Office Market Profile: Poland Q3 2014 Error! Unknown document property name. Error! Unknown document property name. Warsaw In Q3, tenant demand stood at approximately 163,000 m2, against the 422,000 m2 seen in the whole of 2014. The Upper South followed by the South West and the Fringe were the leading districts in this respect and generated more than 75% of all demand in the capital in Q3. New transactions amounted to almost 115,000 m2 of leased space, including a modest volume of expansion transactions (7,900 m2) across the entire city. Pre-letting activity has sharply accelerated compared to Q2, accounting for almost 20% of all registered take-up. However, it was mainly driven by planned Raiffeisen’s relocation to Prime Corporate Center (19,500 m2 space leased), which was the largest deal in Q3. Other notable transactions were Media Saturn Holding’s renewal in Blue City Offices (8,000 m2) and Moneygram’s new deal in the Konstruktorska Business Center (7,300 m2). Two of the other biggest transactions were by public sector institutions: Główny Inspektorat Transportu Drogowego in Equator I and Urząd Lotnictwa Cywilnego in Flanders Business Park A (a 7,100 m2 new deal and a 6,600 m2 renewal) which shows the increasing interest from this sector in leasing the best quality office space in Warsaw. In Q3, prime headline rents remained stable; however, we expect developers to revise their rental policies next year in response to increasing vacancy and the influx of new completions entering the market in 2015. Currently, the prime headline rents in Warsaw City Centre range between €22 and €24 / m2 / month, the best NonCentral locations (Mokotów is a benchmark) are between €14.50 and €14.75 / m2 / month. In Q3, the total modern office stock amounted to almost 4,365,000 m2 and looks set to outperform the levels from 2013, when 300,000 m2 was delivered to the market. This has not, however, deterred developers, who have announced completions of another 90,000 m2 in Q4 2014, some of which will probably be postponed until early 2015. At the moment, almost 60,000 m2 of office space is under refurbishment and almost 640,000 m2 in the construction stage across the city (almost 20% of which is already pre-let). Q3 alone saw the completion of four office blocks: Warsaw Spire B (20,000 m2) and Małachowskiego Square (12,000 m2) in the City Centre; Fringe and Nimbus (19,000 m2) in the South-West; and Garden Plaza (8,500 m2) in the North. Source: JLL, WRF, Q3 2014, F-forecast This quarter the vacancy rate has increased to the level of 13.8%, indicating an ongoing upwards trend. Cooling demand combined with increasing supply will soon trigger a sharper increase. Office Completions, Future Supply and Vacancy Rate m2 400,000 16% 300,000 12% 200,000 8% 100,000 4% 0 0% Completions (m²) Planned - Occupied (m²) Planned - Vacant (m²) Vacancy rate Prime headline rents in Warsaw (€ / m2 / month) 35,00 30,00 25,00 20,00 15,00 10,00 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F City Centre Source: JLL, Q3 2014, F-forecast Non Central (Mokotów) Major Office Markets (outside Warsaw) In Q3, approximately 117,000 m2 of modern office space was leased in the regional office markets (a total of 320,000 m2 in Q1-Q3). The biggest transactions in Q3 were the 21,000 m2 renewal and expansion by Infosys in Green Horizon in Łódź, a 16,400 m2 pre-let in Dominikański in Wrocław by HP GBC and the renewal of almost 4,400 m2 in Diamante Plaza in Kraków by AON Hewitt. As a result of such large deals Łódź has already exceeded last year’s total take-up by 95% and 2014 is set to be record-breaking for the city in terms of demand. Kraków once again shows stable and strong take-up volumes, which are already greater than in the whole of 2013. Total demand in regional markets overall for the first three quarters of 2014 accounts for 88% of last year’s demand. The first three quarters of 2014 brought more than 206,000 m2 of new office space to the market outside Warsaw. Almost 40% of the new supply that entered regional markets was delivered in Kraków (81,500 m2), with the Tri-City accounting for another 46,000 m2 and Katowice 27,000 m2. In Q3, three largest well-leased projects were completed in Kraków: Kapelanka A (17,300 m2 – 65% let), Enterprise Park C (13,600 m2 – 95% let) and Quattro Business Park D (12,200 m2 – 80% let). Developer activity remains strong in Poland’s major cities: currently more than 520,000 m2 of office space is under active construction. Interestingly, a large proportion of this volume consists of large office building with an area of more than 20,000 m2. Together Wrocław, Kraków and the Tri-City account for 64% of all projects. Wrocław is taking a clear lead in this respect, with almost 137,000 m2. The largest project is being developed in Poznań: Business Garden Phase I (39,000 m2). Pre-let levels of projects under construction in Poland’s major office markets range between 12% in Poznań to 34% in Łódź and nearly 50% in Wrocław. Quarterly vacancy rates varied across the markets. Wrocław, the Tri-City, Poznań and Łódź remained stable, while Kraków and Katowice recorded slight increases in vacancy (1.5pp and 2.3pp respectively). The largest fall in vacancy was in Szczecin (6.7pp), while the rate fell by 4.7pp in Lublin and stood at 8.6% at the end of the quarter. Despite the changes, Kraków still registers the lowest vacancy rate (6.0%) and Szczecin the highest (17.7%). Prime headline rents in regional cities currently range between €11 to €12 / m2 / month in Lublin and €14 to €15 / m2 / month in Wrocław and Poznań. Average headlines rents remain highest in Kraków (€13.5 to €14 / m2 / month) and Katowice (€12.5 to €13.75 / m2 / month) and lowest in Lublin (€10 / m2/ month). There is no common picture for all the major cities outside of Warsaw in terms of both rents and vacancy. One large lease agreement can still change the balance on a given market. Due to such a change Łódź saw one of the lowest vacancy rates in the history of the city. Stock and Vacancy Rate m2 Stock (LHS) 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Vacancy Rate (RHS) 17.7% 13.1% 10.4% JLL Anna Młyniec Head of Office Agency and Tenant Representation, ul. Królewska 16 00-103 Warszawa Tel. +48 22 318 0000 Fax +48 22 318 0099 anna.mlyniec@eu.jll.com Mateusz Polkowski Associate Director Research & Consultancy ul. Królewska 16 00-103 Warszawa Tel. +48 22 318 0042 Fax +48 22 318 0099 mateusz.polkowski@eu.jll.com www.jll.pl www.jll.pl 16% 12.0% 9.8% 8.7% 12% 8.6% 6.0% 8% 4% 0% Under Construction m2 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Under Construction - Vacant Under Construction - Occupied Prime Headline Rents (€ / m2 / month) Wrocław Poznań Kraków Katowice Tri-City Szczecin Łódź Lublin 10 11 12 Source all charts: JLL JLL 20% COPYRIGHT © JONES LANG LASALLE IP, INC. 2014. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. 13 14 15 16