Optimism vs oversupply
Investors worry about the capital’s huge pipeline of office space, but the market’s potential for growth also keeps many upbeat
The prospects for the office property market in Warsaw in the coming years was one of the main issues discussed during the real estate open forum at Poland Today’s Primetime Warsaw III conference, held at the National Stadium in the capital at the end of April. While the participants in the discussion agreed that there will be room for much more office space in the Polish capital in the long-term, many also expressed worry about the spate of new office space which is currently in the pipeline.
More than 700,000 sqm of office space is currently under construction in Warsaw, with approximately 300,000 sqm scheduled to be completed this year. Another 300,000 sqm is expected to be delivered in 2016. The market has seen a number of large lease transactions in recent months, but one broker pointed out that some of those deals happened as a result of consolidation processes, which does not necessarily indicate that net absorption of office space is on the rise.
Karol Bartos, executive director for portfolio and asset management at investor Tristan Capital Partners, said that some office developers have been too optimistic about the chances their newly launched projects have for success. “How developers are doing their maths is a mystery for investors,” Bartos said. With rents falling and a considerable amount of new space expected to be vacant when it comes on line, investors will examine projects carefully, he said. In his view , if developers continue flooding the market with new space, investors may become cautious and think twice before buying office property in the centre of Warsaw again.
But Bartos was clear: none of this has to mean that the market is in any trouble. It may be that in the coming years Warsaw’s office market will remain stable, with relatively low rents and a relatively high vacancy rate.
‘How developers are doing their maths is a mystery for investors’
Alan Colquhoun, head of Central and Eastern Europe at DTZ, acknowledged the worries about the potential oversupply of new office space in Warsaw, but he was also very optimistic about Warsaw’s long-term development prospects. There are always going to be cycles in the market, but fundamental demand for new office space in Warsaw will continue, because the market is still relatively small compared other similar size European cities, he said.
Colquhoun pointed out that there is now approximately 19m sqm of office space in Munich, whereas in Warsaw the figure stands at about 4m sqm. The cities are similar in population: Munich has 1.4 million people while Warsaw has 1.7 million. So the question is when, not if, new space will be developed in Warsaw, he said. While one should not draw straight comparisons between the cities, the discrepancy shows that there is definitely room for more office space in Warsaw. “I am really positive about the future of this city,” Colquhoun said.
During the same real estate open forum, participants pointed to the excellent performance of the residential property market in Warsaw, which last year saw the best new apartment sales results since the boom years. According to Maximilian Mendel, director of the transaction advisory, at REAS, the housing sector still has plenty of potential, especially since investment in the residential market is growing.