Łódź is gradually turning into a large construction site. Its total office stock is likely to increase by almost a half by the end of 2022, says real estate advisory firm Savills in its latest report on the office market in Łódź.
Łódź is one of Poland’s eight core regional office markets. Its total office stock is set to surpass 500,000 sq m in H2 2019, placing the city almost on par with Katowice and Poznań, but behind Tricity, Wrocław and Krakow. By comparison, Warsaw has 5.54 million sq m of office space. At the end of June 2019, Łódź’s office stock amounted to 496,700 sq m, of which more than 40% was delivered since 2015.
Łódź saw its first modern office buildings, including Centrum Biznesu Łódź, Łódź 1, Orion and Red Tower, built in its city centre. In later years, office development spread to the Widzew district, which witnessed such completions as Forum 76 and Symetris Business Park (soon to be joined by Imagine and Monopolis), and recently also to Nowe Centrum Łodzi (NCŁ), whose office stock comprises such projects as Nowa Fabryczna, Przystanek mBank and Brama Miasta.
Compared to other office markets, Łódź has a large volume of post-industrial space. At the end of H1 2019, approximately 20% of its modern office stock was in refurbished factories and tenement houses.
According to Savills data, there was 96,000 sq m of office space under construction at the end of H1 2019. The development pipeline for 2020-2022 amounts to approximately 210,000 sq m in such office projects as Targowa 2 (HB Reavis; 30,000 sq m), Textorial Park II (St. Paul’s Development; 26,000 sq m), P22 (Ghelamco and Budomal; 26,000 sq m), the first phase of Fuzja (Echo Investment; 20,000 sq m) and the first phase of Nowe Soho (Ghelamco; 15,200 sq m).
“Developers have recognised Łódź’s potential. The city’s total office stock is likely to top 700,000 sq m by 2022. Never before has such a strong office supply been projected in the city for a three-year period. Improved availability of high quality office space may help attract more companies to Łódź,” says Dariusz Karwański, Associate Director, Office Agency, Landlord Representation, Savills.
Demand for office space in Łódź grows unabated. Office take-up reached 32,200 sq m in the first six months of 2019, up by 13% year-on-year, setting a new high for the first half of a year on the Łódź office market. The largest transactions finalised in January-June 2019 include New Work’s 5,000 sq m pre-let in Hi Piotrkowska, two deals done by Nordea Operations Centre: a new lease for 3,300 sq m in Red Tower and a pre-let for 3,300 sq m in Cross Point C, and the renegotiation of the Flint Group’s lease of 2,600 sq m in Łódź 1.
Savills research has revealed that demand for office space in Łódź has come in recent years predominantly from the IT sector. However, in the last six months, the occupier market was dominated by the financial sector and a new type of tenants: flexible space providers offering small office units as coworking spaces or serviced offices. Looking ahead, the projected growth of the business services sector will be a very important factor for Łódź in the coming years.
According to Savills Office Market in Łódź report, between 2015 and 2018 the city’s vacancy rate remained at below 10%. However, at the end of June 2019 it was pushed up to 12.1% mainly by the large volume of unoccupied space in office buildings completed in H1 2019.
Łódź offers competitive office rents compared, for instance, to top destinations in Warsaw. At the end of June 2019, prime headline rents stood at EUR 12.00–13.50/sq m/month in Łódź compared to up to EUR 25.50/sq m/month in the capital city. Refurbished post-industrial buildings and tenement houses usually command lower rents ranging between EUR 8.00–10.00/sq m/month.
“Given the rising vacancy rate and the large number of new office projects planned by developers, a question arises whether the current rapid growth of the office market in Łódź is reasonable. Lured by the undoubted potential of Łódź, developers have decided to make use of attractive lands available in the city. Thanks to a higher number of new projects, demand will come not only from companies in the expansion mode or new to the city, but also from tenants who don’t have offices in Class A buildings but would like to relocate to modern schemes,” adds Dariusz Karwański, Savills.
“Proximity to Warsaw is Łódź’s great advantage over other regional office markets. Thanks to its strategic location, Łódź has become Europe’s core logistics centre. The expansion of the warehouse market in Central Poland will also drive demand for office space within the city itself. In addition, Łódź has been a leading business services location in Poland for years. In my opinion, Łódź is bound to be successful,” comments Adam Pustelnik, Associate Director, Business Development Manager, Savills.