Warsaw office market view in BNP Paribas Real Estate report - European Office Market 2013

Moreover, it indicates a reverse trend in best European locations. Despite a drop in take-up, the positive net absorption and the low level of deliveries succeeded in pushing down the vacancy rate and increasing rents.

Against Europe, Warsaw is characterised by large gross take-up reaching in 2012 a record level of 608,000 sqm, of which 440,000 sqm were represented by new leases; in Q4 2012 alone, office transactions totalled 153,000 sqm. Pre-let deals remained popular among tenants and accounted for 35 percent of all deals signed in the final quarter whilst lease renewals had a 23 percent share. At the end of 2012 Warsaw vacancy rate stood at the average level of 8.8 percent, which represented an increase of 210 basis points compared to 2011. Despite record demand, the high level of new supply that came into the market in 2012 impacted the vacancy rate. Other European cities experience different conditions. Despite the weaker occupier demand, the European average vacancy rate stabilised slightly above 10 percent at the end of 2012.

In 2012, 268,000 sqm of office space was delivered to the Polish capital market, which was more than twice the new supply in the previous year. The largest buildings delivered to the market were the Green Corner (24,500 sqm) and the Business Garden with its two buildings totalling 22,000 sqm of office space. It is estimated that 2013 is going to be a record year in terms of new supply with probably around as much as 320,000 sqm of modern office space. In 2012, the total volume of investment in commercial real estate in Poland recorded a 27 percent increase compared to 2011.

Despite a slowdown in office investment, the volume remained above €1 billion. Moreover, almost all office transactions in Poland took place in Warsaw. On the other hand, Europe provides us with evidence showing how average economic conditions influence a decrease in tenants’ demand. Total office transactions fell by 9 percent in 2012 in a sample of 35 cities throughout Europe. This is a logical consequence of worsening economic conditions in eurozone and a record high unemployment rates in most European countries. In 2013, no significant improvement is expected in the occupier markets, as economic conditions will be slow to recover.

“Warsaw office market recorded particularly good results, much above the expectations of the majority of experts. 2013 will continue to be a good year for the capital, though the number of planned investments is much smaller than in previous years. This is naturally due to high office space supply, which will significantly increase in the next 18 months. It should be also noted that many tenants would most probably use the new offer deciding to change their office. As a result, vacancy rate in class B office buildings is most likely to increase, while remaining stable in Class A,” said Philippe Mer, Head of Territories for Central and Eastern Europe, CEO BNP Paribas Real Estate Polska.

European Office Market 2013 report indicates future rents drop in Warsaw’s prime locations being a result of new office supply delivered to the market. At the end of 2012, office prime rents stood at €288/sqm (on a year-to-year basis) in Warsaw city centre, which represented a 4 percent decrease compared to 2011. In non-central locations rents stood around €180/sqm (on a year-to-year basis). The downward trend in rents is primarily due to the high new supply of modern office space and will continue in 2013. Indeed, an additional increase in supply is expected for the 2013 2014 period.

BNP Paribas Real Estate report shows that the office prime yield reached around 6.25 percent at the end of 2012, a 25 bp decrease compared to Q4 2011. Stable demand for the best office buildings remained in Warsaw. Investors in Europe are still cautious, avoiding risky decisions.

Commercial real estate investment volume totalled €69.6 billion at the end of 2012, on par with 2011 figures. Nevertheless, the market was more active in this respect than expected with office investment market turning out to be the most buoyant sector and posting €46.5 billion (13 percent up on 2011). Prime office yields increased on average by merely 1 basis point, though geographical discrepancies could have been observed. Expectations of deepening eurozone recession in 2013 do not generate a strong activity in real estate investments. What is worth mentioning is the investors’ strategy, which has been the same both in Warsaw and other European cities – investor’s focus on major markets with strong economic fundamentals.

“It is clearly visible that investors avoid risky projects. However, such strategy is less profitable. I believe that the most experienced in the European market players will take more risk, looking for greater revenues outside most secure locations. Nevertheless, European commercial real estate market will continue to be a challenge,” concluded Philippe Mer. (source: europaproperty.com)