Appraising the market

Eurobuild asked Warsaw's real estate agents to report on their performance in the office space market over the first seven months of 2002. We received eleven responses of varying detail, but DTZ Zadelhoff Tie Leung emerged as the most successful performer of the period. They reported combined deals of 27,595 sqm of space, of which 9,600 sqm had been re-negotiated.

Jones Lang La Salle and Colliers were next, with 20,000 sqm and 18,000sqm respectively. Unfortunately, how much of this was re-negotiated space wasn't made clear by either, though JLL gave a very rough figure of "about 25%". For our survey however, this was vital data, as it reflects a salient trend.

Re-negotiations
Given the current weakness of the Polish economy, many companies have been wary of moving into new space, preferring to keep a watchful eye on the market.  "In the current business climate, companies are prudently delaying decisions to expand into new office space", say King Sturge, through whom approximately 9,000 sqm was leased during the period, excluding lease renewals.  Firms have been able to discuss leases on very favourable terms, with landlords offering high incentives for them to remain where they are. "Warsaw has definitely become a tenants' market," say DTZ. Most agents report that the lengths of contracts have been between 3-5 years, with longer deals possible, only where landlords have been ,..prepared to be flexible with rental expectations and have offered generous rent-free periods at the start of the lease", according to King Sturge.

Big deals
The three biggest, new individual deals, reported by the agents who answered our questionnaire, were: a confidential deal of 5,450 negotiated by DTZ,  3,060 sqm. to Shell at Business Centre Bitwy Warszawskiej, also by DTZ and the 2,850 sqm. of the Wenecja office building, on Aleja Solidarnosci, to Polskie Ksiazki Telefoniczne by King Sturge on behalf of Amerlease. A number of our respondents were however, reluctant to part with this information, (,confidential" was the refrain). The trend during this period was away from big deals and most have involved small clients who according to Emmerson Nierchomosci, "... are looking for something cheaper" and space of between 80 and 500 sqm.

Non-central districts
The caution in the market has meant that a good deal of the leasing activity over the past seven months, has focused on the non-central districts of Warsaw, where more space is available and rents are lower. Another tendency noticed by King Sturge has been the "..leasing of modernised class B space, commonly found in older office or mixed-use residential apartment buildings". Only one speculative office project was completed in the CBD during this period, (Centrum Krolewski 7,518 sqm) and new buildings such as Business Centre Bitwy Warszawskiej, (13,500 sqm in buildings A and B), Eurocentrum's Alpha Building (12,500 sqm.) and BTC (8,916 sqm), were delivered to non-central locations. King Sturge however, can qualify this with an interesting development, "we are observing a growing trend amongst Polish firms, which are moving up market and are prepared to pay for quality space in prime central locations".
DTZ maintain that, "compared to the record years of 1998-2000, new supply has slowed down significantly", in the city as a whole and amounted to only 80,000 sqm. However, this has done little to affect the generally high vacancy rates that exist in Warsaw, which stood at 17.28% at the end of June, up from 15.88% at the end of last year, so DTZ report. This has meant of course, that rents have continued to fall.

Rents
In the CBD, rents went from around USD 28-30 sqm, as reported by Eurobuild in October last year, to approximately USD 18-25 sqm., according to our questionnaire's respondents. In non-central districts, rents have fallen to as low as USD 10 sqm with an average of USD 17 sqm, while our report last year gave them at USD 18-19 sqm.

Confidence and caution
Despite some pretty gloomy news from real estate agents for the first seven months of 2002, there is growing confidence about the market's prospects for the coming months, though caution from some quarters as well. Emmerson Nieruchmosci state that ,the rest of the year will be very good for the office market", because of "..the possibility of sub-leasing space, at lower prices than proposed by owners".
King Sturge, however, emphasise slower recovery in the office market, noting that oversupply will continue, perhaps experiencing a drop from January's level of 18% to 15% by the end of the year. They expect take up to exceed that of the first half, ,given that there are two or three major leasing deals in the pipeline", rents within the CBD to stabilize but landlords "to continue to be generous with rent-free periods". Next year ,will see the start of the recovery in demand and an eagerness among potential tenants to move to better quality buildings", they claim.
GVA Immoconsult think that the vacancy rate in the CBD will "..stay at the same level" and Jones Lang LaSalle agree with King Sturge that CBD rents "will remain stable". However,  Kancelaria Brochocki contend that as ,most companies know that there is over-supply in the office market in Warsaw, they will use the situation to get lower rents". Quite pessimistically, Knight Frank predict that ,the trend of lease renewals will continue", and that there will be ,weak demand, especially in the city centre".
DZT expect vacancy ,to increase slightly and perhaps breech the 20% mark before the end of this year" and rents to fall, ,before bottoming out, some time before the end of 2003". They believe that there will be healthy activity throughout next year in the office market, because , "while many tenants will re-negotiate and remain where they are, others will upgrade to new premises or perhaps re-locate to less expensive locations to achieve cost savings".
Most agents agree that Poland's probable accession to the EU in 2004, will encourage demand in the Warsaw office market over the next year or so.