Kraków's Office Market at Historic Highs

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It's a good year for Krakow's commercial office market.

With the highest tenant and developer activity in several years, as well as the lowest vacancy rate countrywide, 2014 is proving to be a record-breaking year for the Kraków office market, says JLL.

Kraków remains the biggest office market in Poland outside of Warsaw. Total modern office stock in the city is estimated at approximately 648,000 sq m and looks set to exceed 671,000 sq m this year. In total, around 105,000 sq m will be commissioned for use in 2014 and this will be the highest new supply in the history of Kraków's office market. Currently, there is over 106,000 sq m of office space under construction. If the developers' plans remain unchanged, the office market in Kraków will increase by a further 83,000 sq m in 2015 and 93,000 sq m in 2016.

Q3 of 2014 saw the completion of five buildings, notably Kapelanka A (17,300 sq m), Enterprise Park II C (13,600 sq m), Quattro Business Park D (12,200 sq m), Orange Office Park I (8,100 sq m) and Futuro (1,100 sq m). In addition, Avia will come onto the market in Q4 2014 along with the refurbished K1 office block.

Rafał Oprocha, Head of JLL's Kraków Office said, Kraków remains a key location for the business services sector. According to ABSL, business services centers with foreign capital employ ca. 30,600 people in Kraków, which is the highest number of any Polish city. This is the place where new investors locate their businesses, and where companies that are already active on the market expand their structures and conduct vast recruitment processes. The development of this sector translates into a high office space take-up, which in turn generates the activity of developers who answer the growing demand with new investments. The business services tenants' share of occupied office space in Kraków is 55%. It is also worth noting that 70% of all registered take-up in 2013 was down to companies from this segment of the economy".

2012 & 2013 saw exceptional levels of net take-up , amounting to 80,000 sq m p.a. It is worth underlining that tenants' activity during Q1-Q3 of 2014 had already outperformed these results and reached a record-breaking 85,000 sq m. What is more, since the beginning of the year, gross take-up has reached 107,000 sq m. The largest lease transaction from Q3 was AON Hewitt's renewal in Diamante Plaza (4,400 sq m), and the largest new deals were signed by a confidential tenant in Kapelanka 42B (4,200 sq m); Luxoft Poland (2,900 sq m) and Google (2,600 sq m) in Quattro Business Park D; and Getinge (2,300 sq m) in Orange Office Park I.

Kraków has the lowest vacancy rate in Poland (6%). According to JLL, this rate is likely to remain stable until the first half of 2015. Currently, companies looking for ready-to-use space over 3,000 sq m may have a problem with finding a proper module in an A class building. The majority of vacant office space is concentrated in B class offices. Furthermore, it is worth pointing out that the vacancy rate will grow due to the large volume of new space with completion scheduled for the second half of 2015.

Prime headline rents in Kraków remain relatively stable and vary between €13.9 and €14.5 / sq m / month. The average headline rents range from €13.5 to €14 / sq m / month.