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REPORTVACANCY RATES

WARSAW OFFICE MARKETA Cushman & WakefieldResearch Publication

April 2016

3A Cushman & Wakefield Research Publication 3A Cushman & Wakefield Research Publication2

CoreFringe

O�ce subzones in the city centre:

N – NorthW – WestSW – South WestUS – Upper SouthLS – Lower SouthSE – South EastE – East

O�ce subzonesoutside the city centre:

100,000 − 200,000 sq m

200,000 − 300,000 sq m

300,000 − 500,000 sq m

500,000 − 1,000,000 sq m

over 1,000,000 sq m

Total amount of o�ce stock (end of 2015):

E

US

SE

E

N

LS

SW

W

Core

Fringe

Source: Cushman & Wakefield

Modern office stock in Warsaw reached 4.66 million sq m at the end of 2015.

The vast majority of this space (approx. 75%) is located within the four largest subzones: Core and Fringe (central locations) as well as Upper South and South West.

WARSAW OFFICE MARKET

Source: Cushman & Wakefield

modern office stock in Warsaw

in city centre(124 buildings)

outside citycentre (341 buildings)

(465 buildings) 4.66 mn sq m

1.39 mn sq m

3.27 mn sq m

1 VACANCIES STRUCTURE

At the end of 2015, ca. 570,000 sq m of space was available for lease in the existing Warsaw office buildings; this corresponds to a 12.3% vacancy rate. The figure for central zones (Core and Fringe) reached 13.4% (185,000 sq m), with 11.8% (386,000 sq m) for non-central locations.

A close analysis of the structure of vacant space in Warsaw suggests that some of these offices, especially in central locations, are either in the buildings that are not actively leased out (e.g. because of planned demolition

TOTAL STOCK AND VACANT SPACE IN CENTRAL AND NON-CENTRAL LOCATIONS

Vacant space Leased space

174 buildings with vacant space (386,000 sq m).

22 buildings with more than 5,000 sq m vacant space, comprising 50% of all available o�ces.

6 buildings are entirely vacant.

76 buildings with vacant space (185,000 sq m).

12 buildings with more than 5,000 sq m available space, comprising 55% of all available o�ces.

4 buildings are entirely vacant.

Central locations0

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

500,000

Non-central locations

13.4%

11.8%

Source: Cushman & Wakefield

or refurbishments) or their landlords demand rents above the market rates.

If we excluded these buildings, the vacancy rate for central zones would amount to ca. 10% (instead of 13.4% recorded at the moment).

5A Cushman & Wakefield Research PublicationA Cushman & Wakefield Research Publication4

Vacancy rate (average for the last 2 years) Vacancy rate (end of 2015) Space completed during respective years

2005and older

2006-20072,275,700 427,500 531,300 306,200 564,700 554,600

2008-2009 2010-2011 2012-2013 2014-2015

WARSAW

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

AGE OF THE BUILDINGS – – YEARS OF COMPLETION

VACANCY RATE ACCORDING TO BUILDINGS' AGE – WARSAW

VACANCY RATE ACCORDING TO BUILDINGS' AGE – CITY CENTRE

Source: Cushman & Wakefield

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%CENTRE

2005and older

2006-2007910,400 147,900 43,200 63,900 85,900 136,500

2008-2009 2010-2011 2012-2013 2014-2015

Vacancy rate (average for the last 2 years) Vacancy rate (end of 2015) Space completed during respective years

AGE OF THE BUILDINGS – – YEARS OF COMPLETION

Studies conducted by Cushman & Wakefield indicate that most vacant offices are in the schemes that were put on the market in the last two years (vacancy rate of 21%) and those developed in the years 2008–2009 (16%).

High vacancy rates in new buildings are to be expected, as a certain amount of time is required to fully lease the space (currently it is about 2 years). At the end of 2015, the vacancy rate for the projects completed in 2014 was at 15% (42,000 sq m), significantly lower than at the time of their delivery, when it amounted to 49% (137,000 sq m). When put into use, office buildings constructed in 2015 were unleased at the level of 42%, while by the end of the year this figure fell to 28%.

The current high vacancy rate in office buildings delivered to the market during the 2008 economic boom (when the average vacancy rates did not exceed 3–4% and rental rates were at their peak) is mainly due to the fact that tenants took advantage of the falling rent rates, relocating to cheaper and often more modern schemes.

Because of the economic slowdown, the buildings developed in 2009 suffered from high vacancy rates at the time of their delivery to the market. Currently, the high vacancy rate recorded in this group is generated to a large extent by only three projects located in Mokotów.

The average vacancy rate for the oldest buildings (more than 10 years old) does not exceed 11% and has been relatively stable for the past two years. Such locations are becoming more and more popular, especially with tenants that had earlier occupied space in class C (or lower) schemes, e.g. state-owned companies and public entities.

Both in central and non-central office buildings, the vacancies structure is close to the average for Warsaw.

2 VACANCY RATE AND BUILDINGS’ AGE

In 2015, the vacancy rate on the Warsaw office market fell for the first time in four years, reaching 12.3% (down from 13.3% at the end of 2014). This resulted from a record-breaking activity on the leasing market, reflected both in the take-up (830,000 sq m gross take-up and 560,000 sq m net take-up) and net absorption (280,000 sq m, which constitutes a 60% increase as compared to last year and a 50% rise above the annual average for the previous 10 years).

High values of take-up and net absorption were mainly due to the positive economic situation, especially changes on the job market; according to Oxford Economics, a record number of new positions were created in Warsaw in 2015 in the sectors related to the office real estate market, and – as a direct result – many companies found themselves seeking new space. Last year, many lease agreements were concluded for large office spaces, as companies relocated to either more modern or more accessible offices, both within the same business districts and to other parts of the city. Due to the strong competition between the landlords, the tenants found themselves in a favourable negotiating position (especially if they were looking to lease several thousand sq m); this provided them with an additional impulse to relocate, thus improving the take-up figures.

Taking into account the high supply planned for the coming years, the competition between the owners will remain intense, resulting in further downward pressure on effective rents and strong tenant activity. While this factor should positively influence the take-up values, Oxford Economics expects the employment growth rate to slow, which will result in many entities limiting their expansion.

Considering all the abovementioned factors, Cushman & Wakefield expects the 2016 take-up, while still relatively high, to fall by ca. 10% as compared to the previous year. Due to the potentially slower economic growth in the coming years, we think that the leasing activity in 2017 and 2018 is likely to be weaker than in the years 2015–2016.

The comparison of take-up values with the projected supply for the coming years suggests that the vacancy rate may exceed 15% at the end of 2016, remaining relatively stable in 2017, before increasing again in 2018 (up to 16–17%).

The highest vacancy rates are currently recorded in the Central Business District (16.5%) and the Upper South subzone (14.3%); the latter includes the so-called Industrial Służewiec, an area with the largest concentration of office space in Warsaw.

Taking into account the supply and take-up forecasts for the next 3 years, we may expect an increase in vacancy rates in the Fringe and South West (Ochota and Wola districts) subzones, mainly due to the high levels of new supply.

The average vacancy rate may also increase in Industrial Służewiec, despite the relatively low pipeline supply. This should mostly affect older buildings, as tenants will relocate to more modern developments, often in other parts of the city.

3 TRENDS AND PROJECTIONS FOR THE COMING YEARS

4PROJECTIONS FOR THE MAJOR

BUSINESS DISTRICTS

PAST, PRESENT AND PROJECTED FUTURE VALUES FOR SUPPLY, NET TAKE-UP AND VACANCY RATES IN WARSAW

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

100,000

200,000

300,000

400,000

500,000

600,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016(f) 2017(f) 2018(f)

Annual supply Net take-up Vacancy rate

Source: Cushman & Wakefield

(f) — forecast

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E

US

SE

N

LS

SW

W E

Core

Fringe

Vacancy rate (end of 2015)

Supply planned for 2016–2018

Projected trend for the vacancy rate (end of 2018)

N – NorthW – West

O�ce subzones outside the city centre:

SW – South WestUS – Upper SouthLS – Lower SouthSE – South EastE – East

CoreFringe

O�ce subzones in the city centre:

13%

51,900

stable

13%

70,000

stable

11%

256,400

increase

7%

9,100

increase

14%

48,700

stable

8%

39,500

stable

16%

117,400

stable 12%

283,600

increase

14%

202,200

increase

Core

Fringe

EastU

pper SouthSout

h Ea

st

Low

er S

outh

Sout

h W

est

Wes

t

Nor

th

VACANCY RATE, SPACE UNDER CONSTRUCTION, TRENDS

Source: Cushman & Wakefield

Katarzyna Lipka Associate Director, Consulting & Research + 48 22 820 20 20 [email protected]

Kamila Wykrota Director, Consulting & Research + 48 22 820 20 20 [email protected]

Magali Marton Head of EMEA Research + 33 (0)1 4964 4954 [email protected]

Cushman & Wakefield Research ContactsEMEA Research Joanna Tano Phone: +44 (0)20 7152 5944 Email: [email protected]

Magali Marton Phone: +33 1 49 64 49 54 Email: [email protected]

Cushman & Wakefield ContactsChief Executive, EMEA John Forrester Phone: +44 (0)20 3296 2002 Email: [email protected]

Country Head, Poland Charles Taylor Phone: +48 22 820 20 20 Email: [email protected]

Chair, Poland Alan Colquhoun Phone: + 48 22 222 30 00 Email: [email protected]

Research & Consulting Kamila Wykrota Phone: +48 22 820 20 20 Email: [email protected]

Office Agency Richard Aboo Phone: +48 22 820 20 20 Email: [email protected]

Retail Agency Renata Kusznierska Phone: +48 22 820 20 20 Email: [email protected]

Industrial & Logistics Agency Tom Listowski Phone: +48 22 820 20 20 Email: [email protected]

Capital Markets James Chapman Phone: +48 22 820 20 20 Email: [email protected]

Valuation Mark Freeman Phone: +48 22 222 30 00 Email: [email protected]

Occupier Services Ian Scattergood Phone: +48 22 820 20 20 Email: [email protected]

Asset Services Christopher Rasiewicz Phone: +48 22 222 30 00 Email: [email protected]

Project Management & Consultancy Andrew Frizell Phone: +48 22 820 20 20 Email: [email protected]

Hospitality Sarka Chapman Phone: +48 22 222 30 00 Email: [email protected]

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

DISCLAIMER This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked,

Cushman & Wakefield can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within

this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior

approval. Any such reproduction should be credited to Cushman & Wakefield.

© Cushman & Wakefield.

Kamila WykrotaDirector, Consulting & Research

+ 48 22 820 20 20

[email protected]

cushmanwakefield.com