According to Trends Radar. Real Estate: From Stabilisation To Optimism, a report from global real estate services firm Cushman & Wakefield, office demand across Poland’s office markets is expected to remain stable in the near future, on a par with the levels recorded in 2022-2023, with vacancy rates anticipated to edge down in both Warsaw and regional cities amid gradual market stabilisation. Office development activity is likely to remain subdued in the coming years, creating new opportunities for office stock refurbishment. Despite this, the Polish market offers some of the finest-quality office spaces in Europe. For example, Cushman & Wakefield’s report REThinking European Offices 2030 – Risks and opportunities from obsolescence reveals that the percentage of office stock in Warsaw at risk of becoming obsolete by 2030 is low, at 40%. By comparison, the average for seven key Western European markets (Amsterdam, Barcelona, London, Madrid, Milan, Paris and Stockholm) is nearly twice as high, at 80%.
Cushman & Wakefield estimates that the Warsaw office market will expand by approximately 105,000 sqm in 2024, up by 40,000 sqm from the previous year’s total but still about 60% below the supply levels recorded in 2010-2022. Meanwhile, regional cities lag behind the Warsaw market by about a year and are only now experiencing their first significant decline in new office deliveries, with 120,000 sqm slated for completion by the end of 2024. This represents a 65% decrease compared with the 2010-2022 period.
"According to Cushman & Wakefield, this downturn in office construction is likely to continue until the end of 2026 in Warsaw and to last several quarters longer in regional cities,” comments Vitalii Arkhypenko, Market Analyst, Cushman & Wakefield.
With stable occupier demand and subdued development activity, Warsaw’s vacancy rate has followed a downward trend since the second half of 2021, hovering at around 10-11% since mid-2023. Looking ahead, it is, however, expected to continue to edge down in the coming quarters.
Poland’s regional cities report higher vacancy rates, averaging 17-18%. However, they are likely to see gradual improvement as office supply remains constrained and demand stabilises.
"Office absorption in regional cities is influenced by local market conditions. Unlike in Warsaw, tenants from the IT and professional services sectors account for the largest share of office occupancy, with post-pandemic office attendance rates in regional locations being lower than for head offices,” adds Michał Galimski, Partner, Head of Regional Markets, Cushman & Wakefield.
More tenants but smaller offices
In 2024, office take-up in Warsaw and regional cities has remained stable, at levels similar to those recorded in 2020-2021.
"Occupier activity is expected to pick up in the coming years. However, the average office lease size has dropped to around 900 sqm, down from 1,000-1,200 sqm in Warsaw and 1,300-1,400 sqm in regional cities in 2017-2019,” explains Michał Galimski.
Since the pandemic, renewals have accounted for an increased proportion of total take-up at around 40% in both Warsaw and regional cities, up from around 30% before the pandemic. Renegotiations are particularly prevalent for large leases exceeding 3,000 sqm.
"Large transactions, including pre-lets, are particularly common in Warsaw’s central locations. This highlights unwavering occupier demand for new offices, which in turn is likely to contribute to an increase in relocations. At the same time, both Warsaw and regional cities have seen the emergence of two-speed markets, with central districts reporting low vacancy rates and rental growth, and attracting investors to launch projects. By contrast, the office market in most non-central locations is stagnating,” comments Jan Szulborski, Business Development & Insight Manager, Cushman & Wakefield.
This is in line with the global research findings in Cushman & Wakefield’s REThinking European Offices 2030 – Risks and opportunities from obsolescence report, which shows that occupiers across Europe are today focused on securing the best-in-class office space in central areas with access to the right amenities and buildings that meet the latest environmental and sustainability standards.
How fast is office stock aging?
Stronger demand in central locations in Poland’s largest cities is expected to fuel development activity in city centres. What will this mean for non-central locations? Greater office availability, a significant downturn in new projects and rental stagnation, with office stock in those areas likely to age faster.
Obsolete office stock is defined as a property experiencing a decrease in value due to rising levels of structural vacancy, driven by changing employee needs, new approaches to design and office space optimisation by tenants. Economic challenges and ESG policy requirements also play a key role. Warsaw, however, positively stands out against more mature Western office markets.
"According to ‘REThinking European Offices 2030 – Risks and opportunities from obsolescence’, the percentage of office stock in Warsaw at risk of becoming obsolete by 2030 is relatively low, at 40%. In contrast, Milan is expected to see 86% of its office stock become obsolete by then, followed by Barcelona and Stockholm at 81% each, and Paris at 80%. Other markets with close to 80% of stock at risk include London, Amsterdam and Madrid,” says Jan Szulborski.
In the long term, however, all office buildings, regardless of age, will need to comply with stricter requirements under EU ESG directives regarding net zero solutions and ‘softer’ social aspects to promote a more comfortable work environment. According to the Trends Radar report, as the market matures, with new office supply remaining limited and available development land shrinking, the refurbishment and partial or complete repurposing of older office buildings for residential, hotel or retail use are expected to gain momentum.