Warsaw Property

Warsaw Office
MarketView
CBRE Global Research and Consulting
H1 2013
OFFICE STOCK
4.0 M SQ M
OFFICE VACANCY
10.5%
OFFICE TAKE-UP
334,000 SQ M
COMPLETION
152,000 SQ M
UNDER CONSTRUCTION
7.8% Y-O-Y
GENERAL OVERVIEW
Hot Topics

Despite a general economic
slowdown, the office market in
Warsaw has been performing
very well.

Total office leasing activity in
H1 2013 reached
334,000 sq m, almost 15%
higher than in the
corresponding period last year.

The strong level of speculative
construction has triggered an
increase of vacancy rate,
which exceeded 10% at the
end of the last quarter.

Prime office rents are under
downward pressure both in the
city centre and non-central
locations.


The H1 2013 investment
volume exceeded EUR 1.1
billion with the office share
equating to 56%.
Prime office yields have
compressed to 6.15%,
reflecting a growing gap
between prime and secondary
assets.
Warsaw Economy
H1 2013
1
Population in agglomeration
3,200,000
Warsaw GDP growth 2013*
1.4%
Workplace-based headcount
employment*
1,240,000
Average gross salary (EUR)
1,225
Unemployment rate
4.9%
Registered companies
Source: GUS, *Oxford Economic, 2013
358,000
POLISH ECONOMY
INVESTMENT MARKET
The Polish economy remains strongly
influenced by the general slowdown
observed across the European region.
The EU is still struggling with the
recession and fiscal consolidation,
along with slow GDP growth, holding
back the development pace of the
whole region.
Total investment volume in the
commercial property sector reached in
excess of EUR 1.1 billion in 34
transactions in H1 2013. This figure
shows a significant growth of 34% in
comparison to the corresponding
period of 2012.
GDP growth in Poland, after hitting a
cyclical low at 0.5% in Q1 2013 yearover-year, is predicted to reach 0.8%
in Q2 2013. This would suggest the
beginning of a gradual return on the
growth path for the Polish economy.
The GDP growth for the whole 2013 is
predicted to reach 0.8%.
At the beginning of July, the Polish
Monetary Policy Council decided to cut
the level of interest rates by a further
25 bp taking the reference rate down
to 2.5% and declared the end of the
current easing cycle. Never before, in
the history of post-1989 Poland has the
level of interest rates been so low.
Nevertheless, the CPI index (at 0.5% in
May 2013) is still below its target
value, mostly driven by the decline of
energy and fuel prices.
Last month of Q2 2013 brought a
significant, 3% growth in industrial
output and a reduction in the
unemployment rate (to 13.2%) which
were both meaningful factors in the
economic performance of Q2 2013,
suggesting that the forecasted rebound
should be registered in the second half
of the year.
In H1 2013, offices remained the most
popular asset among investors,
representing a 56% share of the
transaction volume, followed by retail
and industrial with a 24% and 19%
share respectively.
The largest transaction in H1 2013 was
recorded in the retail sector - the
disposal of the remaining shares of
Zlote Tarasy to Unibail Rodamco.
Other important deals concerned office
schemes – New City (EUR 127 million)
and Senator (EUR 120 million) bought
by Hines and Union Investment
respectively. The most meaningful
industrial transactions involved the
disposal of 50% of the shares in the
Prologis Portfolio to Norges Bank (EUR
100 million).
Prime assets remained of major interest
in H1 2013, although investors are
showing a growing appetite for noncentral locations and secondary
schemes with asset management
potential.
Yields remain stable with a gradual
compression noted in the office sector.
Prime office, retail and industrial yields
are estimated at 6.15%, 5.90% and
7.50% respectively.
Although credit procedures remain conservative and
financing is reserved only for the pre-leased projects, the
amount of the office space under construction remains
high. Developers, being aware of the increased tenants’
activity, commonly decide to launch their investments
speculatively, securing pre-let agreements during the
construction works.
In the end of Q2 there was 562,000 sq m of office space
under construction in Warsaw with 154,000 sq m
scheduled for delivery by the end of the year. In total, the
office market in Warsaw is expected to grow by almost
20% by the end of 2015. However, the market remains
highly concentrated – five biggest schemes comprise
almost 50% of the constructed space.
In the long term, there are a number of towers planned in
the City Centre, mostly in its western part, including the
Warsaw Spire (100,000 sq m) under construction by
Ghelamco, to be delivered in 2014/2015 and Q22
(52,000 sq m) by Echo Investment, to be commenced in
the next months.
2
Only 32% of the developed space in Warsaw has already
been pre-leased. Nevertheless, the best new office
schemes are being delivered with a minor percentage of
vacant space. This also translates into in a high level of
market absorption that reached over 70,000 sq m in the
H1 2013. It is expected that the total absorption in 2013
should exceed the level registered a year before, driven
mostly by a high activity of tenants.
City Centre
Non Central
400,000
300,000
200,000
100,000
2014F
2013F
2012
0
2011
The largest schemes completed in H1 2013 included
Konstruktorska Business Centre (48,000 sq m) by HB
Reavis, followed by T-mobile Office Park (36,000 sq m)
by Ghelamco. Most of the new developments are located
in the non-central areas, mostly in SW or US zones. Since
the beginning of 2013 only one project was delivered in
the City Centre – Plac Bankowy 1 (4,000 sq m). That
should change in the second part of the year with such
schemes as Atrium 1 (16,000 sq m) to be completed in
the central Warsaw.
WARSAW SUPPLY (sq m)
2010
The supply side of the office market in Warsaw remains
strong. In Q2 2013, modern stock increased by 76,000
sq m in 5 buildings to exceed 4 mln sq m in total.
2009
H1 2013 Warsaw Office | MarketView
OFFICE SUPPLY
LARGEST OFFICES COMPLETED IN H1 2013
Konstruktorska Business Centre (US)
T-mobile office park (US)
LARGEST SCHEMES PLANNED FOR H2 2013
Plac Unii (US)
Miasteczko Orange (SW)
OFFICE ABSORPTION (sq m)
Net absorption (sq m)
Net absorption forecast (sq m)
300,000
250,000
200,000
150,000
100,000
50,000
0
2009
2010
2011
2012
2013F
2014F
The total volume of leasing transactions in H1 2013
amounted to 334,000 sq m, representing a robust, 12%
increase in comparison to the corresponding period last
year. It is expected that the whole of 2013 might bring
another record in terms of the amount of office leasing
activity in Warsaw.
The activity level of office occupiers remains strong. Most
tenants use the opportunity to expand the leased area during
the renegotiation or relocation process. Nevertheless, cost
reduction seems to remain the major demand driver.
Occupiers are fully aware of the increased competition
among developers. In many cases, they can achieve
significantly better financial conditions and improve the
technical standard of their offices at the same time by
relocating to a new building. Furthermore, companies are
tending to move out from the central locations and are
looking for flexible, customized offices in business parks
located in the fringe of the city centre or in further, noncentral locations.
The largest transactions in H1 2013 included: a new
agreement of Urzad Rejestracji Lekow (13,000 sq m) in
Ochota Office Park, renewal of BNP Paribas (11,000 sq m)
in Trinity Park II as well as the renewal and expansion of Play
(9,600 sq m in total) in Marynarska Business Park.
In H1 2013, as much as 46% of the leased space was newly
occupied, while 31% was accounted for by renegotiations.
16% of the leasing activity was attributable to pre-lets. The
average lease size oscillates around 1,000 sq m, although
the majority of the new offices do not exceed 500 sq m,
particularly in the central locations.
The overall Warsaw office vacancy rate surged to 10.5% at
the end of H1 2013. The majority of available space is
located in Mokotow (US) and Jerozolimskie (SW). The
vacancy rate is expected to gradually increase throughout
the next 18 - 24 months, as the number of speculative
projects increases.
Since the beginning of the year prime headline rents have
noted a slight decrease and are currently estimated at EUR
25 – 26 /sq m/month in the CBD. In non-central locations,
headline rents for the best projects amount to EUR 14 – 15
/sq m/month. The overall average office rent in Warsaw
oscillates around EUR 17/sq m/month.
3
Due to a number of new deliveries and a growing vacancy
rate the rental level is currently under downward pressure,
particularly in areas with the highest number of competing
projects. Typical offers include a rent-free period, up to 1.5
months for each year of the lease as well as a landlords’
contribution to fit-out and other capital costs.
H1 2013 Warsaw Office | MarketView
OFFICE DEMAND & RENTS
WARSAW LEASING ACTIVITY (sq m)
Q1
Q2
Q3
Q4
800,000
600,000
400,000
200,000
0
2009
2010
2011
2012
2013
TAKE-UP BY TYPE (‘000 sq m) IN H1 2013
New Deals
6%1%
Renewals
16%
46%
Pre-lets
Expansions
Owner
Occupations
31%
WARSAW RENTS (EUR/sq m/month)
H1 2013
2013 Outlook
Central Business District
Prime Headline
25 – 26

Prime Effective
21 – 24

Non – Central Zones
Prime Headline
14 – 15

Prime Effective
11 – 12

3
H1 2013 Warsaw Office | MarketView
WARSAW OFFICE MAP
N
W
CBD
E
CCF
US
SW
SE
LS
4
OFFICE ZONES
CENTRAL LOCATIONS
CBD - Central Business District
CCF - City Centre Fringe
NON-CENTRAL LOCATIONS
E – East (Praga)
LS – Lower South (Pulawska)
N – North (Zoliborz)
SE – South East (Wilanow & Sadyba)
SW – South West (Jerozolimskie & Okecie)
US – Upper South (Mokotow)
W – West (Wola)
TOTAL
STOCK (sq m)
1,287,000
501,000
786,000
2,724,000
172,000
176,000
135,000
188,000
660,000
1,105,000
288,000
4,011,000
VACANCY RATE
9.9%
11.4%
8.9%
10.8%
9.8%
13.0%
9.0%
2.2%
15.6%
10.5%
6.4%
10.5%
H1 2013 Warsaw Office | MarketView
RESEARCH DEFINITIONS
Prime Rent – Represents the top open-market tier of rent that could be expected for a unit of standard size (commensurate with
demand in each location), of the highest quality and specification and in the best location in a market at the survey date. The Prime Rent
should reflect the level at which relevant transactions are being completed in the market at the time, but need not be exactl y identical to
any of them, particularly if deal flow is very limited or made up of unusual one-off deals. If there are no relevant transactions during the
survey period, the quoted figure will be more hypothetical, based on an expert opinion of market conditions.
Headline Rent - The headline rent represents the 'gross' rent that is paid by the tenant. That is the rent that they start to pay at the end
of any rent free period that they also negotiate as part of the letting and making no deduction to reflect the value of any other incentives
that they might have negotiated.
Effective Rent - The net effective rent is the headline rent less an allowance to reflect incentives that have been granted.
Take-up / Total Leasing Activity (TLA) – Represents the total floor space, including renewals, known to have been let or pre-let,
sold or pre-sold to tenants or owner-occupiers during the survey period.
Total Modern Stock – Represents the total completed A and B class space (occupied and vacant) in the private and public sector at
the survey date. Includes owner occupied (OO) space.
Vacant Space Rate – Represents the percentage ratio of total Vacant Space to Total Modern Stock.
Absorption - Represents the change in occupied stock within a market during the survey period.
Prime Yield – represents the net yield that an investor would receive when acquiring a grade/class A building in a prime location (for
offices in the CBD, for example), which is fully let at current market value rents. Prime Yield should reflect the level at which relevant
transactions are being completed in the market at the time but need not be exactly identical to any of them, particularly if deal flow is
very limited or made up of unusual one-off deals. If there are no relevant transactions during the survey period a hypothetical yield
should be quoted, and is not a calculation based on particular transactions, but it is an expert opinion formed in the light of market
conditions, but the same criteria on building location and specification still apply. The net yield does not include any transaction costs.
CONTACTS
For more information about Polish property markets please contact:
CBRE Poland Research & Consulting:
Joanna Mroczek
Konrad Heidinger
Director
Rondo ONZ 1
00-124 Warsaw
t: +48 22 544 8061
e: [email protected]
Consultant
Rondo ONZ 1
00-124 Warsaw
t: +48 22 544 8002
e: [email protected]
CBRE Poland Office Agency:
Lukasz Kaledkiewicz
Director – Landlord Representation
Rondo ONZ 1
00-124 Warsaw
t: +48 22 544 8038
e: [email protected]
Daniel Bienias
Director – Tenant Representation
Rondo ONZ 1
00-124 Warsaw
t: +48 22 544 8024
e: [email protected]
+ FOLLOW US
GOOGLE+
FACEBOOK
WWW.CBRE.PL
Research and Consulting
This report was prepared by the CBRE Poland Research & Consulting Team which forms part of CBRE Global Research and Consulting –
a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and
consulting solutions to real estate investors and occupiers around the globe.
Disclaimer
5
CBRE sp. z o.o. confirms that information contained herein, including projections, has been obtained from sources believed to be reliable.
While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is
your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE
clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
www.cbre.pl