CBRE has issued its yearly report on the office market in Poland – ‘Poland Office Destinations 2012’. The report covers all aspect of office regional markets, together with demand, supply, rents and trends analysis.

CBRE reveals that both developers and tenants have been quite active, despite growing economic uncertainty. At the beginning of 2012 there was almost 6 million sqm of modern office space in all nine major Polish cities, including 252,000 sqm delivered last year.

Warsaw with nearly 3.6 million modern office space remains the largest office market in Poland, followed by Krakow (540,000 sqm), Wroclaw (400,000 sqm) and the Tri-City (380,000 sqm).

As a result of the 2009 slowdown and the limited availability of financing, in 2011 there were only a few development completions. Encouraged by growing demand, developers have been able to start a number of frozen or new projects, not only in Warsaw but also in regional cities. Today there is over one million sqm under construction in all major cities, scheduled for completions in 2012 and 2013.

As stated before, the largest and the most established market is Warsaw, however, in comparison to other European capitals, it still falls behind these more mature markets – like Paris (54 million sqm), London (Central London) or Munich (20 million sqm each), Milan (12 million sqm) or Vienna (10 million sqm).

Although Warsaw is far behind the Western Europe in terms of total office stock, CBRE underlines that the capital of Poland is ranked as second place in Europe in terms of office construction activity, with over 700,000 sqm under construction or planned.

Currently, prime asking rents in Poland range between €11 - 16 per sqm a month for the best office buildings in regional cities and in Non-Central Warsaw. The rental level in Warsaw City Centre registers a gradual, upward trend and currently stands at €24 - 27 per sqm a month.

In general, rents have stabilized with the possibility increase in the most attractive locations in 2012.

Within the last two years, the levels of total leasing activity have rallied and returned to the growth path registered before the crisis. 2011 brought record evidence of improvements in terms of leasing activity in almost all of the major cities in Poland. Total leasing activity in all nine cities amounted to 900,000 sqm.

“Given the high number of enquiries registered both from existing tenants as well as from newcomers, 2012 should also be spectacular in terms of demand in Warsaw as well as in a number of regional cities,” said Lukasz Kaledkiewicz, Director of Office Agency, Landlord Rep division at CBRE.

The necessity to limit operational costs has intensified the off shoring and outsourcing trends. These outsourcing trends cover not only the simple process of call centres, but more importantly include advanced business services based on knowledge and research (Knowledge Process Outsourcing, Information Process Off shoring, Shared Service Centres etc.).

“Such investors typically prefer secondary cities, where the costs of operations are lower. So far Krakow has been the most popular location amongst BPO operators. The city has grown into the position of a centre of services for Europe. Wroclaw is extremely popular with manufacturing and high-tech companies. Tri-City is at third place in terms of office supply and has a strong ambition and great potential to attract a number of KPO companies. BPO operations in Poznan include companies that appreciate the convenient location, manufacturing and trade traditions of the city. Companies often open financial centres in Poznan to serve their branches in Poland and Germany,” added Daniel Bienias.

A positive trend has also been observed in terms of the ecological approach. “More and more international corporations are introducing a pro-ecological policy. Therefore, many new projects are designed and constructed in line with the requirements of green certificates,” said Joanna Mroczek, Director of Research and Consultancy Team at CBRE. “This also relates to the buildings in regional cities. In total over 40 percent of the space under construction has been identified as applying for a certificate. This trend should translate not only into lower costs of service but also result in a higher quality of the occupied buildings,” she added.

After a period of a general slowdown in the real estate investment market, 2010 and 2011 saw a substantial recovery. There were 18 office investment transactions in 2011, totalling €1.3 billion last year.

The most notable office transaction of 2011 was the purchase of Focus by RREEF, a German Open-Ended Fund. The transaction was closed at the yield level of 6.5 percent for €117 million. CA Immo also took a major share of total investment volume in 2011 with the takeover of the Europolis portfolio with eight office buildings transacted for almost €480 million.

“Poland seems to be one of the most important transaction targets in terms of planned investment acquisitions in Europe. Warsaw is still the main focus of investor interest. As the product availability improves, the regional cities may also attract investors' interest. Last year, however, there was only one transaction outside of the capital – Green Office in Krakow was bought by Azora Europe for over €24 million,” commented Patrick O’Gorman, CEE Director of Capital Markets, CBRE.

Strong investment demand has been a common trend for the last few years and has had a direct impact on yields. Since late 2009 prime office yields have compressed to finally reach 6.25 percent in the last quarter of 2011. In the regional cities there is lack of transaction evidence and yields are difficult to estimate, however, prime yields are usually quoted at around 100 bp higher than in Warsaw, currently around 7.25 percent.

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