WARSAW - Knight Frank · South Korea’s National Pension Service, for example, has confirmed its...
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RESEARCH WARSAW OFFICE MARKET OUTLOOK Q3 2014 OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK
Transcript of WARSAW - Knight Frank · South Korea’s National Pension Service, for example, has confirmed its...
RESEARCH
WARSAWOFFICE MARKET OUTLOOK Q3 2014
OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK
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Source: Knight Frank Research
FIGURE 2
Office take-up sq m
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Source: Knight Frank Research
FIGURE 1
Prime office rents € per sq m per month
KEY FINDINGS
The latest IMF forecasts suggest that annual GDP growth will be 3.1% in 2014 and 3.3% in 2015. Growth should be driven by a pick-up in domestic demand, supported by monetary easing, improvements in the labour market and increased EU funds, which are expected to boost public investment.
Warsaw office take-up amounted to 267,200 sq m in H1 2014. This was a 20% decrease compared with H1 2013. New leases accounted for the largest share of take-up in H1, although the two biggest deals were both renewals, involving Netia (13,200 sq m) and PwC (10,800 sq m).
The Warsaw office market continues to see intense development activity. During H1, a total of 16 schemes offering approximately 192,800 sq m of office space were completed. A further 159,000 sq m is scheduled to be delivered during H2 2014, with another 258,000 sq m due in 2015 and 197,000 sq m in 2016.
With a large amount of new space added to the market, office availability continued to rise in H1. At the mid-year point, the city-wide vacancy rate stood at 15.1%, an increase of 2.4pp compared with the end of 2013. It is anticipated that the delivery of a significant volume of new office space in H2 2014 will lead to further increases in the vacancy rate.
The CBD vacancy rate increased particularly sharply in H1, rising from 12.5% to 16.3%. This was, in part, due to the completion of several office buildings which were not fully leased prior to their delivery. In addition, there has been a trend for tenants to increasingly seek accommodation in alternative locations to the city centre.
Despite the growing supply of office space, prime CBD rents in Warsaw remained stable throughout H1 at €24 per sq m per month. However, with significant incentives on offer to tenants, net effective rents are currently 15-30% lower than asking rates.
OFFICE OCCUPIER MARKETPoland’s economic growth slowed in Q2 2014, yet the pace of expansion remained relatively strong. GDP increased by 0.6% quarter-on-quarter and by 3.2% year-on-year.
Quarter Property Tenant Sector Size (sq m)
Q1 2014 Marynarska Business Park
Netia Telecommunications 13,200
Q2 2014 International Business Centre
PwC Professional services 10,800
Q1 2014 Marynarska 12 Citibank Finance / Banking / Insurance
7,900
Q2 2014 Płocka 9/11 Sąd Okręgowy & Sąd Rejonowy
Public 6,000
Q2 2014 Horizon Plaza Nokia Siemens Networks
Telecommunications 5,300
Q2 2014 Bolero Office Point Polska Spółka Gazownictwa
Energy 5,000
Key recent office leasing transactions
Source: Knight Frank Research
Polish economic growth remains robust, despite slowing slightly in Q2
Warsaw office take-up came to 267,200 sq m in H1 2014, a 20% decrease compared with H1 2013
Warsaw continues to see a high level of office development, with 192,800 sq m delivered to the market in H1
The office vacancy rate remains on an upward trend, reaching 15.1% at mid-2014
Prime office rents were stable throughout H1, at €24 per sq m per month
Investment activity in Poland continues to be driven by strong demand from cross-border purchasers
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Source: Knight Frank Research
FIGURE 3
Prime office yields %
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Source: Knight Frank Research
FIGURE 4
Poland commercial property investment volumes € billion
Around €1.4 billion was invested in Polish commercial property in H1 2014, with Warsaw attracting approximately 40% of nationwide investment. This followed the strong performance of 2013, when transaction volumes reached €3.2 billion.
The first half of 2014 saw two major office deals which exceeded the €100 million mark. The largest deal of H1 was RREEF’s acquisition of Rondo 1, an office skyscraper in the Warsaw CBD, for a reported price of c. €300 million. Additionally, Lipowy Office Park was bought by Kimberley, a special purpose vehicle of the US REIT W.P. Carey, for €108 million.
With negotiations currently underway for the sale of several landmark buildings in Warsaw, a number of major deals are
INVESTMENT MARKET
Quarter Property Seller Buyer Approximate price
Q1 2014 Rondo 1 BlackRock RREEF Investment €300 million
Q1 2014 Lipowy Office Park CA Immobilien Anlagen
Kimberley €108 million
Q2 2014 Atrium 1 Skanska RREEF Investment €94 million
Q1 2014 Company House II AXA Real Estate Griffin Group €18 million
Q1 2014 Bliski Office Center Castle Carbery Properties
Griffin Group €11 million
Key recent office investment transactions
Source: Knight Frank Research
expected to be concluded in H2. As a result, transaction volumes in H2 are expected to improve on H1. Overall, annual investment in 2014 is forecast to reach a similar total to 2013.
The Polish investment market continues to be driven primarily by international investors, with cross-border purchases amounting to c. €950 million in H1. Institutional investors from Germany, the US and the UK are expected to remain the dominant sources of capital, with local investors and private buyers accounting for a smaller share of transactions.
Prime office yields in Warsaw remained in the 6.00-6.25% range during H1. The strength of current demand should help to support stable yields in the short-to-medium term.
High levels of development activity are expected to continue to have a major influence on the Warsaw office market, keeping the market balanced in the favour of tenants over the next 18-24 months. With new supply expected to outstrip demand, vacancy rates are likely to be subject to further upward pressure over the coming quarters. We forecast that the Warsaw office vacancy rate will reach 16% by the end of 2014. Although asking rents are expected to remain stable during H2, there may be further downward pressure on net effective rents.
KNIGHT FRANK VIEWInvestment activity is expected to remain mainly driven by cross-border purchasers. Over the medium term, a growing range of international investors may seek opportunities in Poland as a result of the strong competition and rising prices in Western European markets. South Korea’s National Pension Service, for example, has confirmed its intentions to make significant investments in Polish real estate. As investors search for value, it is also anticipated that demand will increase for secondary office assets throughout Poland.
WARSAW OFFICE MARKET OUTLOOK Q3 2014 RESEARCH
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