Exquisite cocktail

The turbulence on the residential market is gradually dying down. To offset the effects of the falling demand, developers are diversifying projects, adding more functions,
 and sometimes entirely changing their plans by taking on office projects

“Homes or offices? It depends on the boom cycle” and “Location is the most important factor determining the character of an investment – the current market situation is virtually irrelevant” – two opinions, two points of view expressed by real estate experts. No matter who you believe, one thing is indisputable – developers who had previously fought tooth-and-nail over plots, are now wondering what to do with them. In the opinion of Kazimierz Kirejczyk, board president of Reas Konsulting: “Some had assumed that the upward movement of prices would last 2 to 3 more years at least and they would be able to develop more flats. The magic PUM did not figure in the established conditions for developing a site. But customers don’t purchase PUMs. They want homes, comfortable homes in pleasant buildings. Would anyone prefer to pay over the odds if there was a choice?”

Office shield on Czerniakowska

It is late November 2006. The place is a stuffy hall and an even more stuffy corridor in the city real estate department filled a large group of excited investors. The result was a final price of PLN 371 mln. The location was in Mokotów on ul. Chełmska, the size was 51,000 sqm and the new owner – Sando Immobiliaria. Paweł Putkowski, a board member of the company, declared in this publication almost one year ago that he would develop more than a thousand apartments there together with services and retail. Such an investment was allowed in the conditions set by Warsaw city council. His intentions are: “To develop a complex of four class B+ office buildings of around 40,000 sqm leasable space on the land of the former bus depot. They will be built in stages. There will also be a shopping and services mall with an area of around 4,000 sqm on the corners of ul. Chełmska and ul. Czerniakowska, as well as 800 apartments. A unique synergy effect could be sensed here.” But does this mean that the hot Spanish blood has now been tempered by the emerging situation on Warsaw’s housing market, which is now discouraging for the average man-in-the-street who is looking to invest in a home for himself? Paweł Putkowski of Sando Imobiliaria, who hopes his application for a permit to construct the first stage of his housing development and one office building will be granted in the second quarter of 2008, remarks that: “I cannot confirm that the principal motivation behind our plans is the state of the housing market. But we are not pulling out of housing construction. Our architectural studio JEMS Architekci and the CB Richard Ellis consultancy had to draw up an optimal concept for that location and decided office buildings of around 40,000 sqm in size should be developed on the side of ul. Czerniakowska. This is a highly visible location – a fact of some significance to tenants. These will, additionally, form a sound insulating barrier for the residential projects, which, in turn, will be the back-up facility for the office workers. Some of these will have a short five minutes walk to work.”

Łódź amendments

Mieczysław Godzisz, the board president of Hines Polska, replying to a question on the reason for the change in designation of a plot on ul. Sterlinga in Łódź bought last year, stated: “Are office buildings more attractive to me? No, we have surely never looked at any project with that in mind. We always examine the market situation and wonder which stage of the boom the market is currently going through.”

Hines has built a reputation in Warsaw mainly due to its prestigious Metropolitan office building on Warsaw’s pl. Piłsudskiego, although the most recent projects are for housing: Impresja Apartments in Warsaw’s Miasteczko Wilanów, Quattro Towers in Gdańsk and the 160 metre tall tower building on ul. Twarda in Warsaw. The Łódź site, which measures 3,600 sqm, fell into the developer’s hands in April 2007. The previous owner, probably enthralled by the housing market boom, had applied for a licence to develop a residential building. The new owner, however, decided to stake all its money on offices (around 10,000 sqm).

In Mieczysław Godzisz view: “The current and pipeline supply of flats in Łódź is fairly promising – this is the first thing to think about. But, secondly, you must bear in mind that only one way is possible for the property market to grow– the office sector has first to expand, and is only then followed by white collar workers – with steadily increasing incomes – attempting to improve their living standards and investing in apartments.”

Developers believe in the potential of the office market in the former textile capital of Poland, although they do not want to openly reject the notion of developing homes on that particular market.

According to Wojciech Rumian, Hines Polska’s project director: “The amount of modern office space in Łódź only comes to around several dozens sqm. Many companies rent offices in buildings dating back to the 1970s and 1980s. When they leave, only the husks of offices will remain, which means the competition will be poor and the requirements huge.”

Anyone can build
an office

Paweł Putkowski of Sando Inmobiliaria states: “I am not afraid of challenges. We have to learn, employ the proper personnel – but anything is possible. That apart, we use an outsourcing consultancy company which helps us in commercializing properties apart from planning issues”. This company has one housing project in its present portfolio (Sansara in Bemowo, Warsaw), with others in the pipeline (in Wilanów and on ul. Woronicza), although there are no office buildings. The mother-company of Sando’s Polish branch also has yet to get any substantial commercial developments under its belt.

Hotchpotch forbidden

Experts from the Reas and Jones Lang LaSalle consultancies stress that investors are increasingly attempting to combine a variety of functions in one building or complex – although this is nothing new. One might mention the Warsaw property at ul. Bukowińska 22 – the Dom na Skarpie house, and also where Reas has its head office. Kazimierz Kirejczyk of Reas points out: “This is often the effect of trying to optimize the time for realizing and commercializing an investment. It is a highly risky venture for one developer to put several tens of thousands of square metres of office or residential space on the market at the same time. On the other hand, dividing a development into phases is also often disadvantageous, as no-one likes to live and work on a building site. In the case of high-rise buildings, such phasing is wholly impossible. To minimize risk and maintain a high rate of commercialization, functions should be blended in appropriate proportions.” Anna Kot, director of the office department at JLL, adds that a clear separation of two functions must be ensured, e.g. separate entrances, a professionally organized visitor reception for the business section and separate car parking.

The trend to combine functions in one building picked up momentum as foreign companies became increasingly active in Poland, and which had been trying for years in their home countries to create a cohesive urban fabric, as opposed to dormitories only lived in in the evening, or business centres which fall asleep after 6 pm with the putting out of the lights in the last office.

The head of Reas sums up the situation: “It is also important that city politics are changing. The authorities are increasingly often enforcing a combination of functions, in order to prevent the emergence of a functional monoculture.”

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Ewa Andrzejewska