Regional tigers – or kittens?

Polish real estate agents are often embarrassed when a foreigner walks in asking about offices in Poland on streets in Katowice or Wrocław they have never even heard of. These are heady days for the office market in the provinces

Oases of modern office complexes are finally appearing in the cities of Łódź and Katowice – cities which have been treated as office deserts for many years. Although these are mostly planned investments at the moment, the fact remains that things are definitely on the move, if we go by announcements of purchased building sites and cornerstones being laid. The King Sturge agency paints a bright picture of 140,000 sqm of offices under development in Łódź by the end of 2008 (only 110,200 sqm exists at present) and 42,000 sqm in Katowice (159,700 sqm today). The total size of planned investments is app. 170,000 sqm and 300,000 sqm respectively in the two cities.

Tomasz Buras, King Sturge’s office department director, comments that: “Huge interest in office space has been evident for several months in regional cities. Such conurbations as Łódź, TriCity and Katowice are much talked-about – even in such distant countries as India. Investors are arriving here who have an in-depth knowledge of these locations, their economic conditions and even the names of certain streets. Any agent who talks with such a businessman must really have all the facts at his fingertips.”

A foreign investor attracted by lower labour costs and high productivity is the stuff of a developer’s dreams, since several thousand square metres of space can be leased with just one contract. But such transactions often require long months of not always very fruitful effort. It is now unofficial knowledge that the managers of Ghelamco Poland (which has a reputation for the successful commercialization of its investments even before completion) had begun to worry about the future of their Wrocław project, Bema Plaza (23,000 sqm of office space) – the construction of which began in the autumn of 2006, even though this city has been recognised as a powerful magnet for business process outsourcing. Ultimately they did find a customer – Google of the USA.

In the case of Łódź, the former textile centre of Poland, the rising interest in modern office space has another – local – source which is just as important.

In the opinion of Gabriela Nowosielska-Pawlik of the Łódź-based Pawlik Nieruchomości agency: “As I see it, the demand for modern space in Łódź is spread evenly among foreign and local Polish businesses. One or two years ago the proportions differed diametrically, with queries for areas of 500, 1,000 or 2,000 sqm and above being non-existent. But today such a demand is coming from companies wanting to open call or accountancy centres for instance, as well as from rapidly growing local enterprises. Companies are prospering, which means that offices built in the ‘booming Gierek’ period of the 1970s are no longer suitable.”

Queue just gets longer

The quickening pulse of the Łódź market has been noticed by several developers which had put down strong roots in Warsaw. Globe Trade Centre wants to develop 2 office buildings on ul. Kościuszki and ul. Wólczańska (27,000 sqm office space). St. Paul’s Developments Polska was recently granted a building permit for Textorial Park (target: 12,000 sqm), as has Faktoria with Forum 76 Business Centre (7,000 sqm office space). Ghelamco Poland is also battling it out to secure tenants, but remaining tight-lipped about investment details. Mermaid Properties, which is revitalizing the former Próchnik textile works bringing around 35,000 sqm of space on to the market at the CrossPoint complex. Echo Investment also wants to keep its foot firmly in the door, although it has – admittedly – sold two office buildings (Orion and Business Centre), but has now purchased a plot on al. Piłsudskiego, where it plans to develop 3 buildings (nearly 30,000 sqm). This Kielce-based developer clearly believes that Łódź has a bright future.

Gabriela Nowosielska-Pawlik adds that: “The current supply of modern buildings, such as Targowa Office Centre, the Lumiere Centre of Opus Film and Echo Investments’ developments, are far from satisfying all the demand. I am sure that the first completed buildings will have no tenancy problems, since we have had to turn several interested companies away, due to the lack of suitable space or that is available on a specific date. But the situation is clearly changing and we no longer have to send them to Wrocław or Gdańsk. But should all the developers start getting their Łódź projects off the ground and finishing them around 2 to 3 years in the same time, the market may prove unable to absorb all of them.”

What does the Silesian market really need?

Janusz Garstka of the Katowice branch of the Knight Frank agency views his local market with some caution. The company undertook the leasing of Altus (13,200 sqm office space) several years ago and though there is no longer any unoccupied space there, it took a great deal of sweat and tears to fill it all.

Janusz Garstka gave us his blunt opinion on the situation in the city: “No one can forecast how the market is going to behave, since developers who are starting projects today will in a few years be delivering them to the market, when a wholly different situation will exist. I agree that investors are choosing Kraków where there is still available space, but Katowice also has its own indisputable merits to be proud of.”

Tomasz Buras of King Sturge lists Katowice’s strong points. He stresses that it is the largest Polish conurbation (population – 4 million), with a strong supply of well educated, relatively inexpensive workers. A comparison of the supply of modern office space in Silesia to the size of its population reveals that the region has a large growth potential (around 0.45 in Katowice compared with 1.6 in Warsaw). He continues: “Its excellent location between Wrocław and Kraków is another of Katowice’s merits. It takes around half an hour to travel down the motorway to Kraków. So you can live in that charming city and work in Katowice.” He also draws attention to the forecasts of 12 to 18 months ago for the Mokotów district of Warsaw which suggested it would not be able to cope with the huge glut of new office investments. As it later transpired, only a very few developers pulled out of their projects, the majority of which were completed and today experience no major headaches as regards leasing. Similarly strong demand for office space can also now be seen on regional markets.

GTC has put its money on Katowice, where it has two propreties on ul. Francuska (21,000 sqm) and ul. Mikołowska (27,000 sqm), also Echo Investment (planning a business park of around 70,000 sqm at the intersection of ul. Górnośląska and ul. Francuska) and TriGranit (starting work on the third stage of Silesia City Centre – 60,000 sqm). Skanska Property Poland has also snapped up a property on ul. Chorzowska (target space: 30,000 sqm) and Reinhold Polska has taken over the Silesia Atrium office project (around 17,000 sqm) from Metropolis Commercial Properties. A long list of developers -which includes GTC, Echo Investment, ING Real Estate, Verity Development and Clairmont Global – have announced that they are ready to undertake the reconstruction of the city centre according to a concept designed by Tomasz Konior, which includes designs for office buildings, amongst others.

Complaining

about boredom

These companies, which have recruited sizeable teams of employees for these projects and their leasing, cannot afford to take even one moment off work since the personnel might decide to shift to where there is more work and money. One possible way out would be to extend operations to the housing sector while another might be to move outside Warsaw.

Tomasz Buras adds: “Some Warsaw companies are finding it increasingly difficult to generate the profits they expected from a project. It is becoming hard to buy land at a reasonable price, construction costs have shot up, rents have risen – but not to the same extent as the exorbitant prices of some plots. So to ensure workers are fully employed, it is easier to look for opportunities on other markets.”

Land prices are also growing in Łódź and Katowice, so the construction of offices in what was once called ‘B-class Poland’ may prove to be a meaningful solution.