Warsaw office market in the process of adaptation

Stable demand, low supply of new offices, and few vacancies—this briefly describes the current situation in the Warsaw market

Just under 11 per cent of the office space resources in Warsaw, currently amounting to over 6.30 million sq m., are waiting for tenants. The average vacancy rate has changed little over the past year, but the differences in office availability depending on the location have deepened. Available spaces have decreased primarily in the city center, where there is a shortage of offerings, and rental rates reach up to 29 EUR/sq m./month. In other parts of Warsaw, the selection has slightly increased (13-17 EUR/sq m./month).

- Developers are showing limited activity in new projects due to caution and careful analysis of market absorption in relation to new resources. At the same time, we are observing a growing trend of converting office buildings into residential projects, PRS, or dormitories, as well as a decrease in planned office space in new investments - says Mateusz Strzelecki, Partner/Head of Tenant Representation at Walter Herz.

A Slightly Higher Number of New Offices Compared to Last Year

In the second quarter of 2024, Warsaw's office potential increased by only 15 thousand sq m. of space, thanks to the completion of the Vibe A office building. In the first three months of the year, 49 thousand sq m. of offices was delivered.

In the first half of this year, only 65 thousand sq m. of space entered the Warsaw market, and plans for the entire year of 2024 indicate that a total of about 100 thousand sq m. of new offices will be delivered. It is worth pointing out that in 2023, new supply in the sector did not exceed 60 thousand sq m.

According to Walter Herz, over 248 thousand sq m. of office space is still under construction in Warsaw. Projects underway include Office House (Towarowa 22), Upper One, The Form, The Bridge, Vena, CD Projekt HQ, Skyliner II Warsaw, Studio II, and modernizations of V Tower, University Business Center II, and G5 Prime Offices. Nearly 90 per cent of the space under construction is in new projects located in the city center and in Wola near Daszynskiego Roundabout.

Mateusz Strzelecki notes that ESG-related criteria now have a significant influence on office space design. - A lot of greenery and the use of sustainable solutions to ensure environmental standards characterize both new buildings and renovated properties – says Strzelecki.

Renegotiations Dominate Transactions

Demand for offices in Warsaw in the second quarter of this year was nearly 40 thousand sq m. higher than in the first quarter. Nearly 180 thousand sq m. of space was contracted. The highest demand was for offices located in the central part of the city and in Sluzewiec, where economical offers are available to companies planning to reduce costs due to the economic downturn.

- In recent months, we have seen an increase in demand for office space in Warsaw compared to the first quarter of 2024. Nevertheless, vacancies remain at a constant level. Minimizing costs associated with relocations and adapting spaces to new needs remains tenants’ priority - says Mateusz Strzelecki.

In the rental structure in the Warsaw market in the last quarter, renegotiations began to dominate. We observed a sharp increase in these transactions, considering their share in the rental structure in the first quarter of this year, which saw the most new agreements.

The first half of this year, in terms of demand, closed with the same results as the first half of 2023. By mid-2024, nearly 320 thousand sq m. of space had been leased, about 2 per cent less than the same period last year (326 thousand sq m.).

- Among tenants, large entities, particularly media groups, dominate, striving to bring employees back to offices full-time. However, most companies prefer a hybrid model that involves frequent office visits. IT companies continue to show great interest in new spaces, aiming to optimize area and improve the quality of office space. Solutions supporting hybrid work, teleconferences, and collaboration among employees are key. Institutional tenants and state entities are also increasing their market activity, which is a result of decisions being unlocked after the elections - says Mateusz Strzelecki.