Sensitive souls

Eurobuild CEE: Ghelamco has been operating for 23 years. How has the market changed during this time?

Jarosław Zagórski, Ghelamco Poland: The market has grown and matured. Now we have educated developers. Most have graduated from a true school of life over this period. Tenants have also educated themselves... and have grown, which is important. We remember the times when they were setting up in Warsaw with offices with areas of 200 or 300 sqm. So we have a different scale, a completely different level of maturity. The market is definitely more civilised. There are better, more effective projects. However, the most fascinating thing is the fact that the office market, despite the road it has travelled, continues to have great potential. And this mainly applies to Warsaw.

Still, 2014 will not all be sunshine...
Poland was resistant to the slowdown afflicting the global economy for quite a long time. It was the so-called 'green island'. However, a situation where things are bad all around us and we remain fine cannot last forever. This is why it is a challenging time for all developers. We can clearly see even now that tenants' decision-making processes are getting longer. Of course, this doesn't mean that there are no transactions, but the market dynamics are different. Tenants have become more conservative, postponing decisions on changing their locations. Nevertheless, there are negotiations in progress on the market that will result in a number of large transactions this and next year.

Will any of these deals be related to Warsaw Spire?
I assume that they will. Warsaw Spire will be on the market in 2014 and probably 2015. This is a project comprised of three buildings with a combined area of over 100,000 sqm. That's why we do not expect it to be leased out in its entirety by the end of the year. Regardless of whether there is a crisis or not, some companies' leases are coming to an end. And they are facing the dilemma of whether to move out or renegotiate.

What will they do?
I think that an increase in the share of renegotiations in 2013 and 2014 will naturally occur. Some tenants will want to wait for the end of the current slowdown and save on relocation costs.

This is not good news for a project like Warsaw Spire.
An increase in renegotiations does not mean that everyone will decide to stay in their current premises. Some companies will change their offices. An increase in renegotiations is a natural consequence of the current market situation.

Are developers preparing for a rent war?
Rents will certainly not go up.

Everyone knows that, the question is how much they will go down.
I think that rents are at a stable level. I am not worried about decreases. We sign contracts and see what level they take place at. Life adjusts the supply to the demand. All these pipeline projects are not going to spring up like mushrooms after the rain if there is no demand. In addition, a considerable number of them are still just on paper. They are likely to be built at some time, and perhaps one of them will be launched this year. It is the market that will decide about that. Our advantage is the fact that Warsaw Spire is already under construction. We are no longer wondering whether to start a project or keep waiting. This decision has already been made. We have a large tenant. And we are working hard to be able to announce some good news later this year.

So which buildings are the biggest competitors for Warsaw Spire? Existing ones or perhaps those that have been announced...
I would risk saying that Warsaw Spire is the first building of its kind in Warsaw.

Indeed, it is difficult to find a project that will deliver almost 100,000 sqm in one stage.
I was talking about the concept, its functionality and the technologies utilised, that is, everything we can offer to tenants. There has simply never been a project in Warsaw that can offer such a scale and develop an entire quarter of the city in such a consistent way.

What is going to distinguish it from other Warsaw skyscrapers?
I am not a fan of getting involved in an artificially created tower war. Warsaw Spire is first of all not just a tower block. It is a complex of buildings that offers a variety of space. This can be seen by the fact that it can satisfy the needs of a tenant of a typical skyscraper building, but it will also have the characteristics of a low-rise building. We also cater for tenants who feel the need to spend time in a business park-type project. I personally call Warsaw Spire the first business park located in the city centre.

Can this part of the Wola district be considered the centre of Warsaw?
I think so. If not now, then soon. Of course, the underground will greatly influence this. It will radically change this part of the city and how it is perceived. The centre of Warsaw will shift westwards. I do not want to say that Warsaw Spire will speed this process up, but I would very much like it to happen. Thanks to the new underground line the distance from the Daszyńskiego roundabout to the ONZ roundabout will shorten to 1.5 minutes. Provided that all the planned projects see the light of day, the urban fabric will change rapidly. And a real city will be created.

When it comes to Warsaw Spire, Ghelamco has been stressing the importance of public areas. Where does this change in your approach to office projects come from?
We simply identified this as a need. We have always tried to look at buildings through the tenants' eyes. Most of the people who prepare Ghelamco's projects have worked with tenants. I would risk saying that we have the sensitivity of a tenant. We have now observed that the issue of sustainable construction is still rather marginalised and limited to obtaining a certificate in the eyes of some developers - and this limited approach is not what tenants want.

Because they are interested in the lowest possible rents and it would seem that Ghelamco is used to specialising in delivering such buildings?
Money is important. However, tenants' needs have been undergoing changes. They want a holistic approach. A building is supposed to be the environment where you work as well as live - rest and play - and simply to spend time in a pleasant way. Tenants appreciate aspects related to the functionality of a project, to what it can offer. A green certificate is now standard for us. It is of course important, but it is only a fraction of what tenants expect. Even the "greenest" building, if it does not offer an efficient use of space, will not be a success. That is why designing a building always starts and finishes with answering the question of whether what we offer is good for the tenant. Thus in the case of Warsaw Spire we are paying particular attention to the surroundings, the landscape architecture, the communal areas and supplementary functions. This is not only an office project: we are also developing the entire street quarter and creating an urban fabric.

Is architecture important to tenants?
In the current market situation tenants are very cost sensitive. Looking for savings is fashionable. Unfortunately, tenants do not usually pay a lot of attention to the architecture itself. I have yet to come across a tenant who would decide to rent space in a building or reject a project because of its architecture. Tenants look at the architecture at the very end. In the case of Warsaw Spire, we are trying to provide tenants with something more than office space with a certificate.

Something more then. Which would be, exactly?
Apart from all the things that qualify a building for obtaining a certificate, we are trying to introduce a number of innovations. While designing the building we tried to work out how it should look and function in order to match tenants' expectations in a few years' time. A project like this is carried out over a number of years. It takes around four or five years to get from the start of the process to the digging of the first hole. This is followed by more than two years of construction work. The entire process often lasts seven or eight years. When designing the building you need to make predictions about the future. You need to wonder what installations and technologies are going to be needed in the years to come. This is the technical aspect. On the other hand, there is also the holistic approach - and this is not just about the floor layout, the lifts, the entrances or the certificate. These are standard nowadays. That is why when looking into the future it was important for us to think about what would be happening around the building. It is our dream for Warsaw Spire not to be perceived as an ordinary office project, but to be viewed on a larger scale. We want its surroundings not just to be alive during working hours. We envisage public spaces that will encourage people to stay in this place. This is a unique thing. That is why comparing this project to other skyscrapers in Warsaw is, in my opinion, an unjustified mental shortcut. We are creating a city square with an area exceeding 4,000 sqm, which is to be surrounded by bars, restaurants, shops and service outlets. It will be possible to sit down in it, have a glass of good wine and meet friends. We are building a section of the city, not simply a building you exit just to find yourself on the pavement.

There are those who perhaps maliciously claim that due to its scale the project has been prepared in such a way that if there is a failure to rent it out, only the lower buildings will be built and the building of the spire itself will be postponed.
We have not taken such a scenario into account - and this has been the case from the very beginning. Because of its technical aspects the project needs to be built in its entirety. For example, there is the issue of ground water buoyancy. The tower has to be built. There is no other possibility. When it comes to the scale of the project, Ghelamco has always developed several dozen square metres at the same time. We have never had any problems in terms of renting.

The thing is that in the case of the Warsaw Spire the whole area is in one location. It is all or nothing.
Firstly, the good news is that one building has already been fully leased. One of the others, with an area of 20,000 sqm, is not a large project from Ghelamco's point of view. Regarding the tower block itself, I have personally taken part in the process of leasing two such buildings in Warsaw. Because of this we are aware of what the process is like. This is why I am going to repeat this one more time - we do not expect to have leased all the space by the end of 2013.

The entire project should be finished by mid-2015. What will the occupancy level be like then?
I think that 80 pct of the project will be leased.

Will Ghelamco be starting any other projects apart from Warsaw Spire in the near future?
We have not ruled out starting one more office project in the Mokotów district. We want to stick to our our strategy of constructing buildings in a minimum of two locations.

Will the Warsaw Spire be sold, like the company's other projects?
As far as exiting the project is concerned, we are considering a number of options. A sale is being considered. However, we have not ruled out keeping the project in our portfolio. Everything will depend on the level of demand on the investment market. It is hard to say anything for certain about this today. After all, we do not know what will be happening in 2016. If we can't sell it but it is 80 pct leased, I think this will be quite a pleasant problem for us to have.

Flagship project

Warsaw Spire will consist of three buildings with a combined area of 100,000 sqm. The tower block will be 220m in height (49 floors). The two lower buildings will each have 15 storeys. The project is being developed between ul. Grzybowska, ul. Łucka, ul. Towarowa and ul. Wronia. The lower buildings should come into use in 2014, followed by the tower block in 2015. Tenants of the complex already include the Frontex agency, which has leased an area of 14,000 sqm. Investment costs for the project are estimated at around PLN 1 bln.

Years of practice

Jarosław Zagórski has been employed by Ghelamco since 2007. He is responsible for the strategy and development of the commercial property section of the firm. He specialises in the leasing, sales and marketing of office projects. He has been active on the property market for 15 years and used to work for CB Richard Ellis, Healey & Baker Polska (now Cushman & Wakefield) and PricewaterhouseCoopers Nieruchomości (now Knight Frank), specialising in strategies for leasing buildings and tenant representation.