Krakow | Poland

ECONOMIC OUTLOOK
 

The nearby A4 highway, which serves as the ring road within Krakow city limits, provides efficient links to other regions of the country. The plan to develop the highway and connect it to the eastern border of Poland should result in increased quality of the road infrastructure in the area of Krakow. Obviously, the city still lacks a good road connection to Warsaw. Unfortunately, the plans to complete the route have not been finished yet. Krakow’s strength is the extensive railway network and the developing Krakow-Balice airport which allows fast transportation to both the largest Polish cities and numerous European capitals.

Krakow is considered the most important center of the BPO/SSC sector, not only in the country but also in the whole region. There are over 60 services centers in the city, which in total employ nearly 20,000 people. In the Tholons 2013 Top 100 Outsourcing Destinations report, Krakow ranked 10th in the world and 2nd in Europe in the best locations for services centers category.

OFFICE MARKET

With the stock of modern space of 635,000 m², Krakow ranks second after Warsaw in terms of the size of the office market. Due to the fact that office buildings in Krakow are dispersed across different areas of the city, it is difficult to determine a single area which could be named its Central Business District. The largest office concentration areas are:

• eastern outskirts of the city center near Rondo Mogilskie and Rondo Grzegorzeckiego,
• area along Opolska and Lublanska streets,
• area of Lea and Armii Krajowej streets,
• Podgorze district,
• area of Special Economic Zone along Jana Pawla II Street and Zabierzow district.

Office space in Krakow is also available in the core center of the city, in the revitalized tenements offering office modules for minor tenants. Among the most active developers, there are: Avestus, Dyskret, East-West Development, Grupa Buma, GTC, Mix Nieruchomości, Skanska and TriGranit. Following a period of strong growth in 2009-2010, when over 150,000 m² of office space were delivered to the market, the activity of developers decreased noticeably. The situation has improved in the recent months.

In 2014, the stock of office space in Krakow should grow by as much as 100,000 m². The largest office projects currently being developed in Krakow include Kapelanka, 42 (30,000 m²) by Skanska, Quattro Business Park IV (13,000 m²) by Buma and II Phase of Enterprise Park (13,600 m²). The construction of developments such as Echo Investment office building in Opolska Street (approx. 20,000 m²) or another phase of Kraków Business Park (the KBP 300 building with an area of 22,000 m²) is to start in the near future.

Owing to the activity in the BPO/SSC sector, take-up for office space in Krakow has been steady for years. A significant drop of the occupancy rate was observed only in the crisis year of 2009; however, in the following years the market returned to the path of growth it had been following previously. Thanks to the strong development of entities from the modern services sector, such as Capgemini, State Street, Shell or UBS, the interest in modern office space in Krakow remains high. In 2013 over 94,000 m² of office space were leased in the city, which is a record among Polish regional cities. Among the largest BPO employers in Krakow there are State Street, IBM, Shell, Sabre, Motorola and Heineken. The demand for office space in Krakow is expected to remain high owing to the activity of tenants from the BPO sector and the strong position of the city on the outsourcing map of Europe.

The vacancy rate in all office buildings in Krakow, including buildings occupied by their owners, is approx. 5%, which means that 31,000 m² of office space can be leased on the spot. Taking into account the relatively high take-up, the vacancy rate may decrease even further in the near future.

Compared to other Polish regional cities, rental rates in Krakow remain at a relatively high level. Currently, rents for prime office space range from €14.00 to 16.00/m²/month. The highest effective rents amount to €14.00/m²/month. Operating costs in modern office buildings range from €3.10 to 3.60 a month/m². Growing pressure on increasing the rental rates is to be expected in the nearest future.

RETAIL MARKET

Although Krakow ranks third in the country in terms of population, the stock of retail space in the city remains low. Currently, there are 14 retail projects with a total area of 555,500 m² in Krakow. Compared to other Polish cities, Krakow is seventh, following cities such as Poznan, Wroclaw or Lodz. With the amount of retail space at the level of 265 m²/1,000 inhabitants, the Krakow agglomeration is one of the least saturated regions among the largest Polish cities. On the other hand, the vacancy rate is one of the lowest-3.8%, which shows that the market is very demanding. High streets play an important role in Krakow, pushing retailers out of the commercial centers. The largest retail projects in Krakow are Bonarka City Centre (90,000 m²), Galeria Krakowska (60,000 m²) and Galeria Bronowice (60,000 m²), which was completed in Q4 2013.

High streets in Krakow are considered to be the most developed in the whole country and they can successfully compete with large shopping centers. Krakow’s Old Town, surrounded by historical city walls, is an important retail concentration area. The main shopping streets include Florianska and Grodzka, which connect major landmarks of the city-the Krakow barbican and the Wawel castle which provide the tourist traffic that generates a significant part of turnover in shops located in the center of the city. The major retail chains which have their shops in the main streets of Krakow include Max Mara, Hexeline, United Colors of Benetton, Krakowski Kredens or Orsay.

Unlike in other large Polish cities, rents at locations in major shopping streets in Krakow (€65-70 /m²/month) are higher than rates in shopping centers (€40–50/m²/month). The limited amount of new retail space supply to be delivered in the near future should result in rental rates remaining stable.

INDUSTRIAL/LOGISTICS MARKET

The industrial market in the Małopolskie Voivodeship is of local range. Due to the limited availability of plots, high prices of land as well as proximity of the thriving Upper Silesia region, the development of the industrial market in Krakow is, to a large extent, limited. The most active developers of the region are: Biuro Inwestycji Kapitałowych, Goodman and Panattoni. It is expected that together with the completion of the A4 highway, the industrial market could grow.

The total supply of warehouse space in the region is 200,000 m². The largest facilities include the Kraków Airport Logistics Centre (56,000 m²), Centrum Logistyczne Olkusz (41,000 m²) and MK Logistic Park (32,000 m²). There are a few projects at the planning stage. The most important include BIK’s Centrum Logistyczne Krakow III (20,000 sq m) and 7R Logistic’s CL Karkow. The vacancy rate amounted to 7% by the end of 2012, with 15,000 m² available right away.

Various branches of industry are developing in the region, including the pharmaceutical industry, production of construction materials, food processing, production of steel, advanced technologies and the services sector. In 2013, 23,000 m² of warehouse space was leased in the area of Krakow. The largest agreements recently were signed by DB Schenker (4,800 m²) at Krakow Airport Logistics Centre, by KMC (4,300 m²) at BIK Krakow II and Rohlig (3,400 m²) at Panattoni Park Krakow.

Rental rates range from €3.75-5.00/m²/month. Effective rates range from €3.25-4.00/m²/month. It is likely that the limited supply will result in high rent levels.

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