Of all the regional cities in Poland, Wrocław reported the strongest leasing activity in the third quarter of this year. This is a stellar performance which has once again confirmed the city’s strength on the Polish office market despite the challenging economic times, says Klaudiusz Pomykała, Head of the Wrocław Office of Cresa Poland.
Leasing activity in the capital of the Lower Silesia region accounted for 37% of the total transaction volume recorded on all the regional city markets between July and September. What sectors delivered this strong performance?
In the past quarter, as in the whole of 2020, leasing activity predominantly came from the IT sector, which accounted for 64% of Wrocław’s office take-up in the year-to-date. Key occupier transactions included Nokia’s renewed leases for a total of 28,500 sqm of office space in two buildings. Wrocław’s IT market is well-known both nationally and abroad – it has existed for over half a century, attracting young talent and multinational corporations. According to the Wrocław Agglomeration Development Agency, the city’s IT industry employs close to 36,000 specialists; and according to IT Corner’s latest report, Wrocław has 112,000 students, of whom 15,000 are students of IT-related programs.
Wrocław also leads the way for corporates looking to set up R&D centres, doesn’t it?
Yes, it does. As in the case of IT, this sector’s growth is underpinned primarily by strong know-how. That’s why multinational corporations that want to deliver superior quality services choose to set up R&D/SSC facilities in Wrocław, which is one of the strongest university cities in Poland. According to ABSL’s latest report, the capital of Lower Silesia has 188 service centres with a combined headcount of 52,000. Wrocław’s large availability of class A office stock is also important to the growth of this sector – the city had more than 772,000 sqm of class A office space at the end of the third quarter (the total stock of class A and class B space reached 1.2 million sqm). Wrocław competes for shared services centres with large metropolitan areas across the globe. That’s why in the crisis caused by the pandemic, it is likely to benefit from reshoring of some business processes from outside of Europe. ABSL anticipates that this sector will see its headcount increase by as much as 7% next year.
The growth of coworking centres is another notable trend in Wrocław, isn’t it?
Yes, it is. Wrocław is seeing new serviced offices emerge and existing offices expand. Developments in this sector have been additionally driven by pandemic-related problems besetting some companies and the uncertainty surrounding business decision-making. Many tenants do not want to or cannot make long-term commitments. They can alternatively secure flexible leases for a term of one or two years, or agreements for an indefinite time with a one-month notice period. Tenants also value additional services such as assistants, access to IT infrastructure, conference facilities, coffee, and chill-out zones. Serviced offices are provided in the city by Regus, Business Link, Spaces, City Space, to name just a few.
Which new projects in Wrocław would you show your tenants today?
The third quarter saw 49,000 sqm of modern office space delivered to the Wrocław market across three class A office buildings. The largest office completion was Skanska’s Centrum Południe. It is centrally located in Powstańców Śląskich Street and offers 23,700 sqm of office space. The building combines office, service and recreational functions. City Forum 2, which was developed by Archicom and provides 10,900 sqm, is also situated close to the city centre. Another project completed in recent months is the first building of West 4 Business Hub (14,400 sqm), in Na Ostatnim Groszu Street, in western Wrocław. The investor of the complex is Echo Investment, which is also developing the 37,000 sqm MidPoint71 in Powstańców Śląskich Street. The office building is scheduled for delivery at the end of next year.
Another interesting centrally-located project in the pipeline is being prepared by Cavatina in Sikorskiego Street. It will be an office, retail and residential complex, built in phases, with access to the revitalised Oder River waterfront. Its tallest tower will be 140 metres in height.
How likely are these new buildings to fill up with tenants? What effect has the pandemic-related economic slowdown had on the city’s vacancy rate?
The vacancy rate stood at 14.3% at the end of September, which represented a 4.3 pp increase on the same period last year. This was due to weaker market absorption rather than tenants vacating offices. That’s why buildings completed in the third quarter have the highest vacancies. As decision-making processes tend to be slower now, it is taking more time to commercialize new projects. They are, however, interesting projects in prime locations that will find tenants once the economy bounces back.
Some companies are now unwilling to relocate and choose to put such decisions on hold for some time. That’s why regearing accounted for as much as 48% of all deals concluded between July and September, which is natural in challenging times. Some companies have been hit harder by the crisis and, to cut costs, they need to vacate some spaces for some time. As a result, Wrocław’s volume of office space for subleasing has already surpassed 30,000 sqm.
Have you noticed any rent discounts or perhaps a trend towards leases for shorter than five-year terms due to the current difficulties?
As I said, tenants would like to sign leases for shorter terms than the typical five-year period. But we need to remember that the five-year lease is an optimal period for new build office projects to amortize, so developers are unwilling to grant concessions in such office buildings. However, with properly conducted negotiations, it is possible to secure shorter leases in buildings that have been on the market for years where landlords’ costs are lower. And there is also subleasing, because it is usually for a shorter term that can be more flexibly agreed by the tenant and subtenant. It is similar with rents. Asking rents hold firm. In Wrocław, they stand at EUR 13-15 per sqm in class A office buildings and at EUR 10-12.5 per sqm in class B buildings. Effective rents are however edging down, and there is more room for negotiating such lease provisions as rent-free periods or cash contributions.
