The office sector in Poland is breaking new ground. An interview with Mateusz Strzelecki – Partner and Head of Tenant Representation Walter Herz

There is a shortage of office space on the Warsaw market. What are the chances of increasing supply in Warsaw? Will new projects be initiated?

The Warsaw office market is experiencing challenges related to limited new supply of office space in central locations. At the same time, we observe a growing interest in returning to offices, which is a positive signal for the market. A low vacancy rate in the center of Warsaw, hovering around 3%, limits tenants’ choices. This situation forces the market to look for new solutions and accelerate investment processes.

While there’s currently a slowdown in building permit issuance, I am convinced that soon we’ll witness the initiation of new projects. It’s imperative for authorities to provide support in simplifying and accelerating the permit acquisition processes, which will be pivotal for the market’s future.

At Walter Herz, we diligently monitor the market and maintain continuous communication with developers to promptly address our clients’ evolving needs. Anticipating new projects in response to escalating demand, we aim to rebalance the market and enhance the diversity of offerings.

What is the demand for office space in Warsaw and the regions? What is the vacancy rate? Which of the regional markets is performing the best?

The Warsaw office market exhibits remarkable dynamics and diversity. While the low vacancy rate in the city center indicates consistent demand, Mokotow has over 20% vacant offices, allowing space for negotiation. This underscores the necessity to reconsider new investments and suggests a shift towards mixed-use residential projects.

Regional markets show diverse levels of vacancy, with cities like Cracow and Wroclaw, hovering close to 20%. Lower vacancy rates in the Tricity (13%) and Poznan (slightly under 15%) do not necessarily signify superior shape of these markets. They often stem from fewer ongoing investments. Wroclaw stands out with both the largest amount of office space under construction and the highest demand in 2023, indicating its strong performance in absorbing new space.

The green transformation is reshaping the office market. How many office buildings in Poland will fail to meet these new standards? Can we expect demolitions, and if so, to what extent?

The green transformation sets new standards for the office market, prompting owners of older buildings to evaluate their future prospects. Considerations such as location, feasibility of reconstruction, and the profitability of modernization will play pivotal roles in determining their fate. Not all older office buildings in Poland can meet the demands of this transformation, potentially leading to their demolition or repurposing. In certain instances, due to zoning constraints or high costs linked to upgrading to new standards, modernizing older buildings may prove economically unviable.

The extent of these changes will depend on the dynamics of the real estate market, the accessibility of financing for modernization initiatives, and future environmental regulations. Nonetheless, the green transformation is inevitable and will have a substantial influence on the evolution of Poland’s office market in the upcoming years.

What impact does the hybrid work model have on office demand? Are tenants downsizing their space?

We’ve struck a balance where offices remain indispensable but require adaptation to meet the new reality and employee needs. The hybrid work model does not inherently mean that companies will be downsizing office space.

In Warsaw, where technology companies and numerous corporate headquarters are concentrated, the adaptation to the new work model varies across industries. In regional cities, shared service centers (SSCs) and business process outsourcing (BPO) dominate due to lower labor costs and rents, leading to different demands regarding employee physical presence in the office.

Despite the challenges of optimizing employment and costs, numerous organizations acknowledge the added value of a contemporary office: fostering creativity, nurturing interpersonal connections, and deepening employee engagement. This drive toward optimization often entails not merely downsizing, but rather relocating to better situated, more modern properties.

What contract terms are tenants particularly focusing on now?

In today’s commercial real estate environment, tenants are paying close attention to various contractual terms that extend beyond financial aspects. Extending lease periods has become common, especially with new developments where 84-month contracts have become the norm. This phenomenon is directly linked to the higher costs of constructing modern office buildings, which may be up to 150% to 200% higher than the pre-pandemic levels.

Consequently, detailed budget analysis becomes crucial. In this regard, advising clients on fit-out budget management is pivotal, which may involve initiatives such as organizing competitions for general contractors for finishing works.

Tenants are particularly attentive to contract elements that provide them with enhanced flexibility and cost control. This includes longer lease terms, comprehensive fit-out arrangements, and transparent mechanisms for regulating service charges, along with tools for verification.

What new technical solutions and amenities in buildings receive the highest scores from landlords?

Tenants are seeking solutions that not only increase comfort, but also fit into the sustainable development strategy. Green technologies and buildings with ecological certificates meet their expectations. These solutions reduce emissions and foster healthier work environments.

Automated Building Management Systems (BMS) are also important, as they enable effective regulation of parameters like temperature and air quality, leading to lower maintenance costs.

Contactless technologies ensuring sanitary safety have become the standard, minimizing touchpoints at building entrances, elevators, and access control systems. Additionally, smart parking lots with intelligent management of parking spaces (sharing economy) and electric vehicle charging stations are also gaining importance.

Solutions supporting hybrid work are the norm, with conference rooms equipped with modern video technologies and co-working spaces. Companies are also attracted by amenities such as gyms, kindergartens, food outlets and concierge services.

Mateusz Strzelecki – Partner and Head of Tenant Representation Walter Herz

For 11 years, he has been caring for tenant rights, lecturing, and sharing knowledge at the Tenant Academy. He is responsible for the main business line – Tenant Representation as well as the development of regional markets and services offered by the company. He cooperates with key clients and coordinates strategic projects throughout the country.

Last Updated on June 13, 2024 by Anastazja Lach