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8 November 2018

The extraordinary potential of Polish office market

Commercial real estate market is becoming more and more popular with investors. The value of buy/sale transactions carried out in the first three quarters of the year in the commercial segment in Poland exceeded EUR 5 billion. Over EUR 2 billion of which comes from the office sector. Analysts of Walter Herz consulting company predict that this year the volume of investments may be the largest in the history of the Polish market.
 In recent years, the investment market in Poland has been growing at a rate of several percent each year, which is one of the best results in Central and Eastern Europe. - The increase in the value of transactions in Poland is determined by the favorable economic situation in our country, as well as the increasingly high quality of available properties, which guarantee relatively attractive rates of return, with the long-term boom in the lease market. It increases the liquidity of the market and thus, creates a very good situation for new investors - admits Bartłomiej Zagrodnik, CEO of Walter Herz.
Poland among the most developed economies in the world
In the case of investments made in the office sector, the dominant role is played by international funds, including European and American capital. In our country, investors from Germany, Austria, the United Kingdom and the USA are the primary buyers. Recently, a growing interest in commercial real estate has also been noticeable among the investors from the Republic of South Africa and the Far East, including China, South Korea, Malaysia and Singapore. We also see entities that used to be active in our market returning to Poland. Now, they are starting to plan their investments here again. The share of Polish entities in the investment market is still low. Unlike, for example, capital from the Czech Republic, which continues to extend their investment activity by the Vistula river.
According to Walter Herz experts,  Poland's advancement to the group of the 25 most developed markets in the world in the FTSE Russel index, increases chances of global investors’ interest in our market. This is a guarantee of greater security, which is a positive signal for the vast majority of leading investment funds that benchmark with this index. 
Poland will now be perceived as a more stable market, open to investing in the long term and taken into account by the largest global players when building their further investment portfolios.
It will certainly contribute to the further development of the commercial real estate sector in our country, both in terms of investments and the lease market. Especially that earlier also Stoxx, operator of Deutsche Boerse Group index, decided to move Poland from Emerging Markets to DevelopedMarkets.
Nine large business centers
As the most developed market in the CEE region, we can offer a lot. – Apart from Warsaw, we have eight well-developed business regional centers, much more than other countries in our region and most of Western Europe. The largest nine Polish cities are primarily tempting investors from the banking and financial sector, as well as the sector of modern business services - notes Bartłomiej Zagrodnik. 
Due to the growing interest in investments in Poland from, among others, the largest international companies, our native office market has been performing well for several years now, both in the capital and in the other cities. Office segment is growing at a rapid pace primarily in Warsaw, which is widely recognized as a mature market. In recent years, the city has made a huge leap in quality when it comes to space offered in the new office projects,thus providing new investment products.
According to Bartłomiej Zagrodnik, Warsaw agglomeration has both record-high levels of developers' activity and unusually high demand for modern office space, which encourages investors to initiate new projects. - The demand for offices exceeds supply on the capital market. The availability of office space is decreasing, which, with the continued high absorption, means that in some locations there is an increase in rental rates – notes Walter Herz’s CEO.
Warsaw with record results
Total supply on the office market in Warsaw amounts to over 5.4 million sq m. According to Walter Herz's calculations, there is around 770 thousand sq m of space under construction - Despite such a wide implementation of new projects, we can observe the effect of a certain supply gap on the Warsaw office market today. This situation may continue for the next 18 months, until the completion of construction and commissioning of large projects that are currently in progress. Increasingly, renegotiations of the current contracts are seen long before the end of the ongoing contracts - admits Bartłomiej Zagrodnik.
Hence, tenants, especially those who need large space, decide more often to conclude the pre-let contracts, thus ensuring the most attractive locations. Thanks to the high absorption of the market, which last year amounted to over 800 thousand sq m of space, the vacancy rate is Warsaw is dropping. According to Walter Herz, new investments to be delivered by the end of the next year are already commercialized by over one third. 
Warsaw is one of the most absorptive office markets in Europe. It is particularly popular among investors from the sector of modern business services and companies from the IT, finance and banking sectors, consultancy entities, as well as co-working space operators, who have recently been rapidly increasing their offer in the centers opened in Warsaw.
Warsaw market is attracting the world's largest companies
The capital of Poland attracts more and more of the world's largest players. JP Morgan, one of the largest banks in the world has recently opened their office in Warsaw. WeWork's international co-working network has entered the Warsaw market, whereas Standard Chartered, one of the largest global banking institutions has announced development plans for their Warsaw service center.
The recipient of a large amount of office space in the agglomeration are service centers for business. According to ABSL forecasts, by the end of 2020, 240 centers will operate in Warsaw, where employment will increase to 65 thousand people. 30 companies from the list of the 500 largest companies in the world of the Fortune magazine (Fortune Global 500) already have their service centers in Warsaw.
The development of regional markets is also not slowing down. Apart from Warsaw, the resources of Cracow and Wroclaw have already exceeded one million sq m of office space. The large scale of investments carried out in the biggest cities is tempting investment funds, which acquire newly commissioned and commercialized buildings, motivates developers to begin new projects.
Cracow is the largest BPO/SSC center in Poland
The offer of the capital of the Malopolska region, the second largest office market in Poland, currently exceeds 1.2 million sq m of modern office space. According to Walter Herz experts, over 300 thousand sq m of offices are currently under construction in Cracow. This year the market may gain up to 190 thousand sq m of offices. The growth rate of the office segment in the agglomeration is impressive. Since 2008, the resources of modern space in the city have quadrupled.
Cracow is the strongest tourist brand in Poland and one of the best in Europe. It is a great academic center and extremely rich job market which makes it an attractive location for investors, especially from the modern business services sector. The rapid development of this sector, which has been visible in the city for over a dozen years, translates into excellent condition of the office market.
The companies from the BPO/SSC and IT sector, for which Cracow market is the main location in Poland, generate demand for the majority of office space, that goes to tenants in the agglomeration. Last year, the demand for office space in Cracow exceeded 200 thousand sq m.
Wroclaw with ten times more office resources than a decade ago
Modern business services are also Wroclaw’s specialty, which is the second, after Cracow, regional office center in the country, with over one million sq m of modern space. A decade ago, Wrocław market had only one tenth of its current resources. Demand for new offices is high in the city, which motivates developers to increase their activity. According to Walter Herz data, there are over 300 thousand sq m of offices under construction in Wrocław.  
The Tri-City will probably become the fourth national office market, the size of which will exceed 1 million sq m. According to Walter Herz specialists, it will happen in two years. The growing investment attractiveness of Pomerania translates into a great situation of the office market in the region. The Tri-City is currently enjoying a record-high interest from both international and Polish investors. 
According to Walter Herz data, the Tri-City market currently offers over 770 thousand sq m of offices. About 170 thousand sq m of modern office space remain under construction in the agglomeration, most of which is to be commissioned by the end of the next year. Last year has been the best in history for the Tri-City in terms of demand for offices, which reached 114 thousand sq m.
The Tri-City is chasing the office podium
The Tri-City remains an interesting market for investors also because of its location. Gdansk, Gdynia and Sopot offer a wide range of different types of space, and just like Cracow, irresistible tourist attractions. Similarly to the other regional cities, the main tenants of office space are companies from the BPO/SSC sector, which account for 65 per cent of the total last year's lease. A large absorption recorded in the Tri-City market means the lowest vacancy rate in the country. 
Bartłomiej Zagrodnik notes that the beneficiaries of the spectacular development of the modern business services sector in Poland, which over the last year has launched over 90 new centers, are not only the largest urban centers, but also smaller office markets. - The sector is also developing in such cities as Lublin, Olsztyn, Bialystok, Rzeszow, Radom, Kielce, Bydgoszcz, Torun, Szczecin, Lublin and Opole – says Zagrodnik. He adds that investors in this industry are looking for new locations also in the smaller cities in Poland. Industrial Development Agency is also planning a large project to support smaller cities, and intends to build office projects dedicated to the BPO/SSC sector there. 
The new law on special economic zones also brings a chance for the development of the BPO market in the tinier cities. The new regulations provide large incentives for investors. And combined with the appropriate human resources potential of some smaller centers can bring investments from this sector, and thus the development of the office market.
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