Did you know that by staying in the same office building for a dozen or more years you may be paying a rate far removed from market reality? Paradoxically, your new neighbours one wall over may pay less, even though they only just signed.
I see an analogy here with renewing a mobile phone plan - as a loyal customer of many years you are offered a worse renewal deal than the person the operator is trying to win over from the competition. As advisors, during lease audits we keep running into the same phenomenon: indexation has outpaced the market.
The compound interest trap
Most office leases in Poland are denominated in euros. The standard is an annual rent escalation tied to an inflation index (most often the European HICP/Eurostat).
Although 2-3% a year seems like a minor adjustment, over a dozen or more years the mechanism of compound interest kicks in. Cumulative indexation means your base rent rises continuously, regardless of what is happening to supply and demand on the market.
The result? Escalated rent vs. market rent
Many tenants who renewed their leases "on autopilot", without a deep market analysis, fall into the trap. Their indexed rate becomes higher than the headline rate the landlord currently offers new clients to attract them into the building.
The last 20 years of rent levels in Warsaw
- 2008Peak rates. The best Warsaw office buildings (Rondo 1, Metropolitan, Skylight) quoted above EUR 34/m².
- 2009-2020Years of stabilisation. Heavy new supply (including the rapid growth of Służewiec) pushed prime rents down to around EUR 25/m². For almost a decade rents stood still, and low inflation kept indexed rates in check.
- Pandemic and 2022Effective rents fell. Although headline rates did not drop sharply, landlords began offering larger incentive packages (rent-free periods, fit-out budgets), which strongly lowered the real cost of leasing.
Where are we today?
Today the situation is changing again. Over the past five years we have seen high inflation. It affects both the escalation of leases and the headline rents - especially in the best buildings, where supply is at a record low (high financing costs and low profitability of office projects mean rents are rising again).
What does this mean for tenants?
Before every renegotiation, an audit is essential. Do not assume your current rate is "at market" - just because that is what you signed a few years ago. Check three things:
- How much cumulative indexation has raised your base rent since you signed the lease.
- What rates the landlord offers new tenants today - that is the real benchmark.
- What incentive packages (rent-free periods, fit-out budgets) new clients receive that you do not.
You may find that going out to market is not an option but a necessity. Even if you ultimately stay in the same building, a negotiation conducted with full market awareness is a completely different conversation.
Act before the renegotiation, not during it.
Checking every scenario before you decide to extend is the guarantee of the best negotiation - regardless of which building it ends in.
At your last renegotiation, did you check how much indexation had raised your rent relative to the offers for new tenants? If not - now is the best moment to do it.
