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The Warsaw Voice » Real Estate » April 30, 2010
Special Section for Real Vienna 2010
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Wroc³aw: Ambition and Opportunity
April 30, 2010   
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Wroc³aw, the largest city in the southwestern province of Lower Silesia, has long enjoyed an excellent reputation among businessmen and investors. The city’s authorities are active in promoting Wroc³aw not only in Poland but also abroad.

The city offers numerous incentives and has links to the Wa³brzych Special Economic Zone, facts that have encouraged many multinational investors, including Volvo, LG Electronics and Kia Motors, to open factories in the region. With 632,240 residents, Wroc³aw is Poland’s fourth-largest city in terms of population, and fifth largest in terms of area, at 293 sq km.

Shrinking office space
After Cracow, Wroc³aw is the second-largest regional office market in Poland. Modern office space in the city totaled 360,000 sq m at the end of last year, of which 54 percent was in the city center, according to CB Richard Ellis real estate services company. Over the past two years developers have completed three new projects in downtown Wroc³aw: Grunwaldzki Center (Skanska), Bema Plaza (Ghelamco), and Globis (Globe Trade Centre).

The global financial and economic crisis did not bypass Wroc³aw and many plans for new modern office buildings were suspended at the preparation stage. The city currently has just 36,500 sq m of office space under construction, all of which should be completed by the end of the year, according to CB Richard Ellis.

The lack of new projects over the past year or so and a low vacancy rate mean that Wroc³aw’s office space market is beginning to shrink.

“Wroc³aw has the power to attract investors,” says Anna Bartoszewicz-Wnuk, research department head at consulting company Jones Lang LaSalle. “The city could attract the interest of large multinational corporations that will need 5,000 sq m or more, and the city will be unable to offer them that much space. Today the vacancy rate in Wroc³aw is just 5.5 percent and is the lowest in Poland.”

The first of three Wojdy³a Business Park buildings is scheduled to hit the market this June, but the whole four-story building, with 8,500 sq m of space, has already been leased to IBM. The entire office park, with Wojdy³a Budownictwo as the investor, comprises three buildings that will have a total of 25,000 sq m of space. The second building will be completed in the first quarter of 2011, and the third one in 2012.

Another project in progress is the multifunctional Sky Tower with offices, luxury apartments and retail space. The developer, LC Corp Sky Tower, says the project will be ready by the end of 2012.

Skanska, Ghelamco to the rescue
Skanska is one of few developers that have decided to start a project in Wroc³aw recently. Strzegomska 36 is a complex of two buildings with a total leasable space of about 25,000 sq m, a two-story underground garage for 325 cars and 32 parking spaces above ground. The project will be located on the corner of Strzegomska and ¦rubowa streets, near the Wroc³aw Miko³ajów railway station. Strzegomska 36 is a speculative project, meaning that no pre-leases have been signed. The developer obtained the required construction permit in December 2009 and completion of the first building is planned for the first quarter of 2012. The first floor will house service outlets and the stories above it will consist of modern open-plan offices. There will be a green area between the buildings and an atrium extending below the ground level that will provide extra light to the lower level. The Strzegomska 36 project will apply for Leadership in Energy and Environmental Design (LEED) certification. This office complex will be fitted with systems to save energy, protect the environment and provide healthy conditions for users.

“Wroc³aw is consistently building a modern image for itself while offering companies unique development opportunities,” says Nicklas Lindberg, managing director of Skanska Property Poland, the developer of the Strzegomska 36 office complex. “The proximity of three European capitals, Warsaw, Prague and Berlin, as well as two special economic zones, plus well developed airport, road and railway infrastructure, makes Wroc³aw a popular choice among foreign investors, who perceive it as a dynamic and investor-friendly city. It is with exactly such companies in mind that Skanska builds its projects. Actually, we realized how great the need for office space was in Wroc³aw earlier, building the Grunwaldzki Center project. Companies that located their headquarters there include AmRest Credit Suisse, Deloitte Advisory Hewlett-Packard, Santander Consumer Bank and as of recently also McKinsey. Today the building is over 90 percent leased.”

Vantage Development has also announced plans to start a new project in the middle of this year. Gamma Office will be a seven-story building offering 14,000 sq m on Fabryczna Street. The investor promises completion in late 2012. The underground stories will house warehouses and 314 parking spaces.
Ghelamco is also planning a new project in Wroc³aw. Construction of the Wroc³aw Business Park could start by the end of the year. This office complex will comprise three buildings forming a business park with a total space of about 70,000 sq m and will be located on Horbaczewskiego Street.

Mecca for malls
According to CB Richard Ellis, Wroc³aw has 17 modern shopping centers with a total of 505,000 sq m. That is almost 800 sq m of retail space per 1,000 residents, making Wroc³aw the second best developed retail market in Poland after Poznań.

Modern retail space in Wroc³aw almost doubled in 2007-2008, when the market gained six shopping centers with a total of 200,000 sq m: Pasaæ Grunwaldzki, Arkady Wroc³awskie and Magnolia Park in 2007, and Centrum Handlowe Marino, Park Handlowy M³yn and Futura Park in 2008. Then came the crisis and developers slowly started withdrawing from earlier plans.

Last year saw the reopening of the Renoma department store on ¦widnicka Street after thorough renovation and expansion works. “Renoma offers top-of-the-range and medium luxury goods,” says Bartoszewicz-Wnuk. “Unlike the Magnolia or Korona malls, this is not a ‘mass-scale’ center with a hypermarket, huge outdoor parking lot and mid-range priced goods. The crisis is drawing to a close and Wroc³aw’s residents are getting wealthier, also thanks to the inflow of strategic foreign investment, which is why I am convinced Renoma can only consolidate its position even further in the near future.”

In part, Wroc³aw owes its development to projects related to the Euro 2012 soccer championship. A shopping center is due to be built near the ¦l±sk Stadium. At the moment this is an undeveloped part of the city, but the local government plans to develop the road network in the area, providing convenient access to the airport as well.

Late March saw the opening of a small (9,000 sq m) shopping center called Family Point. This new facility gives shoppers a choice of the following stores: Piotr i Pawe³ (delicatessen), Rossmann (cosmetics), Media Expert, Pepco, Ruch, Boti, Optybell, Alius, Aledo, Bouquet, Carrramba, Costa, Opti, Lux Point, Jubiler and Exchange Point, Cash Point. The new Family Point sits right next to a Praktiker home improvement store (20,000 sq m). The project was a joint venture involving Austrian company Tradeland and London-based REVCAP (Real Estate Venture Capital Management LLP).

Other developers have also secured plots to build shopping centers in Wroc³aw but are now waiting for the best moment to start their projects. Is there room for more shopping malls in a city with such a high saturation of retail space per capita? “Wroc³aw still has room for new, fashionable, innovative malls where ‘aspiring’ brands, like Benetton Kids or Zara Kids (which is already present at Renoma), and new brands just being launched in Poland will want to open their stores,” says Bartoszewicz-Wnuk. “Such stores need a more affluent environment, like the districts of O³taszyn, Oporów and Borek or the city center.”

Warehouses resistant to crisis
Thanks to its excellent location close to Germany and the Czech Republic, Lower Silesia with its main city, Wroc³aw, is the perfect destination for companies working with both regional and foreign manufacturing companies. That is why Wroc³aw is one of the most important logistics markets in Poland. The crisis has affected the city, but has been relatively gentle on its warehouse market.

Last year was a tough one for warehouse developers across Poland. Decreased market activity and difficulties with obtaining funds for the construction of new facilities made developers halt their decisions to supply new space to the market. Instead they focused on finding tenants for existing but vacant buildings.

“Viewed against this background, Wroc³aw has done well,” says £ukasz Grupa, a senior associate in the industrial and warehouse real estate department of real estate services company Colliers International. “Last year Wroc³aw was one of the three most attractive locations for companies renting warehouse space. The city’s total leased space of about 170,000 sq m—with the nationwide total at 960,000 sq m—means that together with the Upper Silesian and Warsaw markets, Wroc³aw was among the most popular locations for logistics operations.”

The largest transaction Colliers International reported last year in the Wroc³aw region was a lease involving 20,000 sq m for Acer. The computer manufacturer decided to rent space at the ProLogis Park Wroc³aw III on Graniczna Street.

ProLogis, one of the largest players on Poland’s warehouse market, has a modern distribution center in Wroc³aw comprising eight buildings with warehouse and office space totaling 168,000 sq m. ProLogis Park Wroc³aw lies in Kobierzyce commune, 15 km from the center of Wroc³aw, on the E-35 (Wroc³aw-Prague) highway, close to the junction of the A4 (Berlin-Wroc³aw-Cracow-Ukraine) freeway, the E-261 (Poznań-Wroc³aw-Prague) and E-67 (Warsaw-Wroc³aw-Vienna) highways. The park lies just 9 km from the airport in Wroc³aw that handles direct flights to Warsaw, Frankfurt, Vienna, Copenhagen and Munich. ProLogis’ Wroc³aw customers include Black Red White, Carlsberg, DSV, Impel, Iron Mountain, JAS FBG, Kuehne+Nagel, Kurier, MSI, Rohlig Suus Logistics, Schenker, Silimpex, Volvo, and Wincanton.

Not far from this facility lies Panattoni Park Wroc³aw I. It is in Bielany Wroc³awskie, 15 km southwest of downtown Wroc³aw, along highway No. 35 connecting Wroc³aw with Prague. This center comprises three buildings offering a total space of over 83,000 sq m. Tenants at Panattoni Park Wroc³aw I include Orsay, Sauer Danfoss, and Stenmot-2. Orsay, a distributor of women’s clothing, occupies over 27,000 sq m—not just warehouse space but also 2,400 sq m of office space housing the company’s Central and Eastern European headquarters. This elegant office, predominantly made of glass, has about 200 employees.

Another project near Wroc³aw by the same developer, Panattoni Park Wroc³aw II, is located 17 km from downtown Wroc³aw, in Nowa Wie¶ Wroc³awska, which lies in the district of K±ty Wroc³awskie. The park is close to the Pietrzykowice junction of the A4 freeway and the Wroc³aw beltway (A8) currently under construction. The present area of the park exceeds 19,000 sq m. The tenants are Apreo Logistics and Knauf. There are plans to expand the park to 60,000 sq m with the construction of two more buildings.

Though the Wroc³aw warehouse market is in good shape compared with the rest of the country, this does not mean that there is a boom in new business.

“Just like in all of Poland, developers are focusing mainly on leasing available vacant buildings,” says Colliers International’s Grupa. “For as long as they can offer existing space, they will not supply the market with new buildings that are not secured with leases. Rents that are attractive to tenants will also stay in place. New projects will not start until pre-lease contracts are signed for at least part of a planned warehouse. Despite the drop in land prices, developers are not planning to buy—they already have plots in the Wroc³aw region where they can build new facilities with a total area of about 481,000 sq m.”

Magdalena Fabijańczuk


COMMENTARY
Opportunity for Office Developers

Katarzyna Pankiewicz, director for office space leases at Globe Trade Centre:
Wroc³aw is one of the most rapidly developing business centers in Poland. Even though it has not been spared by the economic slowdown, the local market for commercial space is still one of the most attractive in the country. The city’s location, its efficient public administration and the fact that major multinational corporations have penetrated the region are the main factors that influence Wroc³aw’s attractiveness, according to Globe Trade Centre.

The poor availability of modern office buildings is mentioned by many companies, especially multinationals, as a barrier to launching operations in Wroc³aw—despite the recently higher vacancy rate. That’s why we cannot really speak of the local market’s saturation with these kinds of facilities. Even today Wroc³aw is Poland’s second-largest financial hub after Warsaw. This is the best proof of the city’s potential. It also attracts many companies from the BPO sector, electronics and logistics. These are the main sectors from which we get inquiries on leasing office space that GTC has built or plans to build in Wroc³aw.

When we were renting out the Globis building, which GTC completed in the spring of 2008 and which is 100-percent occupied today, we received inquiries mainly from companies seeking A-class office space, easily accessible and offering the possibility of easy space arrangement, for instance for back-office, research or laboratory operations. Right now we are seeing a recovery and increased interest from prospective tenants. In Wroc³aw, like other cities, this will be an opportunity for the most experienced developers, those with large amounts of cash at their disposal, which enables them to begin new projects or continue those they halted over the past year or so.


COMMENTARY
Retail Revival

Piotr Chiniewicz, development manager at Apsys Polska:
Wroc³aw is a rapidly developing city. Compared with other cities in Poland, the cooperation between the administration and investors looks good, though there is still some room for improvement, especially in the way officials understand market mechanisms, which is what developers are guided by.

The past 18 months have brought a slowdown in retail projects in the city. Last year there was just one large new project, the Renoma department store, which opened after a thorough modernization and expansion. Despite its excellent location, it has yet to meet the investor’s expectations. The main reason is the unfortunate opening date, in the middle of the crisis, and the high price levels in its stores. Even so, Renoma has all it takes to regain its rightful place with time.

There are some visible signs of market revival this year, examples including the recently started construction of a shopping center next to the city stadium under construction and the planned completion of the Idylla Wroc³awska project at the end of this year.

The gradually increasing affluence of Wroc³aw’s residents and the waning crisis mean that, despite the city’s relatively high saturation with retail facilities, we too can see its great potential and are preparing a new project. We will try to offer the people of Wroc³aw a unique multifunctional project that will be different from the city’s other shopping centers. Its central location, on the fringes of the Old Town, automatically obligates us to create something special. We want this place to live from morning till night. We want to achieve this by merging retail, service, entertainment and residential functions in one project. We are confident our project can bring life to a new section of the city.


COMMENTARY
Tenants Choose Wroc³aw

Maciej Madejak, first vice-president of ProLogis in Poland:
Over the past dozen or so years—a period during which ProLogis has been taking part in the development of the Polish warehouse market—substantial changes have occurred in Poland’s logistics sector. Just a few years ago, modern warehouses were exclusively concentrated around Warsaw. Today the capital is still an important part of Poland’s logistics network, but investors have directed their interest toward other conurbations with significant investment potential, mainly the Upper and Lower Silesia regions and Wielkopolska.

At a time of economic difficulties, when it is necessary to look for savings, one of the key criteria for choosing the location for a warehouse is the possibility of optimizing distribution costs and building an effective delivery chain not only in Poland but also throughout Europe. The intensive development of areas in western and southwestern Poland—which have the necessary road infrastructure and a qualified work force and where local governments use measures to support the development of business—have turned this region into an excellent beachhead for logistics operations in Western, Central and Eastern Europe.

This explains why tenants are increasingly interested in warehouses near Wroc³aw, for example. The greatest role in the region’s intensive development has been played by the establishment of special economic zones, technology parks and business clusters in recent years. Today there is huge potential in the vigorously developing multi-sector economy, the rapidly growing number of small and medium-sized enterprises and the high standard of services offered. All this allows the region to attract a great number of foreign investment projects and to turn Wroc³aw—as its advertising slogan says—into a city of meetings. For warehouse developers, growing demand for distribution centers in the region, combined with the still relatively low market saturation and the local authorities’ flexibility, mean that Wroc³aw offers excellent conditions for investing. This is precisely why last year Wroc³aw, next to Warsaw, was the most rapidly developing location for warehouse facilities.

For ProLogis, Wroc³aw is a special market. We were one of the first developers of modern warehouse space to invest in the city. Our company’s first warehouse was built in Kobierzyce (Bielany Wroc³awskie) in 2005. You could say that our logistics parks developed parallel to the market’s development. Today we are the leading developer in the Lower Silesia region—ProLogis distribution centers offer 75 percent of the warehouse space available in Wroc³aw and its environs.
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