Simply too perfect

The boom in the office market has not lost its impetus since last year, with much being developed and new space selling like hot cakes

In March this year real estate agencies were reporting a record-breaking drop in the vacancy rate Warsaw office buildings to as little as 4 pct. This index may possibly slump to as little as 2 pct in the second half of the year. Those who had earlier suggested that too much office space is being delivered on to the market have been proved quite incorrect. Although a multitude of projects have been started, office space is finding tenants as soon as it becomes available. According to Bartosz Mierzwiak, associate director of the office agency at Jones Lang LaSalle: “Many projects are already being realized but they are almost all rented already or are at the stage of advanced negotiations for the lease of the majority of available space. A company which wants to move into several thousand square metres will encounter problems finding what they need before the end of 2007. Admittedly, the fact that around a dozen office projects are just being finished means the amount of unoccupied space next year should be around 5 and 8 pct, but I would not be so bold as to forecast the kind of situation which existed in 2001-2005 when the position of tenants was decisively stronger than lessors.

There is also scant vacant office space in other large Polish cities. Kraków and Wrocław can claim similar figures (0.6 and 0.5 pct vacant space). The figure is around 3.1 pct in Poznań and the TriCity. Only Łódź differs substantially from the rest with around 8.2 pct.”

Market hits

Warsaw already boasts more than 2.57 mln sqm of office space, spread evenly over the city centre (1.02 mln sqm) and other districts (1.5 mln sqm).

Twelve office buildings with a total space of 139,900 sqm came into use in the first six months of 2007, including such buildings as Lumen developed by ING Real Estate (23,500 sqm) – already one third rented, and IBC II with 19,000 sqm belonging to the Accession Fund, and IO-1, which has increased Mokotów district’s supply by 23,500 sqm. Karimpol of Austria also completed the second stage of its Warsaw Business Technology office complex on al. Jerozolimskie. There is also Passat with 9,500 sqm of office space, while Ghelamco of Belgium has finished the second of its two office buildings in the Mokotów Trinity II Park complex with a total space of 23,500 sqm. Only one building delivered in 2007, measuring 3,000 sqm, was built with its owner’s requirements exclusively in mind. It is Erbud office building.

Bartosz Mierzwiak believes that: “The office market is presently expanding at a huge rate. The national economy is driving events, proved by all published economic indexes. Following access to the European Union, Poland is attracting a rising number of foreign investors who perceive it as a country where business can be safely done. Plans for the development of the city section between Rondo ONZ and the Wola district are arousing some interest, with a plan on the table to build 20- to 30-storey tower buildings there, as so few building sites are available. Companies will be mainly developing tall towers in the best locations to guarantee an appropriate return on their investments.”

The largest amount of office space is being developed in Mokotów district, and this will become particularly evident next year. Ghelamco will be finishing 40,000 sqm on ul. Marynarska. Skanska will finish the development of 24,000 sqm at Marynarska Point, while Segro will be delivering its 18,000 sqm Tulipan building. Other office buildings will also be coming on to the market thanks to Globe Trade Centre and Curtis Development.

TriCity boasts the greatest office space outside the Warsaw conurbation, amounting to more than 205,000 sqm. That figure will increase by 112,000 sqm in the next two years. Allcon Investment is developing the Łużycka Office Park complex in Gdynia while Echo Investment will be implementing a project called Tryton. Kraków is the next on the list (219,000 sqm) with a further 218,000 sqm planned by 2009. The largest increase of office space will, however, be in Wrocław where 370,000 sqm is planned. Ghelamco will be starting projects here (Bema Plaza – 22,000 sqm office space), as will Skanska Property Poland (Grunwaldzka Centre – 24,000 sqm) and Globe Trade Centre (Globis – 14,500 sqm). At present the city has only 136.000 sqm on its books, which is much too little for businesses currently appearing in the city. Newton, with a space of 10,100 sqm, was the largest building opened in this half year outside Warsaw, constructed by Globe Trade Centre in Kraków. This year Wrocław also welcomed Arkady Wrocławskie,where the first tenants have already moved in. Developed by LC Corp, it has an office space of 8,000 sqm. No new buildings have appeared in Łódz.

Things keep getting more expensive

Bartosz Mierzwiak of Jones Lang LaSalle comments positively that: “The price situation in Warsaw seems to be getting normal again. As in most West European cities, the difference in rents between offices in the city centre and outside can reach as much as 100 pct.

The drop in the office space available on the market has led to a rise in rents, with tenants having to pay between EUR 25 and 27 per sqm in the best office buildings in Warsaw city centre, while rents are EUR 15 and 16 outside the centre. Rents stand at EUR 12 to 13 in buildings of a lower standard outside the centre, climbing to EUR 17-19 in the city’s heart. Last year rents reached somewhat more than EUR 20 in the best buildings in the centre. Market analysts expect rents to drop in 2008 and 2009 when the largest increase of office space will be outside central Warsaw.

Slightly lower rents are paid in other Polish cities. In Kraków the rates are similar to those in worse Warsaw, i.e. around EUR 17. In Katowice the rent is EUR 16, while in Poznań and Wrocław it is less than EUR 15. Łódź and the TriCity are among the less expensive cities with asking rents being between EUR 13 and 15.

These rising rents are not terrifying for potential tenants. Market analysts are paying increasingly close attention to bank sector customers. Bank Millennium is one such customer, which has rented 24,000 sqm in the Harmony – Polifonia Office Centre building in Warsaw, which is to be finished in April 2009. This is one the largest transaction on the Polish office market. The contract for 16,400 sqm tenancy space in the IBC 1 building for PricewaterhouseCoopers consultancy company can also be treated as one of the larger transactions. The Canal + medium company has also decided to change its head office and signed a contract for 7,600 sqm with LHI Leasing Polska, which will be the proprietor of the building at Pory St. in Warsaw’s Stegny district. The object will have 14,100 sqm space and is to be commissioned in the first months of 2008.

A billion with more to come

Transactions amounting to more than EUR 1 bln were signed on the Polish market in the first six months of the year. Seven of these were situated outside the capital, the largest Warsaw contract being the sale to ING Real Estate of two office buildings developed by Ghelamco. These were the Prosta Office Centre (20,500 sqm) and the two-building Trinity II office complex. The total value of these transactions amounted to EUR 167 mln. One of the more important deals was the sale of the 20-storey Alpha office building in the Euro Centrum complex by the 8 Star company. The Patron Capita dependent company was the happy purchaser of the building, for which a sum of EUR 60 mln changed hands. DEGI (Deutsche Gesellshaft fur Immobilienfonds) of Germany acquired the Focus Filtrowa (31,600 sqm) Warsaw office building from Sachsenfonds and LHI Leasing Polska. For this acquisition the Fund handed over EUR 122 mln. Atlas Estates among other real estate, purchased the Millennium Plaza, building  by Reform Company, for the sum of EUR 78 mln.

Bartosz Mierzwiak summarizes the prospects thusly: “2008 is going to be an excellent year for developers. Those who are able to complete their projects next year will have nothing to complain about. But those who plan to finish developments in 2009 should give thought to whether earlier deliveries are possible. The market situation will continue to be healthy and stable until mid-2009, but it is difficult to forecast events in the second half-year, with much depending on the national economic situation.”   

Zuzanna Wiak