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The Warsaw Voice » Real Estate » April 7, 2010
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As Cheap as it Gets
April 7, 2010   
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This year is a good time to rent a new office. Rents are low and the situation is not expected to change until the end of the year or early 2011, says Paweł Skałba, a partner in Colliers International Poland's office agency. He talks to Magdalena Fabijańczuk.

What are tenants thinking today? "Let's wait and see what happens..." or "rents are cheap, this may be a good time to rent an office"?
The first, second quarter of last year, even the start of the third, were times of great uncertainty and wait-and-see attitudes. Nobody knew what to do, or could guess what the next year would bring, so many tenants held back. In the second half of 2009, though, companies decided it was a good time to renegotiate their contracts or look for new offices. The machinery was set in motion and is running to this day. We are renegotiating existing leases for many of our clients, but many also want to take advantage of low rents and lease new offices in more prestigious buildings, of a higher standard than they had before.

Is this activity among tenants starting to translate into extra supply?
There aren't many new projects. Today developers do not have easy access to financing. Banks are offering loans on extremely tough terms, such as having 40-50 percent of space pre-leased at the moment of signing a loan contract.

But Warsaw does have a few projects under construction that are being rented out. How are they competing for tenants?
Often such buildings are in similar locations, for example the Mokotów district, where office buildings have been built one after another for years. Similar does not mean the same, though. Each building has slightly different access, a greater or smaller number of parking spaces. It might come as a surprise, but a tenant's final decision can be affected by features such as a conference center, guest parking spaces and even a fitness club or swimming pool in the building.

Many companies are moving from downtown Warsaw to the outskirts. Do you think there are companies that have to stay in the city center for reasons of prestige and convenience for customers?
It's no secret that companies are moving out of the city center due to costs. Today in the Central Business District (COB) it costs 16-20 euros to rent a square meter of office space, compared to 11-14 euros in the Mokotów or Ochota districts. I think there is no longer any clear division into types of companies that have to stay in the center and those that can rent offices in other parts of town. We have examples among financial institutions and banks as well as public-sector institutions that have moved their headquarters out of the Central Business District. All the same, there is still a certain group of consulting companies (such as law firm groups) that set up offices exclusively in city centers. One more thing is worth mentioning: many companies that are now based in downtown Warsaw first rented their offices during the last boom of 2005-2006 when you could obtain similar rates to those in Mokotów. Today, if they don't have to stay in the central ¦ródmie¶cie area for some reason, they are moving to cheaper locations.

The number of offices in Warsaw is expanding. It's no longer just the ¦ródmie¶cie, Mokotów, Ochota or Wola districts. What do you think of office parks on the city outskirts?
Space in Poleczki Business Park, because that's probably what you mainly have in mind, is being rented out fast. Of course, it's not a location for everyone. However, the tenants include pharmaceutical and electronic companies and even the public sector. I think office parks have a future. Warsaw's road network is improving year by year. This might surprise you, but offices on Poleczki Street are being leased by companies terrified of the traffic jams on Wołoska, Marynarska or Domaniewska streets. It's worth adding that despite its location on the outskirts of town, rents in Poleczki Business Park are comparable to those in Mokotów.

Talking of rents, what do you predict for the coming year? Will they go up?
I don't think we can expect serious rent increases in 2010. Rents will start to stabilize. The second half of the year will clarify a lot. Maybe, because developers will not supply that much new space in the near future, building owners will not be so compliant during negotiations. I think rent increases will become noticeable in the first, second quarter of next year.

How is Business Process Outsourcing affecting the office market in the regions?
BPO offers great support for regional cities. If it were not for these projects, the demand for office space would not be so big. People are also asking about Warsaw more. Previously, the capital was too expensive for BPO. Now that office prices have dropped and rents in Wrocław (13-16 euros per sq m), Cracow (12-16 euros per sq m) and Poznań (14-16 euros per sq m) are comparable to Mokotów, foreign corporations have turned towards Warsaw. The city meets most of the requirements for BPO projects: low rents, several good universities and qualified staff. It's only labor costs that could be higher here than in the regions. However, this does not put off companies in search of locations for highly specialized BPO services such as customer relations management, HR and recruitment, business analysis and financial reporting. This is in keeping with the conclusions of our recently published survey, Improving Through Moving, which showed that each of the cities surveyed in the Central and Eastern European region has a chance of attracting and retaining investment from the BPO sector, including Warsaw.
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