Glass houses

“From the vast liquid mass he extracts ready-made beams, slabs, wedges, and keystones, moulded, or rather cast, according to an architectonic plan… Glass vents in the ceiling regulate the desired temperature and constantly let in fresh air… Water cools the walls, (the) very same water constantly washes the glass floors, walls, and ceilings, bringing cool and cleanliness.” This is how Seweryn Baryka, a character in Stefan Żeromski’s novel ‘The Coming Spring’, described his vision of houses made of glass. Over the last century in Poland this passage symbolised an unattainable ideal. On the 90th anniversary of the publication of the book and the 25th anniversary of the political transformation of the country, this slightly extended quote seems in some ways to have finally come true. If somebody in 1989 had read that there was an area of 1.2 mln sqm of new offices under construction in some country, they would certainly not have thought that it could be here. France, Germany, the UK… but surely not Poland?

Three, two, one, zero... go!

The early days were not easy. When the first investors started doing business in Poland they could not find a genuine office to rent. “At the beginning of the 1990s, companies leased areas in buildings that had been hastily adapted for commercial purposes. For example, our first office was in a tenement building on ul. Chmielna in Warsaw,” says Richard Aboo, a partner and director of the office department at Cushman & Wakefield. “The firms who wanted to open branches in Poland were not so much looking for office space but premises that could be adapted for such purposes – in tenements, apartments and hotels,” he adds.

They were usually small rooms located on both sides of a long corridor with the boss’s room at the very end, which also served as a guest area. And the rents... well, the sky was the limit. “The 1990s and now are like two completely different eras. Rents were calculated in dollars and reached as much as USD 50–70 per sqm per month,” recollects Tomasz Trzósło, the director of capital markets in Poland at JLL, where he started working in 1997. “The rent levels resulted from the huge demand for offices and the short supply. The first few office buildings were constructed quickly and were not very well thought out. For example, they contained a lot of common areas,” he adds. We needed to wait for experienced players from the West to address the need for modern space. The braver ones soon came over. “Poland was one of the markets we were importing construction materials from,” says Paul Gheysens, the founder and president of Ghelamco Group. “This was the reason I visited Warsaw in the early 90s. In fact, the Polish market did not really exist at the time. There were hardly any developers and general contractors with knowledge and experience on how to construct office buildings.” he explains, “At the same time, there was a growing demand for modern office space, so I started thinking: maybe there is an opportunity for me in this country? I shared this idea with some people and most of the reactions I received were that this was a bad idea, as the market was very risky and unpredictable. So I did what I had to do. I took the risk and after 23 years and over half a million of delivered sqm, I have no doubt that it was one of the best decisions in my life,” insists the founder of Ghelamco, a company which, along with a few other Western firms, has done much to completely change the skylines of a number of Polish cities. “One significant change on the Polish real estate market was the entry of large international developers, such as Golub, Skanska and Ghelamco. They brought with them Western standards of construction and class ‘A’ facilities,” confirms Hadley Dean, the managing partner for Eastern Europe of Colliers International, who has been working in the Polish market for several years. His opinion is echoed by Richard Aboo: “The beginnings of the professional office market can be traced back to 1995–1997, when the first few genuine office buildings started to appear, such as Ilmet, Aktyn, Sienna Center, FIM Tower and the Atrium buildings in Warsaw. The growing demand for effective office space contributed to the construction of business parks – Mokotów Business Park (now Empark) and Ochota Office Park (now Adgar Park West), for instance,” emphasises the director of Cushman & Wakefield.

First shock

The strong acceleration at the turn of the century was followed by a cold shower. Even the prospect of imminent EU accession did not help. “The so-called dot.com boom was underway at the time. There were start-ups that leased 100 sqm with the intention of increasing their space five or even tenfold a few months later. However, the bubble burst at the beginning of the 21st century. Companies’ expansion plans were abandoned virtually overnight and vacancy in the Warsaw office market soared to almost 20 pct,” recalls Richard Aboo. This was also exacerbated by a number of other problems. “Developers had clearly jumped the gun by finishing office buildings in this period, as the increased demand only kicked in after Poland entered the European Union. This oversupply was exacerbated by the economic impact of the 9/11 attacks. The demand for offices in Poland did eventually materialise, but a year or two later than developers had expected,” says Hadley Dean.

Direction: EU

After a false start the Polish real estate market started to thrive under EU membership. The approach to regional cities also changed. Meanwhile, the global property boom finally started to make itself felt in the country. “Until more-or-less 2005, investors had been focused almost exclusively on the capital city. It was only after this date, as the demand for BPO and SSC services increased, that they started to successfully invest in regional cities,” explains Hadley Dean. The Polish real estate market, including the office market, heated up until it was red hot. But we probably all remember how it all came to a screeching halt... in September 2008.

Crisis no. 2? Not necessarily

The madness was over but the market did not collapse. Some companies indeed suffered losses that they could not reverse for a long time (there are even some that still haven’t recovered). However, new opportunities arose. “You could even say that Poland has profited from the crisis. Western companies looking to save money were seeking cheaper locations, which resulted in a huge boost to the development of the BPO and SSC sectors in Poland. Regional cities such as Wrocław, Kraków, and Katowice were among the main beneficiaries of this. It turned out that Poland was a much better place for locating such services than India or other Asian countries,” explains Richard Aboo.

Office 2.0

Apart from their quantitative evolution, Polish offices have also undergone a qualitative transformation. Over the last two decades the design of office space has evolved from closed-off office layouts to the open areas that are currently the standard. “The approach to environmental issues and building certification has also been changing. Not so long ago certificates were considered to be pure marketing. Now sustainable buildings are one of the priorities of both investors and tenants.The certificates are a standard comparable to fitting a car with an airbag. Nobody asks about them much, simply because they must be there. Technological developments will determine future changes. Perhaps the whole idea of working in an office building will have to be redefined,” suggests the expert from Cushman & Wakefield.

There are some serious challenges ahead for the office market. “The situation on the office market currently resembles the one we had in Poland in 2002–2003. A lot of supply and vacancy might be a source of anxiety, but the improving condition of the economy should continue to strengthen the demand for offices. I believe that before this year is out, absorption will have already reached a level greater than many people had been expecting. We could also be seeing, as in the case of the retail market, the repositioning and revitalisation of older office buildings in good locations,” predicts the partner of Colliers International. Whatever the future holds in store for Polish offices, we have managed to develop a stable market over the last 25 years as well as introduce European standards into it. We are the clear leader in our part of the continent and can regard Western countries as equal partners. We have managed to build quite a few houses of glass during this time and the coming spring has actually arrived.