Working out after hours
Office & mixed-use development
If not the price, then what?
Why do we run? For pleasure. During physical exertion our brain produces endorphins – happiness hormones. We train to get into better shape and to outrun our rivals in a race. Or perhaps because it is just another fad, so not running simply makes you feel left out? What does sport have in common with the office sector? Happiness hormones do not really have much of a part to play in this market (perhaps only when you are elated after signing a huge lease agreement with a tenant from the sports business), but participation in races against the competition and seeing off your rivals does. According to JLL’s latest Q1 summary of the office market, the vacancy rate in the TriCity has grown to 13.9 pct from the 12.5 pct recorded in the last months of 2013. Thus the fight for tenants continues. Offering the lowest price is the simplest trick. It might be worthwhile trying a more advanced weapon, however. “Due to the current and future large supply of office space, both existing buildings and those under construction are competing fiercely for tenants and trying to attract them through making hard-to-refuse offers. And a wide range of leisure and fitness facilities might just help to make the offer stand out. Such a strategy has been adopted by Torus in its Alchemia project in Gdańsk. More often than not, when transferring their operations to Poland, huge multinational corporations consider not only the price, but also the working environment the building may offer its employees. This is particularly crucial when the building is located in the outskirts with no amenities in the area, such as restaurants, cafés, nurseries or fitness clubs,” explains Karolina Wilczak, a senior negotiator in the tenant representation department at Knight Frank.
No half measures
“Where did we get the idea from? From real life. A few years ago we were considering the development of a large leisure centre, because we had noticed that urban areas lacked these kinds of facilities most. The location turned out to be ideal. One of the first tenants in Alchemia was Aquastacja, which manages the swimming pool complex and the 2,300 sqm sports hall. A company within our group is behind the management of the separate fitness area – including the gym, the functional workout area, the exercise bike room, etc.,” relates Sławomir Gajewski, the president of the board of Torus, the developer of the first stage of the Alchemia complex in Gdańsk. The entire area is complemented by the ‘Fun Climb’ climbing area, which is owned by Polish company Top Zone. The entire leisure and sports centre, which is open to the general public, covers an area of almost 4,600 sqm. As part of the first stage of the project, the eight-floor Aurum tower was completed last January, as well as the shorter Platinum building (six floors), with a four-floor base connecting both buildings. Once completed, the complex added over 16,700 sqm of office space to the office market in the TriCity. “When creating such functions, you should bear in mind that you cannot use half measures. Everything must be of the highest standard, so quite often you have to choose more expensive but also more effective and more economic options. This brings results during the maintenance of a building. A few years ago, when we were developing the Arkon Park hotel and the Arkońska Business Park office complex, we built a small fitness area and two squash courts. We opted for professional sports infrastructure – the squash courts were of the highest quality, made by McWill – and top coaching staff. Although the area of the club is not large, the number of users is significantly high,” insists Sławomir Gajewski. But quality comes with a price tag. When will the developer be able to see some return on the sports centre in Alchemia? The president claims that, owing to the huge interest of clients, the investment in Alchemia has a very reasonable return period and the break-even threshold was achieved after the first quarter of its operating activity.
Subsidising the tenants
Experts say that sports and leisure areas within commercial buildings fall into two types. Tenants can be viewed as ‘ordinary’ ones and pay the market rent, or they can be seen as adding value to the attractiveness of the building and, hence, pay preferential rates. “Unfortunately, fitness clubs in office buildings cannot cope financially if they are charged the standard rent. Moreover, they have to compete with entities that are offered preferential treatment in other locations. For this reason, such potential tenants often start a request for a rent quotation by expressing a wish to be offered preferential rates,” explains Karolina Wilczak. In her opinion, ‘subsidising’ a desired tenant can only be justified for large areas and on condition that the area earmarked for such tenants makes up only a small part of the entire area of the building. How do developers feel about this? “When designing an office project, in particular on a large scale or a multi-stage development, we always plan using the area for different functions, not only as offices, but also as sports clubs. The building should not be a working monoculture,” comments Igor Grabiwoda, the director of the architectural team in the hotel and office department of Echo Investment. Goodwill is one thing, but the business reality is a completely different story. Why are such areas not very common in office buildings? “In my opinion, it is easier and cheaper for the tenant to buy a membership card for a specialist fitness club chain than to invest their own funds, and fitness – even in an office building – is a different enterprise from office activity, it needs to be run professionally,” adds Igor Grabiwoda. What else could discourage tenants from such undertakings? “Fitness clubs require higher quality heating, airing and air conditioning systems, but the operators can only afford low rents,” explains Petra Holy, an associate director at Colliers International Hungary. The president of Torus adds that rents are typically calculated so that the tenant can afford them and the landlord is satisfied. “This is a combination of a minimum rent and the rent on turnover. It is a common situation and the responsibility of both parties,’ says Sławomir Gajewski.
Lifestyle matters
Another thing that sports and office buildings have in common is the fashion for having an active lifestyle. It does not matter if you are the CEO or an assistant, you should do some sport. “Today cycling is not only a sport, but also part of a lifestyle. If we provide infrastructure for bikes, the system works later on. Fitness as part of a business park is also not very demanding. Operating in a building, however, requires much more organisational effort and a project with such facilities may not work from the start,” stresses the representative of Echo Investment, whose office projects have basic sports facilities as standard, especially for cyclists, i.e. bike parking areas, a cloakroom and showers. ‘In the Park Rozwoju project in Warsaw we are providing an outer fitness area located in a park adjacent to the office building, which is being developed at the same time as the office building. Tenants can also provide additional facilities for their employees. This happened with a recently signed agreement with Schneider, also in Park Rozwoju, which planned additional high-security parking facilities with a service station for 70 bikes,” says Igor Grabiwoda.
Funds getting in on the act
“In the process of preparing the design, we received the clear message from consultants and agents that combining a leisure and sports centre with an office building is risky. Once we decided to take this course, we assumed that it would remain in our portfolio. However, it turned out that office buildings today need something more than office space and right now on the market we might seem to be somewhat avant-garde, but in a positive sense. Investment funds are scrutinising regional markets, including the market in the TriCity. We have already received the representatives of a number of funds,” emphasises the president of Torus, according to whom such funds are expressing a lively interest. A similar assumption was made by the head of the Adgar group. “Sport is my passion. I was cycling on a cold and rainy day once and started thinking about how I could cycle here in winter. It occurred to me that I would create the sort of sports zone that had never been done in Poland before but was already familiar in Israel, Canada and the USA. I decided to come up with my own idea, which would make the office complex remain active after working hours,” recollects Eyal Litwin, the CEO of Adgar Poland. The developer, which has Israeli roots, acquired Ochota Office Park in 2013. A few months later plans were announced to transform the complex into Adgar Park West, with a unique sports, leisure and shopping zone designed for fans of an active lifestyle. One of the elements the new owner has focused on is an all-year running track, 900m long, with a polyurethane surface. It is already known that Gravitan Health and Sport Clubs is to open a gym with an area of 1,800 sqm in the building, among the other sports facilities that will be provided. Yet this remains an unusual approach in Central and Eastern Europe. Petra Holy of Colliers International is rather sceptical about the idea. “I don’t think developers will start to focus on offering fitness or sports clubs in their office buildings. We think they will rather provide services, such as car washes, bike stands, showers, canteens and bars, postal services, dry-cleaners, etc. The priority is the development of a green building with an environmental certificate,” she admits. Does this mean that tenants do not need such facilities? Perhaps when following the trend of creating employee-friendly offices and meeting the needs of the younger generation, it is worthwhile investing in these functions. “In some cases it is a demographic question. Generation Y is a young generation and therefore does a lot of sport. The crucial factors also include the corporate culture, the brand and the HR management in a given company that wants to keep its current employees and attract new, talented staff,” says Petra Holy. Office buildings in Budapest that offer sports facilities include Center Point, Madarász Office Park, Óbuda Gate, MOM Park Offices and Bank Center.
Looking for a new experience
The Astra Park office complex in Kielce, a location for firms connected with the main shareholder of Echo Investment, Michal Sołowow, offers a fitness club, a sauna, a cryochamber and physiotherapy. Table tennis and a cloakroom for anyone engaging in sporting activity are also available. “It is, however, an exceptional situation, because it is our own HQ, built for us and by us, and also managed by us. The owner showed a great deal of dedication to providing these facilities, independently of cost of space and equipment,” claims Igor Grabiwoda.
I am sure all these facilities are convenient for the tenants. I love the idea of having breakfast in a ground floor café, dropping your child off in the nursery next door, and in the afternoon leaving the office and working out on a lower floor. But what about the desire to break away from the everyday routine of the same place and the same people…?
