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The Warsaw Voice » Real Estate » November 29, 2012
The Real Estate Voice
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Office Boom Continues
November 29, 2012   
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Despite the economic slowdown, the Polish office market is still experiencing a boom. One million square meters of office space is now under construction across the country.

According to experts from international real estate services firm CBRE, Poland is one of the most dynamically developing markets in Europe when it comes to office space. This is chiefly due to Poland’s good macroeconomic indicators and its ability to attract a growing number of international tenants. Currently, Poland’s nine largest cities offer a total of 6 million square meters of modern office space, of which 160,000 sq m was completed in the first half of 2012. A further 1 million sq m of space is currently under construction and will hit the market in 2013 and 2014.

“Poland has successfully resisted the slowdown we are seeing on many other markets worldwide,” said Daniel Bienias from CBRE’s office department. “At the same time, this slowdown has been working in our favor. Many companies are now looking to cut their expenses and moving their operations to Poland. The number of tenants from the modern business services sector (BPO) as well as research and development (R&D) is rapidly growing. They are eager to invest in large Polish cities, where the costs are lower and it is easy to hire highly skilled workers.”

The growing interest on the part of tenants from the BPO sector is only one of many factors behind the increased demand for office space in Poland. After two decades of economic growth, Warsaw has become a thriving business center with office districts where a large number of both Polish and international companies have their national and regional offices. Polish cities have also benefited from the European soccer championships in June, improving their infrastructure and promoting themselves extensively abroad. This has helped them raise their profile internationally.

Over the past two years, the level of total leasing activity on the office market has rallied and returned to the growth path registered before the crisis. Last year saw a record in terms of leasing activity in almost all of the major cities in Poland, which amounted to 895,000 sq m in the nine largest cities, while in the first half of 2012 leasing activity in Poland reached a strong level of almost 490,000 sq m.

“Given the high number of inquiries both from existing tenants as well as from newcomers, 2012 should also be strong in terms of office space rental,” said Bienias.

More modern space
According to the Warsaw Office Market Profile Q3 2012 report by Jones Lang LaSalle, more than 148,100 sq m of office space was delivered to the Warsaw market in the first three quarters of 2012, with 56,100 sq m of that space coming in Q3 2012. The southeast office district saw two new office completions within Wilanów Office Park, including a building delivered for Asseco and the B3 office block, both totaling approximately 29,500 sq m. The city center saw one new completion: Senator (23,250 sq m) developed by Ghelamco. It is estimated that Q4 2012 will see up to 120,000 sq m of new deliveries in Warsaw, of which 41 percent is pre-leased.

Q3 2012 brought to the market almost 73,400 sq m of new office space in other major Polish cities (Cracow, Wrocław, Tri-City, Katowice, Poznań, ŁódĽ, Szczecin and Lublin). Sixty-eight percent of the new completions were delivered in Cracow (15,100 sq m in Enterprise Park A&B, and 10,000 sq m in Green Office C); Wrocław (Promenady Wrocławskie—Epsilon, 6,000 sq m, and West Business Centre, 2,850 sq m) and Szczecin (Baltic Business Park A—7,000 sq m, and Brama Portowa I—4,000 sq m). Other new major completions were: OPERA Office (7,600 sq m) in the Tri-City and Okr±glak (6,750 sq m) in Poznań. In total, in the first three quarters of 2012, almost 138,000 sq m of space hit the market, marking a 170-percent increase compared with last year.

Currently, 510,000 sq m of office space is under active construction in the major Polish cities not including Warsaw, of which 174,600 sq m is likely to be completed in Q4 2012. Importantly, 40 percent of this space is already pre-leased. The majority of the currently commenced projects can be found in Wrocław, the Tri-City and ŁódĽ.

At the end of Q3 2012, approximately 8.1 percent of the modern office stock in Warsaw remained vacant. In Cracow and ŁódĽ, quarterly vacancy rates remain stable, while a decrease was seen in Lublin. Other major office markets in Poland have recorded an increase in the vacancy level. This growth is attributed to the delivery of new office space, where the commercialization process has not yet been completed.

Building big in Warsaw
That investors are not afraid of the crisis is best evidenced by the number of ongoing and planned office projects in Warsaw. International group HB Reavis, which originated in Slovakia, is a particularly active investor on the Warsaw office market. The company has recently bought land for an investment project in the center of Warsaw for zl.171 million from rail carrier PKP SA. On a plot of 1.7 ha on Chmielna Street, the developer will build a new office complex with a total area of 100,000 sq m. PKP SA and HB Reavis will also redevelop, in a joint project, Warsaw’s Warszawa Zachodnia train station and build an accompanying office center. The modern business center will consist of seven office buildings (six six-floor buildings and one 12-story building) with a total area of 54,000 sq m.

The first development by HB Reavis in Poland was Konstruktorska Business Center, an office complex in Warsaw that was started in 2011. The beginning of 2012 saw the acquisition of a new lot on Inflancka Street in Warsaw’s Muranów neighborhood, where the Gdańsk Business Center office building will be erected with an area of 95,000 sq m. The latest HB Reavis office project will be developed on Postępu Street near Warsaw’s Frederic Chopin Airport. The project is scheduled for completion in 2015.

Near the Chopin International Airport, on Konstruktorska Street in the Mokotów neighborhood, a modern class A office building is being constructed by Echo Investment. The Kompleks Park Rozwoju (Development Park Complex) consists of two buildings with green courtyards and a restaurant in the passage connecting the two buildings. The total office area of the complex is 32,000 sq m. The buildings will have a two-level underground garage and a parking lot above ground with a total of 740 parking spaces.

Park Rozwoju is being built in two stages. The first stage will be completed in the first quarter of 2014. Completion of the second stage of the project is scheduled for the second quarter of 2015. Currently, Echo Investment is preparing to carry out an office project in Warsaw in the city center on Jana Pawła II Ave., where a 155-meter office building with an area of 50,000 sq m has been designed.

In the very center of the city, at the intersection of Towarowa, Łódzka, Wronia and Grzybowska streets, right next to the Hilton Hotel, the Warsaw Spire complex is being built, which is regarded as one of the largest and most modern developments in progress in Europe. The investor behind the project is Belgian company Ghelamco, and the Warsaw Spire is a complex of three buildings: a central 180-meter tower building (220 m high including the spire) and two 55-meter neighboring buildings. In total, the Warsaw Spire complex will offer about 100,000 sq m of office space. Under the buildings there will be a five-level parking garage for 1,200 cars.

Near the Warsaw Spire, in an area bounded by Grzybowska, Karolkowa, Przyokopowa and Hrubieszowska streets, construction began of the largest business complex in the heart of the capital. The Warsaw Business Center (WBC) is the first integrated business center in the heart of Warsaw. A 55-meter Concept Tower will dominate the cityscape, designed in accordance with the principles of “green building.”

The Warsaw Business Centre is a joint initiative by developers active in this area. The aim is to create a “new quality” business center offering, in a coordinated manner, a variety of office space and a wide range of services and facilities—something difficult to get in a standard business center with free-standing office buildings located in one place, usually with no cooperation between competing developers.

The partners behind the WBC project, rather than competing with each other for tenants, aim to offer them an attractive alternative to what is available in other office projects in Warsaw. The WBC, despite its diverse range of office space, will be marketed as an integrated business center—as if it were owned by a single developer.

The center offers tenants integrated services that are not available in other office buildings in the city center, including centralized management of the parking garage, central purchasing of electricity and heat (allowing for 20-30 percent savings in operating costs), central security and access to the parking garage via a system of internal, jointly maintained, streets. The cityscape over the WBC will be dominated by a 55-meter-high glass Concept Tower, with 8,845 sq m of office and commercial space. The investor behind the Concept Tower is the Concept Development group. A.R.

Stable Warehouse Market
Tomasz Kasperowicz, partner, logistics and industrial property department at Colliers International, and Małgorzata Zbróg, senior associate in the department:
The Polish warehouse property market has been stable in recent quarters. Despite the noticeable economic slowdown in Western Europe, the situation in Poland is still relatively good. The sound condition of the Polish warehouse market is due to relatively strong domestic demand and an increased inflow of foreign direct investment to Poland.

The supply of warehouse space in Poland reached around 7.25 million sq m in recent quarters. We think it will be growing quite slowly. However, the main reason is not the weakness of the economy, but the absence of easily accessible funding, which is key to the expansion of any real estate sector, including the warehouse property sector. There are now around 300,000 sq m of modern warehouse space under construction, an overwhelming majority of which has already been leased out.

We can see that the unfavorable economic situation in southern and western Europe has had an unfavorable impact on the process of acquiring modern warehouse space. Prospective tenants, most of whom are Polish subsidiaries of international corporations, display significant caution and conservatism. Their propensity to take the risk associated with relocating has decreased while the negotiation process has become longer. The interplay of demand and supply will lead to a gradual decrease in the vacancy ratio in 2013, which now stands at 11.46 percent, and will contribute to a strengthening in the position of developers. Rents will continue to go up, especially in Cracow and the Upper Silesia region where the vacancy ratios are the lowest, as the pace of growth for new warehouse space will slow and demand will remain stable. 2013 will also see a continued slowdown in speculative projects and the expansion of build-to-suit (BTS) projects tailored to specific tenant needs and secured with long-term lease agreements signed for 10, 15 or even 20 years.

Shopping Streets Attractive
Karina Kreja, a director in the market research and consultancy department at CBRE in Poland:
In 2013, the market for shopping centers will be mainly influenced by growth in competition coupled with a deteriorating economic situation. CBRE expects that developers will take an active interest in shopping streets in the largest cities and new specialist retail formats. We also expect to see a renewed interest in large cities creating geographic and market niches.

Contrary to earlier predictions, the situation on the market for shopping centers is conducive to the development of shopping streets in Warsaw and other large Polish cities. A shortage of new retail space in the centers of many cities where the buying power is strong and demand still high boosts activity in areas which until recently remained stagnant. Another reason behind the development of shopping streets is the difficult access of independent tenants to existing shopping centers combined with the development of restaurants and eateries, and small business.

The growing specialization of retail premises will be another visible trend on the market for modern retail space in the coming years. Until recently, conversions and expansions of existing shopping centers were usually mentioned in this context. However, a more important sign of this trend is the growing number of specialist projects, such as retail parks, factory outlets and entertainment centers.

We are also seeing renewed interest on the part of retail developers in large cities. After the initial phase of their expansion on the Polish market, an expansion concentrated in the largest cities, in 2006-2009 developers began to expand rapidly in small urban centers. Although this expansion is still in progress, its potential is weakening as saturation with retail space in small and medium-sized cities exceeds these markets’ natural demand potential.

The largest cities still offer many untapped opportunities—not so much in the segment of the largest and leading projects, where competition is very strong, as in the area of smaller, local premises called strip malls.
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