Office market in Szczecin is one of the youngest and least developed markets in Poland. Modern office space in Poland is concentrated in seven cities: Warsaw, Kraków, Wrocław, Tricity, Katowice, Poznań and Łódź, and till recently these cities were developers’ first choice when it comes to investing in office projects.

Office stock
At the end of 3Q 2010 total modern office space in Szczecin amounted to ca 75,000 m2, which represents only 4% market share among six biggest regional office markets in the country. The vast majority of that space is located in the City Centre in the triangle of streets Al. Wojska Polskiego, Al. Wyzwolenia and pl. Rodła.

Most of the office projects in Szczecin are older, lower quality buildings of total rentable area below 4,000 m2. The biggest project is PAZIM with 22,000 m2 of office space completed in 1992 and till recently the only A-class project was MARIS with 7,500 m2 completed in 2005. In July 2010 Echo Investment delivered the OXYGEN building, which offers 14,100 m2 of modern A class office space. This building is practically the only alternative for larger tenants interested in locating their operations in Szczecin. Hence, majority of space in Oxygen is either leased or reserved.

New supply
As the office market is in its early phase of development the total new supply since 2000 has been only around 16,000 m2 of which almost a half is attributable to MARIS. The stock increased by 4,200 m2 in 2009 and by end of 3Q 2010 it went up by another 16,000 m2 and is likely to stay at this level till year end. As the numbers show Szczecin’s office market received an important injection of modern office space, which enables the city to compete for new BPO / SSC projects. But 2011 will be more difficult as the forecast clearly states that new office buildings – if their construction begins in first half of 2011 – will be ready in 2012. As a result Szczecin will have a supply gap for 12-18 months, assuming the demand remains on similar levels as to date.
According to developers’ plans, only Boguslawa 46 and Liberty House can be delivered in 2011 offering jointly 7,500 m2 of office space. However, majority of planned office schemes might be put to use in 2012 and later. Five developers secured a valid building permit for their projects, but one of them has a real chance to commence construction soon. It is Swedecenter, a company which is behind Brama Portowa project. Swedecenter belongs to Inter IKEA and to date it has realized development projects in Poland from equity, without the need for external bank finance. Development finance is still limited, so construction of majority of the projects will start only with sufficient pre-lease ratio, which is usually 40-50% nowadays.

In addition to typical commercial buildings listed above, there is one office project focused on companies from high-tech or R&D sector. The project is Szczecin Science and Technology Park which will be developed in several phases between 2010 and 2020. The first Phase was opened on the 29th September 2010. Also Szczecin University and the West Pomeranian University of Technology have established academic business incubators but they operate on a smaller scale and are dedicated to students and graduates launching their first enterprises. Both parks and incubators offer consultancy and support, if required, and preferential terms of leasing office space. They are though a solution for small companies making their first steps in business.

Demand
Szczecin’s lack of modern office space has caused some problems with the choice of office space for newcomers. Companies willing to operate in Szczecin had to face a deficit of office space, as the vacancy rate was often below 1 - 2%. Most of the demand for office space in the city was created by local companies and financial / insurance institutions. But in the last couple of years Szczecin has become a more popular destination for BPO (Business Process Outsourcing) and SSC (Shared-Service Centre) requirements, which will be the only serious and significant source of office demand in the future. The largest office transaction in Szczecin finalized in 2010 has been so far the lease with Tieto, who signed up for over 4,600 m2 in OXYGEN building, to which Tieto will start moving in December 2010. King Sturge were advisors to Tieto in this transaction.

This change in perception of Szczecin is a result of various factors. First of all, it was inevitable that after 3-4 years of strong influx of BPO and SSC occupiers in the main six Polish regional cities, short-term problems with availability of labour force may occur. Moreover, more players on the local market meant more competition in employing new staff. This has been especially visible in Wroclaw, Krakow and Tricity. Katowice and Lodz still have not utilized its full capabilities in full for other reasons than real estate offer, while Poznan is back to the game now after 2 years of lack of office supply. City authorities of Szczecin have wisely noticed that a time is slowly coming for next group of regional cities, i.e. Szczecin, Lublin and Bydgoszcz. Department of promotion has done a great job in making Szczecin visible with all its advantages – connected both with business factors (population size, academic centres, low labour costs, foreign languages offer, airport access, etc.) and city offer for its future residents / visitors (cultural and sport facilities, hotel base, schools, parks, entertainment, etc.). The city has begun also to cooperate more with international consultants, listen and implement their suggestions.
To date, Szczecin’s growing attractiveness for BPO/SSC sector can be proved by names of companies, which decide to locate their operations in Szczecin. Those include Asseco, Comarch, Macrologis, Stream International, Arvato Services, BL Stream or Coloplast, which has opened in November 2009 its European Finance Support Center. Two largest names operating in Szczecin (in terms of number of personnel) are Tieto, a Scandinavian IT company, which may reach 500 workstations in 2011, and Unicredit, a newcomer from last year, which already gives job to almost 280 employees in Szczecin, and has plans for further expansion of its activity in Szczecin. Currently discussions are in the final phase with another investor from BPO/SSC sector, who chose Szczecin for one of their service centres, where the company plans to employ approx. 200 people.

Rents
This year Szczecin saw its first, modern A-class office building finished since 2005 - Oxygen. The building offers 14,100 m2 of modern office space, but due to high level of interest and practically no competition, Oxygen has just 2,000 m2 vacant, which is anyway under negotiations. Apart from Oxygen tenants have one more option – a small building on 13B Mazowiecka Street, which offers approx. 780 m2 of A class office accommodation. From January 2011 there will be 3,000 m2 available at 30 Wyszyńskiego Street (next to Campanille Hotel). This space is currently occupied by Tieto and will be vacated next year.
Because the supply is not rising quickly and vacancy rate remains very low due strong demand in Szczecin scale, rental costs in Szczecin have not been affected so much by recession like other regional cities. Hence, headline rents for modern office space are at a level of 14.00-15.00 EUR/m2/month, with the package of incentives and fit-out budget dependant on size of tenants’ requirements.
In existing B-class building or refurbished tenement houses, converted into office use, headline rents vary between 45-52 PLN/m2/month. Service charges in modern buildings are at the level of 15-18 PLN/m2/month, while in the lower class buildings at 8-10 PLN/m2/month.