Strong leasing activity

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1 DTZ Research PROPERTY TIMES Strong leasing activity Poland Office March 215 Contents Macroeconomic background 2 Development activity 3 Demand and vacancy 4 Rents 4 Definitions 11 Standard lease terms 11 The total office stock in Poland (Warsaw and eight major regional markets) amounts to 7.55 million sq m (as of the end of 214). Warsaw still holds a dominant market position with an office stock of 4.39 million sq m (5 share in a total supply), followed by (733, sq m), Wrocław (589, sq m) and Tricity (515,5 sq m). In 214, as much as 622, sq m of modern office space was completed, which is the highest value recorded so far on the Polish market. Taking into consideration the volume of space under construction and developers plans, we expect even higher supply levels in 215 and 216. Demand for modern office space was strong in 214. The total volume of lease transactions exceeded 1 million sq m out of which 61, sq m in Warsaw, which represents a growth in comparison to the previous year, and a 5.5% increase compared to 212. The strongest leasing activity among the regional markets was traditionally recorded in (115, sq m) and Wrocław (95, sq m). Due to a strong demand, vacancy rates in the majority of the analysed cities dropped or remained relatively stable throughout 214. The lowest availability ratio was observed in (5.) and the highest in Warsaw (13.3%). in Warsaw city centre were at the level of EUR per sq m per month. Rental levels oscillated between EUR per sq m per month in regional cities as well as in non central districts of Warsaw. Due to a growing competition between landlords, further downward pressure on effective rents is expected over the next two years. Author Katarzyna Lipka Associate, Consulting & Research katarzyna.lipka@dtz.com Contacts Kamila Wykrota, Consulting & Research kamila.wykrota@dtz.com Magali Marton Head of EMEA Research magali.marton@dtz.com Hans Vrensen Global Head of Research +44 () hans.vrensen@dtz.com Figure 1 Total volume of lease transactions ( sq m) Regional cities Warsaw Source: DTZ Property Times 1

2 (f) 215(f) 216(f) Poland Office 214 Macroeconomic background Figure 2 GDP growth and inflation rate in Poland Economic growth and inflation In 214, Polish economy noticeably accelerated after two years of moderate growth. According to the National Bank of Poland s (NBP) estimates, the GDP growth in 214 amounted to 3. y-o-y compared to 1. registered in 213. In the first half of the year, Poland remained resilient to the political and economic unrest in Europe. However, in H2 214, the continued decline in the economic activity in the European Union slightly curbed national economy through the deterioration in the trade balance and the general sentiment in the enterprise sector. 7% 5% 3% 1% % Consumption was the main component that boosted GDP. Due to improving labour market conditions and gradually increasing household purchasing power, the trend is expected to continue in the coming years. GDP growth forecasts for 215 and 216 oscillate around 3% (3.% in 215 and 3.3% in 216, according to NBP). In the period from January to November 214, the consumer price index amounted to.1%, which is in line with the NBP s forecast of the average rate for the whole year. The low inflation rate results from the general economic situation, as well as supply factors, including a decrease in food and oil prices. As a result of the deflation observed since July 214, the Monetary Policy Council reduced in October the reference rate by.5 pp to the level of 2.%. Low interest rates buoy the demand for credit and hence spur consumption. Currency exchange Although over the first eight months of 214 the Polish złoty appreciated against euro and dollar, the trend was reversed in the months that followed. The exchange rates, both in terms of euro and dollar, have slightly increased to the level of 4.22 EUR/PLN and 3.43 USD/PLN in December 214. The weakening of the national currency is correlated with poor economic performance, especially in the Eurozone, and political tensions in the Polish economic environment. The exchange rate against dollar is additionally influenced by the improving US economy. Trade balance Between January and October 214, Poland s export and import grew at an equal pace of 4. y-o-y. Trade deficit reached EUR 1.1 bn. In terms of export, the most dynamic growth was recorded in sales to EU countries an increase of 7.5% y-o-y. Labour market The situation in the Polish labour market has markedly improved over the year 214. As of the end of December, the unemployment rate amounted to 11.5%, compared to 13. observed in December 213. In 214, the average monthly salary in the enterprise sector increased to the level of PLN 3,98 up by 3.7% compared to 213. Source: National Bank of Poland, (f) - forecast Figure 3 Export, Import and Trade balance (RHS) in Poland, EUR million Source: Central Statistical Office Figure 4 Average monthly salary in the enterprise sector (PLN) and unemployment rate (%) in Poland GDP growth Salary Source: Central Statistical Office Inflation rate Unemployment rate Export Import Balance on goods (RHS) % % Property Times 2

3 Poland Office 214 Development activity While analysing Warsaw and eight major regional cities (, Wrocław, Tricity, Katowice,, Łódź, and Lublin), the total modern office stock in Poland amounts to 7.55 million sq m (as of the end of 214). Warsaw still holds a dominant position with an office stock of 4.39 million sq m (5 share in a total supply), followed by (733, sq m), Wrocław (589, sq m) and Tricity (515,5 sq m), which are the most developed regional markets. 214 was record-breaking in terms of new supply delivered to the office market in Poland. The total volume of completions amounted to 622, sq m, out of which 345, sq m were located in regional cities and 277, sq m in Warsaw. Major projects, which received an occupancy permit last year include: Eurocentrum Office Complex I in Warsaw (38,7 sq m, Capital Park), Kapelanka 42 in (29,9 sq m, Skanska Property Poland), Ergo Hestia HQ in Tricity (21,8 sq m), Warsaw Spire I B in Warsaw (2, sq m, Ghelamco) and Nimbus Office in Warsaw (19, sq m, Immofinanz Group). Excluding Warsaw, the largest amount of new completions in 214 was recorded in (11,9 sq m) and it was the highest volume of annual supply recorded so far on this market. Large amount of new office space was also delivered in Tricity (68,5 sq m), Katowice (62,3 sq m) and Wrocław (61,6 sq m). The lowest level of completions last year could be observed in Łódź, where the total office stock grew only by 2,5 sq m. In response to the growing demand, the developers increased their activity in the majority of the analysed cities. Given the amount of space under construction (over 1.3 million sq m, of which approx. 7, sq m in Warsaw and 64, sq m in other markets), we expect that supply levels in 215 and 216 may be higher than in 214. Over the next two years, the office stock in Warsaw is likely to grow by approx. 725, sq m, and the annual supply volumes may be record-breaking. Taking into consideration regional cities, the highest level of new supply over the coming two years is expected in the most mature markets i.e. Wrocław (19, sq m), (155, sq m) and Tricity (125, sq m). When analysing the dynamics of stock increase in the period of 215 and 216, the highest values will be recorded in Wrocław, where the supply is likely to grow by 3, Łódź (27% increase) and Tricity (25%). Figure 5 Office stock in major Polish cities, end of 214 Source: DTZ Figure 6 Annual level of new supply in Warsaw and regional cities ( sq m) Figure 7 7% 5% 1% Regional cities 5 Warsaw Wrocław Tricity Katowice Łódź Lublin Warsaw Development activity in regional markets ( sq m) Wrocław Tricity Katowice Łódź Lublin Space delivered in 214 Pipeline (f) Property Times 3

4 Poland Office 214 Demand and vacancy Demand for office space in 214 was strong, which is reflected in the volume of leasing transactions concluded on the market during this year. The total take-up in Warsaw reached 61, sq m and was similar (down by 3%) to the value recorded last year. Alike during the previous four years (21-213), in 214 tenants often decided to stay in their current locations; as a result, renewals and renegotiations accounted for a large part of the total take-up (31%). Pre-lets were not as common as during , which is due to the increasing availability of office space within the existing properties. The total volume of lease transactions in the regional cities exceeded 4, sq m in 214 representing the 1 increase y-o-y. The strongest demand was recorded in (115, sq m) and Wrocław (95, sq m). As in previous years, demand for office space in the regional cities was to a large extent driven by BPO/SSC sector. Due to a strong demand, vacancy rates in the majority of the analysed cities dropped or remained relatively stable throughout 214. Taking into consideration regional markets, the availability ratio grew significantly only in Katowice (from 7. to 11.1%) due to a record-breaking volume of supply recorded on this market. The vacancy rate in Warsaw increased by 1.6 pp compared to the end of 213 and reached 13.3%, which is the highest ratio recorded among the analysed cities. Rents Rental levels remained relatively stable throughout 214 in most of the analysed locations. In Warsaw city centre, as a result of strong supply and growing vacancy rates, prime asking rents dropped slightly (on average by EUR.5-1 per sq m per month), and at the end of 214 they ranged from EUR per sq m per month. In regional cities as well as non-central districts of Warsaw, prime rents were in the range of EUR per sq m per month. Due to a high level of new deliveries and growing competition among landlords, they started to offer higher incentives packages, including rent-free periods and fit-out contributions. Given the strong pipeline supply, DTZ is of the opinion that this trend is likely to continue over the next two years, which will exert a downward pressure on effective rents. Figure 8 Total volume of lease transactions in the regional markets in 214 ( sq m) Source: DTZ Figure 9 Wrocław Tricity Vacancy rates in major Polish cities Source: DTZ Figure 1 Łódź Katowice Lublin Lublin Tricity Wrocław Łódź Katowice Warsaw in major Polish cities, EUR per sq m per month Warsaw (city centre) Warsaw (non central) Trójmiasto Wrocław Katowice Łódź Lublin 5, 4,9% 7, 9,3% 9, 1,7% 1,1% 11,7% 1,3% End 214 End ,1% 13,9% 12, 13, 12, 13,3% 11,7% 17, 18, Source: DTZ Property Times 4

5 Warsaw New supply in 214 4,392, sq m 442 Vacancy rate 13.3% 277, sq m Supply scheduled for , sq m 214 scheduled for 215 Eurocentrum Office Complex I / Capital Park Gdański Business Center 1-A / HB Reavis Warsaw Spire I (B) / Ghelamco Postępu 14 / HB Reavis Royal Wilanów / Capital Park Domaniewska Office Hub / PHN EUR Central; EUR Non Central Figure 11 Annual office supply (sq m) and vacancy rate in Warsaw % % New supply in , sq m 112 Vacancy rate 5. 11,9 sq m Supply scheduled for , sq m 214 scheduled for 215 Kapelanka 42 / Skanska Property Poland Orange Office Park I, II / East-West Development Enterprise Park C / Avestus Real Estate Aleja Pokoju 5 / Buma Group K1 / Warimpex Bonarka 4 Business E / TriGranit EUR Figure 12 Annual office supply (sq m) and vacancy rate in % % Property Times 5

6 Wrocław New supply in , sq m 12 61,6 sq m Vacancy rate 1.1% Supply scheduled for , sq m 214 scheduled for 215 Green Day / Skanska Property Poland Wrocławski Park Biznesu (B4) / Devco Silver Tower Center / Wisher Enterprise Dominikański / Skanska Property Poland West Gate / Echo Investment Dubois 41 / Nacarat EUR Figure 13 Annual office supply (sq m) and vacancy rate in Wrocław % % Tricity 515,5 sq m 92 New supply in ,5 Vacancy rate 9. Supply scheduled for , sq m 214 scheduled for 215 Ergo Hestia HQ Centrum Biurowe Neptun / Hines Olivia Business Centre - Olivia Four / TPS Tryton Business House / Echo Investment Olivia Business Centre: Olivia Six / TPS Waterfront I / Vastint EUR Figure 14 Annual office supply (sq m) and vacancy rate in Tricity % % Property Times 6

7 Katowice New supply in ,1 sq m 56 62,3 sq m Vacancy rate 11.1% Supply scheduled for , sq m 214 scheduled for 215 GPP II, III / Górnośląski Park Przemysłowy Silesia Star I / LC Corp Silesia Business Park I / Skanska Property Poland Silesia Business Park II / Skanska Property Poland A4 Business Park II / Echo Investment EUR Figure 15 Annual office supply (sq m) and vacancy rate in Katowice % % New supply in ,5 sq m 63 24,3 sq m Vacancy rate 12. Supply scheduled for , sq m 214 scheduled for 215 Centrum Biurowe Podwale / Machura Bros Corporation Kompleks biurowy ABC- building B / Marlech Nobel Tower / Iron Tower Investment Business Garden I / Vastint EUR Figure 16 Annual office supply (sq m) and vacancy rate in % % Property Times 7

8 Łódź New supply in 214 3, sq m 59 2,5 sq m Vacancy rate 1.3% Supply scheduled for , sq m 214 scheduled for 215 Synergia (building C) Olimpia Software Pool (Ericpol HQ) Centrum Targowa 35 phase II / Domena EUR Figure 17 Annual office supply (sq m) and vacancy rate in Łódź % 15% 1% 5% % New supply in ,2 sq m 37 6,4 sq m Vacancy rate 12. Supply scheduled for ,5 sq m 214 scheduled for 215 Piastów Office Centre B / RealKapital Storrady Park Offices / Gryf Developer Piastów Office Center C / RealKapital EUR Figure 18 Annual office supply (sq m) and vacancy rate in Annual supply (LHS) Vacancy rate (RHS) % % Property Times 8

9 Lublin New supply in , sq m 4 Vacancy rate 9.3% 8,8 sq m Supply scheduled for , sq m 214 scheduled for 215 Nord Park A / Centrum Zana Willowa 65 / private investor EUR Figure 19 Annual office supply (sq m) and vacancy rate in Lublin Annual supply (LHS) Vacancy rate (RHS) % % Property Times 9

10 Definitions Take-up (gross) Take-up (net) Net absorption Units built since 1989 or refurbished to at least B class. Total volume of lease transactions concluded on the market. This includes new leases, pre-lets, expansion of space,owner occupied deals, as well as lease renewals/renegotiations. Total volume of lease transactions concluded on the market, excluding lease renewals/renegotiations. Net change in physically occupied space between two periods of time, taking into consideration vacated and newly constructed office space in the same area. Prime rent Prime headline rent that could be expected for a unit of standard size 5 1, sq m commensurate with demand in each location, highest quality and specification in the best location in a market. Standard lease terms Rent Frequency and basis of indexation of rent Service charge Typical lease length Incentives Rent guarantee period Standard space delivery conditions Monthly rent, paid in advance, quoted in EUR, paid in PLN Annual, based on European CPI or HICP index Paid by tenants, connected with the costs and expenses related directly to the maintenance of the common areas on the property (at the level of the factor of the share of the total useable office area of building).quoted and paid in PLN 5 years Rent free periods Fit out contributions 3 months bank guarantee or deposit Landlords cover fit-out cost of the common areas on the property and standard fit-out of the leased area. Property Times 1

11 EMEA John Forrester Chief Executive +44 () Head of Central & Eastern Europe Alan Colquhoun Senior alan.colquhoun@dtz.com Consulting and Research Kamila Wykrota kamila.wykrota@dtz.com Capital Markets... Craig Maguire Senior craig.maguire@dtz.com Office Agency... Barbara Przesmycka barbara.przesmycka@dtz.com Retail Agency... Renata Kusznierska Senior renata.kusznierska@dtz.com Industrial and Logistics Agency Marc Le Bozec marc.lebozec@dtz.com Corporate Real Estate Services (CREM) Ian Scattergood Senior ian.scattergood@dtz.com Property Management... Christopher Rasiewicz christopher.rasiewicz@dtz.com Project and Building Consultancy Andrew Frizell andrew.frizell@dtz.com Valuation Urszula Sobczyk urszula.sobczyk@dtz.com 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, DTZ 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 DTZ. DTZ February 215 To see a full list of all our publications please go to Global Headquarters 77 West Wacker Drive 18th Floor Chicago, IL 661 USA phone fax info@dtz.com DTZ Poland Złota 59 St. 8th Floor Warsaw, -12 phone fax info@dtz.pl Property Times 11