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The Warsaw Voice » Real Estate » September 30, 2009
Office Market
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September 30, 2009   
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Companies have put the brakes on their expansion plans because of the global financial crisis. The consequence in Warsaw alone has been an almost 55 percent drop in demand for office accommodation in the first six months of this year compared with the same period last year.

Just in Warsaw, available office accommodation rose by over 170,000 square meters in the first half of 2009 to reach a total of 3.15 million square meters. There are plans to add another 140,000 square meters by the end of the year, but completion of some of this may be delayed until 2010, says real estate services company DTZ.

However, a fall in rents and an increase in rental incentives has resulted in more transactions compared with the previous quarter. Unfortunately, one swallow doesn't make a summer. The global situation and banks' policies prevent developers from starting new projects and the completion of ongoing projects depends on tenant demand. Pre-let contracts will be the key for the office market in 2010 and 2011. Projects that currently lack funding will not get finished without pre-letting offices at a level of at least 50 percent.

Sub-letting is gaining momentum. There is an increase in the number of offices that sublet to tenants who are looking to economize by reducing the size of their office accommodation.

Warsaw's most popular office address
According to Warsaw Research Forum, most of the new office space in the capital is to be found in the upper south side in Mokotów , over 89,000 square meters, and almost 60,000 square meters in the southwest of the city along Jerozolimskie Avenue and Żwirki i Wigury Street.

Monthly asking rents in prime central locations have fallen to 23-24 euros per square meter. Outside of the city center these have stabilized at 15-16 euros. Rents in general are some 20 percent lower.

Modern office blocks have been sprouting like mushrooms for several years in the area around Domaniewska Street in Warsaw's Mokotów district. Belgian developer Ghelamco completed the 32,000-square-meter Trinity Park III project, the third phase of the business park, in May this year. According to Ghelamco, the building is over 85 percent tenanted. Negotiations are in hand to sell the building.

Over the past month tenants have moved into three buildings within the Park Postępu complex, built by developer Echo Investment on a site where Postępu and Domaniewska Streets cross. A fourth building is due for completion by the end of the year. The Park Postępu complex comprises Class-A office accommodation in four buildings, which are connected at ground level. Each building has seven floors and two underground levels. Architects APA Wojciechowski designed the complex, which offers some 33,000 square meters of usable space. There will be over 800 parking spaces on the site. Currently, some 50 percent of available offices are already let.

Developer Globe Trade Centre (GTC) plans to complete by the end of December the third building in its Platinium Business Park, located where Domaniewska and Wołoska Streets meet, close to Park Postępu. The new building offers almost 12,000 square meters of offices. GTC has already signed a rental contract for over 2,700 square meters with TUI, one of the world's leading travel agencies. The Platinium Business Park will eventually comprise five buildings with a total area of almost 66,000 square meters. Tenants who have let space for over a year now in the first two buildings include Leo Burnett, Levi Strauss, Saatchi & Saatchi, GE Medical Systems, Expander and Zenith Optimedia.

Further afield
A complex of 12 buildings, with an area of almost 200,000 square meters, will be built within the next eight years on Poleczki Street in Warsaw's Ursynów district. The project includes the construction of office accommodation, shops, restaurants, warehousing, garages and a hotel. Poleczki Business Park is a joint project by UBM Realitätenentwicklung AG and CA Immo International. The likely construction cost is almost zl.1 billion. The first construction phase of offices and shops is due for completion in 2010. Completion of the whole project is slated for 2015.

Warsaw's Wola district is becoming the third most popular business district in the capital after the city center and Mokotów. Ghelamco Poland plans to build the Warsaw Spire, a 220-meter skyscraper, where Towarowa and Łucka Streets meet on the border of Warsaw's ¦ródmie¶cie and Wola districts. The site is close to the Warsaw Hilton Hotel, the Warsaw Uprising Museum and other office complexes. The Warsaw Spire project also includes the construction of two lower buildings and will offer a total of 100,000 square meters of modern office accommodation. Ghelamco Poland aims to complete the project in 2012.

Held up halfway
Other large cities in Poland also enjoyed an investment boom in 2006-2007. Businesses located outside Warsaw were expanding and started to think about relocating head offices to new office buildings. Large firms began to bring Business Process Outsourcing (BPO) to Poland, which boosted demand for office space. However, this ground to a halt at the end of 2008. Currently, regional markets are beginning to revive, albeit at a much slower rate.

GTC plans to complete its University Business Park in ŁódĽ in 2010. The developer began construction in March last year. The project is located in the heart of the city, close to the Technical University of ŁódĽ, and at the crossroads of the city's two main road arteries, Ko¶ciuszki and Mickiewicza Avenues. University Business Park will offer 36,800 square meters of Class-A office accommodation in two seven-story buildings. Each building will be built in the shape of the letter H. International construction firm Strabag is the general contractor.

Investors are regarding Katowice more and more favorably and the real estate market there is picking up momentum. Tenants will be able to move into Ghelamco's Katowice Business Point in the first quarter of next year. The 17,200 square meters of offices are located on Chorzowska Street on the corner of ¦ciegiennego Street.

GTC also plans to complete its Centrum Biurowe Francuska in Katowice next year. The location at 34 Francuska St. is central and next to a new court building. The complex will comprise two six-story Class-A office buildings with a total floor area of over 21,500 square meters. The mainly rectangular design is the work of architects APA Wojciechowski. Building A will offer 11,000 square meters and building B 10,500. Both buildings will have air-conditioning, modern telecommunications systems, suspended ceilings and adjustable-opening windows. A typical floor in building A will be 1,740 square meters in area and in building B 1,600 sq m. Each floor will be designed to facilitate open-space or enclosed-space usage by one or more tenants.

What next?
Analysts expect the supply of modern office accommodation to fall off faster than demand. The likely result could be a shortage of office space if the economy picks up. Therefore, tenants whose leases end within the next two years, should now guarantee themselves office accommodation for the future.

In the short term, the percentage of empty office accommodation will still rise. Currently, this figure is some 5 percent in Warsaw. Rents will fall, says real estate services company Cushman & Wakefield. In such a situation the shortfall in supply should finally balance out the fall in demand.

In the longer term, the current slowing of investment could even result in the reversal of the current market trend.

Magdalena Fabijańczuk


COMMENTARY
Tenants More Demanding
Rafał Mazurczak, Director for Office Space Sales at Echo Investment:

The economic crisis has naturally affected all market players. This also applies to relations with tenants. Negotiations are more detailed these days and they cover many aspects. Expectations with regard to location and requirements concerning standards are increasingly higher. Tenants also expect that the developer will be more involved in finishing works.

At a time of downturn in business, customers are generally less inclined to move their headquarters, but they become particularly concerned about the building's cost effectiveness and management quality. Today, a detailed analysis of costs and cost-optimizing methods is the order of the day during negotiations with customers.

The range of services offered by the developer and what exactly the developer will subsequently be responsible for are a very important part of the negotiations. Today, prospective tenants also expect somewhat different legal guarantees or more flexible contractual terms, in particular when it comes to potential changes in the size of space they lease. A general trend today is that increasingly smaller office accommodation is being rented without any extra space. In a new trend, potential tenants pay more attention to the financial status of the project and make their decisions dependent on whether or not the developer has funds to complete the project. Customers are looking for more economical options, while interest in expensive projects is dwindling. What counts is quality, high standards and ergonomics.

The latest developments on the market have brought rents down. The market has finally become stable in recent months, translating into a larger number of finalized contracts. Prospects for the future are also optimistic. This means that, from the tenant's point of view, this may be the best time for making deals.


COMMENTARY
Minimizing Running Costs
Zygmunt Malewicz, contracts team director at Hochtief Polska, Cracow branch:

Today we have access to many technologies which, once installed, allow us to achieve high functionality and usage standards besides architectural and visual benefits. Running costs play a key role.

We use building materials that have high insulation properties to reduce running costs. We thus save on the heating and cooling of buildings. We also use renewable energy sources such as solar panels and underground heat pumps to heat water for homes and businesses, and to help heat and cool buildings. Sometimes equipment fitted with inverters is used, which optimizes control and reduces electrical energy consumption. To be able to regulate air volume, which is dependent on the number of people using a space, we are fitting systems that can vary air output from ventilation equipment. To save on heating costs, we are installing equipment that utilizes the heat given off by office machinery and people. Moreover, we are using timers, either daily or weekly, to reduce the amount of electricity used during periods when no one is in the building (at night or during public holidays).

Energy-saving lighting is very popular as are motion sensors to turn lights on and off along corridors and in garages.

To further reduce running costs we are continually implementing control systems for equipment in completed office buildings.
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