Cushman & Wakefield: 2021 Outlook for Wroclaw Office Market

While the Wrocław market is now showing the first signs of tenants changing their attitudes to office location, developers and landlords alike are taking action to adapt to the new reality. Wrocław-based experts of global real estate services firm Cushman & Wakefield forecast that in 2021 tenants will seek flexibility in the first place, with the market likely to see a period of supply-demand stability.

2020 was a year of subletting, regearing and renewals

Despite pandemic-related challenges, leasing activity remained relatively strong on the Wrocław office market in 2020. Last year saw 128,400 sq m of office space transacted, but occupier activity by type of lease transactions reflects concerns caused by restrictions on some sectors of the national economy. Lease renewals and renegotiations that were frequently made for relatively short terms accounted for more than half of gross take-up. New leases made up around 29% of all deals, followed by expansions at just 16%.

COVID-19 has changed the way we work and some companies looking to cut costs will reduce their office footprints and sublet some space. At the end of 2020, there was 16,300 sq m of modern office space available for sublease on the Wrocław office market. Last year’s subdued occupier activity pushed the city’s vacancy rate up to 15.0% at the end of December 2020, 2.3 pp above 2019’s level.

Although asking rents hold relatively firm in Wrocław, they have come under downward pressure from tenants. At the end of 2020, rental rates stood at EUR 13–15 per sq m for class A office space and at EUR 10–13 per sq m in older office buildings. Effective rents also edged down as landlords displayed greater flexibility with regard to providing additional incentives such as rent holidays or fit-out contributions.

Time to adapt – flexibility, comfort and safety will be in demand
Looking ahead, the process of adapting office buildings to tenants’ new expectations and evolving requirements due to the COVID-19 pandemic will need to accelerate. Both developers and landlords alike will be challenged to review their leasing strategies in the new market situation, with changes likely to take place in many areas at the same time.

“Expectations are changing, among other things, with regards to ensuring employee health and comfort. Office buildings providing amenities and services that promote good health and wellbeing will definitely be favoured. Many companies will also consider adopting a hybrid office model and combining long-term leases with short-term leases of coworking spaces and remote work. As a result, offices providing both flexibility of space adaptability and an opportunity to optimize occupancy during the lease term will become sought after. Buildings offering coworking spaces operated by their landlords will also be winners,” says Marcin Siewierski, Regional Head, Cushman & Wakefield Poland.

Balance between remote and in-office work is wanted

COVID-19 has presented a range of new challenges for the office sector. Will 2021, therefore, witness a sharp fall in office occupancy?
“Not necessarily so. Cushman & Wakefield’s research and survey insights gleaned from office workers around the globe show that a majority of us do not dream of exclusively remote structures, and organisations will need to strike the right balance between remote and in-office work. According to the firm’s Polish report ‘Gen Z – A Workplace of the Leaders of the Future’, 61% of survey respondents would opt for combining in-office work and working remotely. Full-time remote work is favoured by only 13%. And according to Cushman & Wakefield’s global report ‘The Future of Workplace’, 70% of the younger generation report challenges in working from home,” says Marcin Siewierski.
Investors appear to hold similar views on the growth of the post-pandemic office market. Developers and investors alike remain relatively active in the Wrocław office sector.

Stability is on the cards for the Wrocław office market in 2021

“Only 57,000 sq m of office space was added to the Wrocław office market last year, nearly three times less than the amount of office completions in 2019. A similar volume is expected in 2021. On the other hand, this will result in stability between demand and supply, as well as steady absorption of vacant office space. This demonstrates maturity of the Wrocław office market. The city is no longer seen an ‘emerging market’, but a mature and well-established business location that boasts a diverse offer and an ability to respond to the market situation flexibly and swiftly,” comments Marcin Siewierski.