Although the office development pipeline in Poland’s eight largest regional city markets is clearly shrinking, it is still above that for Warsaw, says BNP Paribas Real Estate Poland in its report “At a Glance – Regional City Office Markets Q4 2023”. Another notable development of the last quarter of 2023 was that the overall regional vacancy rate hit an all-time high by the end of December.

Cautious development

At the end of the last quarter of 2023, the combined office stock of Poland’s eight largest regional cities outside Warsaw (Krakow, Wrocław, Tricity, Katowice, Poznań, Łódź, Lublin, and Szczecin) stood at nearly 6.67 million sqm. Almost 280,000 sqm of new office space was delivered in the regions last year through 21 completions. The largest office projects completed in 2023 included Ocean Park B and Kreo in Krakow, Craft in Katowice and Nowy Rynek E in Poznań. The fourth quarter saw the biggest projects delivered in Krakow (Mogilska 35 Office and The Park Kraków II) and in Poznań (the new headquarters of Tetos).

Although regional cities are expected to surpass the Polish capital in terms of new office supply in the coming quarters, the regional development pipeline at the end of December 2023 was 40% lower year-on-year. According to reports from developers, 367,000 sqm of new office space is scheduled for completion in Poland’s eight key regional cities in 2024-2026 compared to only 238,000 sqm in Warsaw.

BNP Paribas Real Estate Poland notes that the market situation is dynamic and the falling supply of office space is likely to accelerate the launch of new projects. Nevertheless, shrinking development pipelines were among key themes shaping regional city office markets throughout 2023.

Smaller offices, more amenities

Most companies have downsized their offices by around 20-30% over the last two to three years compared to pre-pandemic office lease sizes as many have embraced hybrid working patterns.

“Office spaces have transformed. To encourage employees to return to the office, companies are increasingly prioritizing facilities improving employee wellbeing. Most amenities focus on the physical or mental aspect of wellbeing and include chillout rooms, access to fresh air and silent spaces for reflection. In addition, employees going back to the office also expect access to catering, fitness and healthcare services in an office building, as well as free meals,” says Agnieszka Witkowska, Consultant, Tenant Representation, Office Agency, BNP Paribas Real Estate Poland.

Meanwhile, vacancy rates in existing office buildings in the eight key regional markets hit all-time highs by the end of 2023. Space available for immediate occupancy accounted for approximately 17.5% of total office stock, up by 0.2 pp quarter-on-quarter and up by as much as 2.2 pp year-on-year. The highest vacancy rate of 21.5% was recorded in Katowice, with the lowest of 4.8% in Szczecin.

“The trend towards leasing extra space just in case is over. Office optimization has also resulted in the decline in the average lease size, which was 938 sqm at the end of 2023, down from 996 sqm in the previous year. Occupier activity in 2024 will depend on the overall macroeconomic situation and corporate expansion plans. In addition, many companies are expected to focus on ensuring ESG compliance,” says Dorota Mielke, Associate Director, Office Agency, BNP Paribas Real Estate Poland.

The report on regional office stock in the fourth quarter of 2023 shows that gross office take-up for October-December 2023 reached 219,100 sqm, up by 11% compared with the previous quarter. The strongest occupier activity was in Krakow (80,200 sqm), Wrocław (43,300 sqm) and Poznań (27,700 sqm).

Analysis of last year’s total take-up figures reveals that leasing activity continued unabated, with more than 750,000 sqm transacted in 2023 as a whole, a 20% increase from the previous year.