Lublin and Poznań share the same vacancy rate, yet they are two different office markets

Transcript

Today I wanted to talk about the office market of my home city, Lublin. To look at it more objectively I decided to compare it with Poznań, because back when I was a student it seemed to me that the two markets were very similar in terms of population and student numbers.

Let us start with vacancy. Lublin and Poznań have almost identical rates today: 10.7% in Lublin and 10% in Poznań. And that is where the similarities end, because the same number stands for two entirely different markets. If you are looking for class A space in Lublin, that number tells you almost nothing about your situation.

Let us start with scale. Lublin has 247,000 sqm of modern office space in 43 buildings. Poznań has 713,000 sqm in 81 buildings, almost three times more. It is worth stepping outside offices for a moment, because the proportions between these cities are different from what you would probably expect.

Poznań has 534,000 residents, Lublin more than 200,000 fewer. So Poznań is one and a half times bigger, while its office market is almost three times bigger. It is similar with students. Around 100,000 people study in Poznań and 57,000 in Lublin, but per resident the result is comparable, so both cities can be considered academic centres.

Now let us go back a decade, because only then can you see how a city develops. In 2015 Lublin had 341,000 residents, today it has 327,000, so it has shrunk by 4% over ten years. As for students, in the 2015 academic year nearly 70,000 people studied in Lublin, today it is 57,000. That is a drop of one fifth. By comparison, Poznań stayed around 100,000 throughout and is growing again this year.

And offices? Here Lublin actually looks better in percentage terms. Over the past ten years 105,000 sqm was delivered, which is 42% of today's stock. In Poznań it was 274,000 sqm, or 38%. Except that 274 is not the same as 105, because in square metres Poznań added almost three times more.

One more figure, in my view the most important one from this decade: 88% of Lublin's class A was built in the past ten years. This market really is young, it has only just been built, and you can already see it has stopped growing. On the business side, however, Lublin has grown clearly. Today it has over 80 business services centres and 10,400 jobs, more than half of them in IT. In 2022 it was 8,500 jobs. So demand is growing while supply has stalled.

More important than scale, though, is what that stock consists of. In Poznań class A is almost 60%, in Lublin 35%, which is nine buildings out of 43. And this is the crux of it. When you read that Lublin has 247,000 sqm of modern office space, but you are looking for class A, your market is just 87,000 sqm. Three times less than the headline suggests.

Now for what is available right away. In class A in Lublin only 11,500 sqm is vacant, in Poznań 41,500 sqm. But even those 11,500 sqm are not what they look like, because almost 88% of that space sits in two office buildings.

And now something counterintuitive. In Lublin, vacancy in class A is higher than in class B, 13.3% against 9.9%. For you that should mean that in those two buildings you genuinely have room to negotiate. A landlord with 6,000 sqm standing empty talks very differently from one with 300 sqm.

But there is a catch here too, and it is something you will not find in any market report, yet it weighs more in negotiations than the vacancy rate. In Lublin the problem is not only the number of office buildings, but also the number of landlords. Three owners hold 81% of the city's class A today. And if you look not at the whole stock but at what is available right now, it gets even tighter: 98% of available class A office space in Lublin belongs to two owners.

That completely changes the nature of the conversation, because in lease negotiations you do not rely on arguments, you rely on alternatives. If you have five landlords competing for you, each of them knows their offer is on the table next to four others. If you have two, both know there is no third. That is not a negotiation, that is a request for a price list.

So how do rents look in Lublin? Rent is €12.5 per sqm, in Poznań €14. On top of that come service charges, slightly lower in Lublin at PLN 18.50, and PLN 24 in Poznań. Together, at today's exchange rate, a square metre costs PLN 72.50 a month in Lublin and PLN 84.50 in Poznań. On a thousand square metres that difference is PLN 144,000 a year.

We have three owners holding the market, zero square metres under construction and rising demand. With that setup rents should be going up, and they are not. In class A it is €13.8, in Poznań €14, practically the same. Why? Concentration gives landlords the advantage, but the market does not give them the demand to turn that advantage into rent. For you the conclusion is practical: in Lublin you will not win on the headline rate, because it is already low and the landlord has no way to reduce it.

And the last figure. In Lublin there is not a single square metre of office space under construction, although I have information that this may change quickly. In Poznań almost 79,000 sqm is being built, which is 11% of the current stock.

So if you are looking for class A space in Lublin, the summary is this: the market is 14% cheaper than Poznań, but three times smaller. The number of landlords and the vacancy rate do not improve the tenant's negotiating position, and new projects are few and far between. Start negotiations earlier than you would in Poznań, and start with the terms rather than the rate. Not because Lublin is harder, but precisely because there are fewer alternatives, and those that exist belong to the same landlords. You may also have to wait for the space you want until the previous tenant releases it.

I still believe in the potential of Lublin, which can be an ideal place for companies planning to grow and needing a large number of young, capable employees. And of those Lublin has never been short. Thank you.