Warsaw ignoring economic slow down
According to real estate advisors CBRE, decease Warsaw?s office and retail property markets enjoyed a good fourth quarter of 2012, look despite expectations of general economic slowdown. Poland is seen as one of the most stable and dynamic economies in Europe with sound long-term prospects and continues to attract foreign investors. The office market is a particular focus for the outsourcing sector with growth driven largely by cost optimization in many western corporations. Despite falling consumer demand and lower footfall recorded in shopping centres, the Warsaw retail sector has proven to be most resilient with vacancy rates in prime schemes close to 0%.
Warsaw office market performing very well despite challenging business environment
The office market in Warsaw performed very well in 2012. In Q4 2012, new supply of modern office space in Warsaw amounted to 120,000 sq m in 11 buildings while in the whole of 2012 that figure was 268,000 sq m with 27 new buildings delivered. Total modern office stock in Warsaw has now reached nearly 3.9 million sq m. The largest schemes in 2012 included Green Corner by Skanska, the first phase of Business Garden by SwedeCenter and the first phase of Libra Business Centre by Mermaid Properties.
The amount of office space under construction is high even though financing is reserved only for pre-leased projects and credit remains tight. Currently there is around 620,000 sq m under construction in Warsaw, which is comparable to last year. In Q4 construction of around 70,000 sq m started, including such buildings as Park Rozwoju in Mokotow, Nimbus or Eurocentrum at Jerozolimskie Avenue. In total there is over 300,000 sq m scheduled for completion in 2013 and 2014 each year. Total leasing volume in 2012 amounted to 608,500 sq m, an increase of 6% on 2011. As much as 64% of the leased space was newly occupied or pre-leased. The largest transactions last year were pre-lets including PTC in T-Mobile Office Park (27,000 sq m) and Frontex in Warsaw Spire (14,500 sq m).
Joanna Mroczek (below), Director, Research & Consultancy, CBRE in Poland:
?Although one of the major demand drivers is cost reduction, in many cases new leases are being signed for larger office space. Tenants consolidate or move some of their operations from other countries and therefore they need to expand. The market has matured and occupiers are more demanding, looking for modern, flexible, more customized offices. As the economic uncertainty persists, the most popular are cheaper business parks or locations on the fringe of the City Centre. There are less large renegotiations observed, as companies find it more profitable to sign pre-lease agreements. In the future, we may also observe more pre-construction agreements as well as built-to-suit transactions, which are quite common in more mature markets.
The overall Warsaw office vacancy rate has grown to 8.8%. With a growing number of speculative projects being delivered, that rate is expected to rise. Prime headline rents are estimated at EUR 26 ? 27/sq m/month in the Central Business District while in non-central locations, the headline rents for the best projects amount to EUR 15 ? 16 /sq m/month. The overall average rent in Warsaw is around EUR 18 /sq m/month. With new deliveries and a growing vacancy rate, effective rents currently show a downward trend, especially in more remote and competing locations.
Warsaw retail on the lookout for new space
Even though the capital?s retail pipeline is once again increasing, with over 68,000 sq m of modern retail space currently under construction in six schemes, 2012 brought only 29,000 sq m of GLA in two projects on the outskirts of the agglomeration. In response to genuine unmet demand, Warsaw?s retail offer will grow in coming years. Planned projects include those in Wilanow and Bialoleka, as well as Hala Koszyki in the city centre and Koneser in the district of Praga. The Warsaw retail market also offers sizeable potential market niches for formats such as retail parks (particularly to the south-east of Warsaw) or small neighbourhood schemes in both established and new residential estates.
Magdalena Frątczak (below), Director, Retail Agency, CBRE in Poland:
?Even though consumer demand has recently been on the wane in Poland, the Warsaw retail market, with its pool of affluent consumers, the largest in the country, and substantial market niches, is considered to offer some of the best potential. Despite sizeable modern retail stock reaching 1.35 million sq m, the capital?s retail market remains strongly undersupplied.?
The vacancy rate in Warsaw?s shopping centres is low at 2.6%, but has increased considerably from the 1.6% recorded in the middle of 2012. Prime schemes such as Zlote Tarasy, Arkadia and Galeria Mokotow remain the most desired target for many retailers, with vacancy rates close to zero. Increasingly, a number of typical shopping centre tenants who are not able to secure new premises in the best performing schemes are considering high street locations. In consequence a gradual improvement of Warsaw?s best shopping streets has been observed. In particular, the increased popularity of Mokotowska St. and pl. Zbawiciela, is noticeable as design boutiques and up market stores choose it as the destination of choice, preferred over a shopping centre location. Boutiques already present include Mokobelle, Lilou, cocktail?me, Zien, Tomasz Ossolinski, Rina Cossack, Robert Kupisz, Bohoboco, as well as Batycki and Loft37.
Warsaw is still the most expensive retail location in Poland with prime headline rents in shopping centres and high street units reaching EUR 90 – 95 /sq m/ month and tending upwards. Prime average rents are far more moderate and currently remain at the level of EUR 30 ? 45 /sq m/ month, with some downward pressure already noticeable.
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