Leasing activity still growing

PROPERTY TIMES
Leasing activity still growing
Warsaw Office Q3 2015
5/11/2015

At the end of Q3 2015, the office stock in Warsaw reached 4.63 million sq m, of
which 29% is located in central locations, and the remaining part outside the
city centre (the vast majority in two subzones: Upper South and South West).

During the first three quarters of 2015, as much as 240,000 sq m of new office
space was completed, and by the end of this year an additional 80,000 sq m is
scheduled for delivery. The annual volume of supply in 2015 may reach
320,000 sq m, which will be the highest value recorded on the market since 2001.

The demand for office space was very strong throughout the whole period Q1-Q3
2015, which was reflected in record-breaking volumes of take-up and net
absorption (equal or higher than the values recorded during the whole 2014).

As a result, the vacancy rate dropped from 14.1% at the end of Q2 2015 to
12.9%, which is the lowest value recorded on the market since Q1 2014 and
represents the first quarter-to-quarter decrease since the beginning of 2011.

In the city centre, average prime rents are at a level of EUR 22 to 24 per sq m
per month, and in other subzones they vary between EUR 13-15.5 per sq m per
month in buildings located further from the city centre, and EUR 16-18 close to
Fringe borders.

Given the strong pipeline supply expected in 2016, the vacancy rate is likely to
grow, which may exert a downward pressure on effective rents, especially in
buildings of inferior quality and location.
Contents
Contents
1
Supply
2
Demand
2
Vacancy
3
Rental levels
3
Definitions
4
Standard lease terms
4
Figure 1
Author
Katarzyna Lipka
Associate Director
Consulting & Research
+48 22 2223 132
[email protected]
Annual take-up in Warsaw,'000 sq m
700
600
500
400
Contacts
Kamila Wykrota
Director, Consulting & Research
+ 48 22 2223 000
[email protected]
Magali Marton
Head of EMEA Research
+ 33 1 49 64 49 54
[email protected]
300
200
100
0
2007
2008
2009
2010
2011
2012
Net take up (excluding renegotiations / renewals)
2013
2014 Q1-Q3
2015
Gross take-up
Source: Cushman & Wakefield, PORF
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PROPERTY TIMES
1
Warsaw Office Q3 2015
Supply
Figure 2
Annual supply levels in Warsaw, '000 sq m
500
Approximately 650,000 sq m of modern office space is
currently under construction, of which over 60% is located in
two subzones: Fringe and South West. The emerging key
cluster of modern office space is the western part of the Fringe
subzone (close to Rondo Daszyńskiego), where such projects
as Warsaw Spire and Prime Corporate Center are being built.
Demand
Leasing activity on the Warsaw office market remained very
strong in Q3 2015. The total volume of transactions during this
period exceeded 222,000 sq m, which equals the value
recorded last quarter and represents a growth of 36%
compared to Q3 2014.
Taking into consideration the whole period of Q1-Q3 2015, the
gross take-up reached 613,000 sq m, which equals the volume
recorded over the whole 2014. Assuming the demand remains
relatively stable until the end of 2015, the total value of lease
transactions this year may even amount to 800,000 sq m,
which will be the highest value recorded so far on the Warsaw
office market.
The growing demand is also reflected in net absorption figures,
which present the real change in the amount of space occupied
by tenants. The volume of absorption recorded in the first three
quarters of 2015 exceeded 220,000 sq m, which is higher by
almost 25% than the value noted over the whole 2014.
Provided the demand in Q4 2015 remains stable, the net
absorption in 2015 may reach a record-breaking volume.
The Upper South subzone continues to be the most popular
location among tenants, which is followed by Fringe of the city
centre. The leasing activity recorded in these locations
accounted for more than 50% of gross take-up.
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200
100
Central
2016(f)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2015(f)
According to developers' plans, in 2016 approx. 430,000 sq m
of office space may be completed, two of which are major
tower projects located in the city centre: Q22 and Warsaw
Spire, collectively accounting for almost 120,000 sq m.
Depending on the market situation and tenants' activity, part of
the schemes scheduled for 2016 may be delayed.
300
2001
Together with 80,000 sq m scheduled for delivery by the end of
2015, the level of annual supply this year may reach
320,000 sq m, which will be the highest value recorded on the
Warsaw market since 2001.
400
2000
During the first three quarters of 2015 almost 240,000 sq m of
modern office space was completed, bringing the total stock in
Warsaw to 4.63 million sq m. Only in Q3 2015 four buildings
with approx. 90,000 sq m came to the market, including such
projects as Royal Wilanów (29,800 sq m) and Domaniewska
Office Hub (27,000 sq m).
Non Central
Source: Cushman & Wakefield, PORF, (f) Forecast
Table 1
Major projects completed in 2015
BUILDING /
SUBZONE
OFFICE AREA
DEVELOPER
(SQ M)
Postępu 14 / Upper South 35,000
HB Reavis
Royal Wilanów / South
East
29,800
Capital Park
Spektrum Tower / Core
27,200
Europa Capital
Domaniewska Office Hub /
27,000
Upper South
PHN
Pacific Office Building /
Upper South
17,600
Kronos Real
Estate
Park Rozwoju II / Upper
South
16,800
Echo Investment
Source: Cushman & Wakefield, PORF
Table 2
Major lease transactions concluded in 2015
TENANT
OFFICE
AREA
LEASED
(SQ M)
PZU
BUILDING
TYPE OF
TRANSACTION
17,500
Konstruktorska
Business Center
New transaction
EY
13,500
Rondo 1
Aviva
12,000
Gdański Business
Pre-let
Center II C
HP
10,400
University
Renewal
Business Center II
P4
10,200
Marynarska BP
Orange
9,800
Renaissance
Plaza
Renewal
Renewal +
expansion
Renewal
Source: Source: Cushman & Wakefield, PORF
PROPERTY TIMES
2
Warsaw Office Q3 2015
Vacancy
Figure 3
Vacancy rate by subzones, End Q3 2015
As a result of strong demand, the vacancy rate in Warsaw
dropped from 14.1% at the end of Q2 2015 to 12.9%, which is
the lowest value recorded on the market since Q1 2014 and
represents the first quarter-to-quarter decrease since the
beginning of 2011.
Lower South
7.4%
East
7.5%
North
12.6%
The average availability ratio for central zones stood at 13.9%
(compared to 15% in Q2 2015) and for non-central locations it
was at a level of 12.5% (13.7% in Q2).
West
12.6%
The highest vacancy rates were recorded in the Core and
Upper South subzones. In the East subzone the availability
ratio was the lowest among other districts in Warsaw.
Vacancy rates in 2016 are likely to increase due to strong
pipeline supply.
South West
11.4%
Fringe
12.4%
Warsaw (av.)
12.9%
South East
13.8%
Upper South
14.3%
Core
16.4%
0%
5%
10%
15%
20%
Source: Cushman & Wakefield, PORF
Figure 4
Rental levels
Prime rents in Warsaw (EUR/sq m/month)
35
20
15
Central
2014
2015(f)
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
10
2002
Due to strong competition between landlords, they still offer
considerable incentive packages, including rent-free periods
and fit-out contributions, which result in effective rents being on
average 10% to 25% lower than the asking values.
25
2001
Average prime rents in central districts ranged from EUR 22 to
24 per sq m per month and outside the city centre they varied
between EUR 13 and 15.5 per sq m per month in buildings
located further from the city centre and EUR 16-18 close to
Fringe borders (especially in areas around Rondo
Daszyńskiego and Dworzec Gdański).
30
2000
In Q3 2015 rental levels remained relatively stable in
comparison to the values recorded during the first half of this
year.
Non Central
Source: Cushman & Wakefield, PORF, (f) Forecast
Taking into consideration the strong pipeline supply, Cushman
& Wakefield is of the opinion that this trend is likely to continue,
which may lead to a further decrease in effective rent levels,
especially in buildings of inferior quality and location.
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PROPERTY TIMES
3
Warsaw Office Q3 2015
Definitions
Standard lease terms
Modern office
stock
Units built since 1989 or refurbished to
at least B class.
Rent
Monthly rent, paid in advance, quoted
in EUR, paid in PLN
Gross take-up
Total volume of lease transactions,
including new leases, pre-lets,
expansion of space, owner occupied
deals and lease
renewals/renegotiations.
Frequency and
basis of
indexation of
rent
Annual, based on European CPI or
HICP index
Service charge
Net take-up
Total volume of lease transactions,
including new leases, pre-lets,
expansion of space and owner
occupied deals, but excluding lease
renewals/renegotiations.
Paid by tenants, connected with the
costs and expenses related directly to
the maintenance of the common areas
on the property (at the level of the
factor of the share of the total useable
office area of building). Quoted and
paid in PLN
Prime rent
Prime headline rent that could be
expected for a unit of standard size –
500-1,000 sq m – commensurate with
demand in each location, highest
quality and specification in the best
location in a market.
Typical lease
length
5 years
Incentives
Rent-free periods
Fit-out contributions
PORF
Polish Office Research Forum (PORF)
consists of six real estate services
firms: CBRE, Colliers International,
Cushman & Wakefield, JLL, Knight
Frank and Savills. The representatives
of these companies aim to standardize
indices published through the
collection and comparison of quarterly
data.
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Rent
guarantee
period
3 months’ bank guarantee or deposit
Standard
space delivery
conditions
Landlords cover fit-out cost of the
common areas of the property and
standard fit-out of the leased area.
PROPERTY TIMES
4
Richard Aboo
Partner, Head of Office Department
+48 22 820 20 20
[email protected]
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