The number of building permits for Warsaw office projects fell significantly in 2020

• With just two new building permits for office schemes issued, 2020 was Warsaw’s worst year in this respect during the 11-year research period
• Wola is increasingly dominant as the location for modern office buildings
• The race for height has transformed the Warsaw skyline over the last decade
• Revitalisation and mixed-use are accelerating trends across the city

Just two building permits for new office projects in Warsaw were issued in 2020, the lowest result in the period analysed (2010 – 2020) in the 2021 Deloitte Warsaw Crane Survey. This confirms the slowdown in building permits for office schemes identified in last year’s survey.

This is one of the key findings of the 2021 Deloitte Warsaw Crane Survey, the second edition of the annual report that acts as a barometer of business activity in the Polish capital by analysing the trends affecting its current office stock and future potential supply. The Deloitte Real Estate Advisory team has analysed the building permits issued in all Warsaw’s districts since 2010.

While more than 300,000 sqm of new office stock was delivered to the market in 2020, the second-highest amount on record behind 2016’s 400,000+ sqm, we saw a sudden decline in the number of building permits issued for modern office schemes from seven in 2019 to just two in 2020

- said Dominik Stojek, Partner Associate, Real Estate Advisory, Deloitte.
 

Both the new Warsaw office projects for which building permits were issued in 2020 are in the district of Wola. It is the further evidence of the district’s increasing dominance as the preferred location for modern office accommodation. These projects – The Bridge at Grzybowska and Lucka 5/7 – are additional to the 11 schemes delivered in Wola during 2020 and the seven due for delivery in 2021.
 

Given the decline in the number of building permits issued for modern office schemes in the last two years, we may predict a reduction in the stock delivered to market in the first years after the pandemic

- added Dominik Stojek.
 

Other districts are not able to compete with these levels of activity. The number of office projects taking place in Mokotów, for example, has slowed noticeably in recent years while office construction activity in Ochota has stopped.

As well as the building permits issued, to predict future construction trends Deloitte also analysed indicators including applications made for building permits and decisions and applications relating to development conditions. Since only 40% of Warsaw is covered by local plans, development conditions apply to around 60% of the city’s area. At least seven applications for decisions on development conditions were made in 2020 relating to office projects or mixed-use developments including an office element. Developers are currently preparing new projects, which will get underway once the current market slowdown is over. However, none of the applications the Deloitte team saw for building permits were for new office schemes.

Rising vacancy rates influence pace of new construction

The city’s high office vacancy rates appear likely to have further impact on the market in the years ahead.

While the average vacancy rate is 10%, the rate for those buildings opening in recent months or during 2021 exceeds 40%. We believe this is likely to reduce future planned supply

- said Magdalena Topolska-Ziemak, Manager, Real Estate Advisory, Deloitte
 

The Deloitte team also recognises that the Covid-19 pandemic has influenced some tenants’ decisions to postpone or entirely halt planned expansion, leading them not to progress with the lease agreements they had previously intended to sign. These factors may influence developers’ decisions about new projects.

Several developers have decided to repurpose their projects away from office use, most often to become residential. In the last decade several plots with building permits for modern office buildings, which have been publicly announced, did not end up being used for the function that was initially planned. In most cases, these were replaced by residential developments. It can be expected that further noticeable withdrawals of office stock may be seen in the years ahead.

Echo Investment is planning to develop a primarily residential mixed-use scheme next to Wołoska Street in Służewiec. An application based on the ‘Residential Act’ is in the consultation process and will be processed by the City Council in 2021. In 2020 Deloitte also analysed applications for development conditions relating to the repurposing of upcoming office schemes in central Warsaw and Ochota.

The race for height

The Warsaw skyline is being increasingly dominated by towers, with a dozen projects exceeding 100 metres in height. The most significant of these is the Varso Tower, now officially the EU’s tallest building at 310 metres. This is planned for opening in 2022, to join recently completed projects of over 100 metres, including the Skyliner, Generation Park, Warsaw Hub and Mennica Tower, and the Warsaw Unit scheme. The Bridge, for which a building permit was issued in 2020, will reach a height of 174 metres.

Growth in revitalisation

Regeneration is a growing trend in Warsaw, with revitalisation and refurbishment projects collectively totalling around 360,000 sqm of the city’s office stock. The highest share of these projects is in central areas, including Cedet , Europejski and EC Powiśle.

In 2020, two office schemes were opened in the mixed-use Browary Warszawskie project, located within a former distillery in the Wola district. Also in Wola, the district’s largest revitalisation project for commissioning in the near future is Fabryka Norblina, based in former industrial facilities next to the Mennica Legacy scheme.

Revitalisation projects are also a continuing trend on the right bank of the Vistula River, where projects include the ongoing Bohema project, with elements opening in 2022 and 2023. In addition, the Monopol project, part of Centrum Praskie Koneser (buildings M and N), will open in 2021. The Praga district too will see further revitalisation projects. The investor in the Centrum Praskie Koneser development has applied for a “WZ” decision to define the conditions under which this mixed-use project at the former Drucianka factory can be launched.