynia at Hryniewickiego Street (27 thousand sq m.), YIT Development project in Gdansk at Plac Solidarności (23 thousand sq m.), building B in the Wave complex in Gdansk at Aleja Grunwaldzka (21.5 thousand sq m.), building D in the Palio investment (9 thousand sq m.) in Gdansk’s Młode Miasto, Airport City Gdansk - Bravo project in Gdansk at Słowackiego Street (14.7), the next phase of Doki Office projectt in Gdansk at Popiełuszki Street (11.7 thousand sq m.) and an office building at Jaracza Street in Gdansk (8.1 thousand sq m) are all scheduled for construction.

The Tri-City has potential

The Tri-City attracts business thanks to its extensive educational facilities and a large number of available talent, as well as its attractive location on the Baltic Sea and seaside recreational infrastructure attracting employees from Poland and Europe. It has the second largest airport in Poland, in terms of the number of passengers checking in.

The sector of modern business services (BSS) has developed very strongly in Pomerania, currently employing 35 thousand people. The industry is one of the most active office tenants on the Tri-City market.

Gdansk has the largest container port on the Baltic Sea. The reloading capacity of the Baltic Hub exceeds 2 million TEU, and thanks to its further development by 2025, it is to increase the capacity to 4.5 million TEU. In recent years, not only the office market has been dynamically developing in the region, but also the warehouse market. Its stock currently exceeds 1.25 million sq m. of space.