Hidden Vacancy Rate as a Part of Office Market Dynamics in Selected Polish Cities

Abstract

Abstract The hidden vacancy rate reflects the adjustments of the market vacancy rate that may occur in the future, in the event of a change in market conditions. Its occurrence results from the fact that the current level of rented office space reflects the demand based on past levels of rent and past predictions of changes in the tenants’ demand for space during the term of the lease. Thus, the level of total, occupied office space at given moment does not result from demand based on the current market rent. This is the result of the duration of lease agreements concluded for more than one period. The hidden vacancy rate is also related to the costs of searching for office space that meets the specific criteria of tenants, removal costs and office space adaptation costs. The hidden vacancy rate cannot be observed in the market, but can be determined based on available market data. The article presents the concept of a hidden vacancy rate. Next, the presented theory was used to determine the dynamics of the hidden vacancy rate in a narrow and broad approach in the market of modern office space in Warsaw, Krakow, Wroclaw and Poznan. The obtained results were compared to two mature office space markets in Western Europe. The study shows differences in the formation of the hidden vacancy rate on the market characterized by a relatively large total stock of available office space in relation to markets being at an earlier stage of development.