As at the end of Q1 2010, modern office stock in the six major office markets (exclusive of Warsaw) amounted to 1,641,000 m², with over 45% of the supply concentrated in Krakow and Wroclaw (around 400,000 and 344,000 m² respectively).
Anna Bartoszewicz-Wnuk, Head of Research & Consultancy at Jones Lang LaSalle says: "In Q1 2010, approximately 38,500 m² of modern office space came to market in six office developments in Krakow, Tri-City and Katowice. The remaining quarters of 2010 are however, likely to see a gradual increase in market completions, with, according to the latest Jones Lang LaSalle's forecasts, another 196,000 m² due for delivery (a level comparable to 2009 with around 227,000 m² entering the market). It should be highlighted, that the new completions were initiated under very different economic conditions. Most developers who obtained construction permits after 2008 are tending to adopt a "wait and see approach", withholding projects until there is a clear recovery on the demand side of the market. It means that those new office initiatives will be introduced to the market no sooner than at the end of 2011 or even in 2012."
Anna Bartoszewicz-Wnuk adds that a restrictive approach towards the financing of new developments will be mirrored in the office supply in 2011. In Q1 2010, modern office stock under construction reached a level of 399,000 m², down approximately 20% y-o-y (vs. around 493,000 m² registered in Q1 2009). Around 68% of construction activity in the major regional markets is concentrated in Krakow, Lodz and Wroclaw (around 99,700, 87,800 and 82,500 m² respectively). Recently, Poznan has also enjoyed increased interest, with around 52,000 m² remaining under construction.
Q1 2010 saw continuing concessions to potential lessees. Due to limited office supply in the pipeline we expect a gradual shift towards more landlord-favorable conditions at the end of year. This will particularly refer to Wroclaw which features limited availability of institutionally acceptable office space (in both existing office stock and planned for delivery in 2010) of just around 29,000 m².
As of the end of Q1 2010 vacancy rates remained stable in Krakow and Poznan (averaging 8.9% and 11.4% respectively), whilst slight downward pressures were registered in Wroclaw, Lodz and Katowice (around 3.8%, 18% and 5.5% respectively). Tri-City is an exception to this with a vacancy rate at 10.7% in Q1 2010, up from 7.8% in Q4 2009. The increase resulted from a delivery of new office buildings, and their commercialization was affected by weakening demand since Q3 2008. Nevertheless recent evidence in these markets suggests that a recovery in corporate demand is underway with new requirements beginning to surface. With economic indicators beginning to be broadly positive there is increasing confidence that this recovery trend will continue.
Prime headline rents currently range from 12-13.5 /m²/ month in Lodz, to 15 /m²/ month in Krakow and Poznan. "We expect prime headline rents to bottom out within the next few months. The combination of low rental levels and a wide choice of available lease options, mark a good time for signing lease agreements. We therefore expect an upward pressure on the headline rents in 2011, in most regional markets," concludes Anna Bartoszewicz-Wnuk.