The Swedes who came to stay

Tomasz Szpyt, Eurobuild CEE: What is the company’s development strategy for the CEE market for the next few years?

Katarzyna Zawodna, president of Skanska Commercial Development Europe: We are currently carrying out ten projects in four countries in the region, including five in Prague, Nordic Light in Budapest and Green Court in Bucharest. So we are busy with development activities in each of the markets we are present in. In Romania we are set to launch another project in Budapest, while in the Czech Republic we are planning another project in Prague. We want to be active on all our current markets and deliver new buildings on them every year. We have 180,000 sqm of offices under construction. Last year we sold buildings with a total value of EUR 500 mln. We are currently preparing the sales portfolio for our projects for 2016, the volume of which will be similar to last year’s, when we delivered eight new office buildings to our investors in three countries in the CEE region.

Arkadiusz Rudzki, managing director, Skanska Property Poland: Meanwhile, in Poland we are active in six cities: Warsaw, Wrocław, Kraków, Poznań, Łódź and Katowice. We have at least one active project in each of these markets. In Warsaw we are building Atrium 2 on the ONZ roundabout and Generation Park on the Daszyńskiego roundabout. One project worth noting is the Generation Park project, which is to comprise an area of 84,000 sqm and will feature the first skyscraper to be built by Skanska in Poland. In Łódź we are currently building the Nowa Fabryczna project, which is being developed within the New Centre of Łódź. In Poznań we are building Maraton in the inner city centre, alongside ul. Królowej Jadwigi. In Wrocław we are finishing the construction of our Dominikański project, as well as building Green 2Day on ul. Szczytnicka. In Katowice we are constructing the latest stages of the Silesia Business Park complex, and in Kraków we have the Axis office building, which will comprise an office area of 20,000 sqm. All these projects have quickly found large tenants who appreciate the quality and philosophy involved in the construction of our projects. Furthermore, we are preparing more projects in each of these cities. In Warsaw alone we are planning an office area of app. 120,000–130,000 sqm with an average size ranging from 20,000 to 30,000 sqm.

What is the current mood on the office development and investment market in Poland and in other CEE countries?

AR: We closed last year with very good figures – leasing over 73,000 sqm of offices in Poland alone. We also completed our largest portfolio transaction to date – the sale of four buildings in three projects [to a fund managed by Swedish investor Niam, which bought office buildings in Kraków and Katowice for EUR 160 mln – editor’s note] and we sold our first project in Poznań – Malta House. I am optimistic when I look at the current interest in our project from tenants and investors alike. Our strategy involves the construction of projects in the best locations on each market. In my opinion such projects will always be solid successes – regardless of whether they are in Poznań, Łódź, Katowice, Kraków, Wrocław or Warsaw, projects located in city centres or in locations that have excellent public transport links will find tenants quickly. Furthermore, cities such as Kraków or Wrocław, with supply that is getting close to 1 mln sqm, have achieved maturity and this is attracting investors. The figures we had last year could be repeated this year. Furthermore, we are planning to improve on this. We want to use the good economic climate. Tenants are changing their work philosophies, looking for better and better locations and buildings and our projects are a response to their needs.

KZ: The mood is also positive in a broader geographic sense – across our part of Europe, and we hope that the trend will continue. Last year we saw a decline in yields on the main office markets and we expect further compression, even though it will not be as dynamic as over the last 24 months. In Warsaw cap rates are currently below 5.75 pct, in Budapest they amount to 7 pct and are set to decline further, whereas in Bucharest they are 7.5 pct and there is growing interest among investors. We had a very good year and I expect further strong activity from international players. Our region offers very attractive yields compared to the same asset classes in Western Europe, which is why investing here is simply profitable. Hence our belief in the development of  Skanska’s office business in the CEE region.

Is Skanska planning to enter CEE markets it has been absent on until now, as well as other cities in Poland?

KZ: We have the broadest reach among office developers and invest in all the most important office centres. The basic indicator as regards entering a new city is a minimum of 300,000 sqm of available office space on the market with an upward trend and a lot of demand from tenants. Apart from the locations we are present in, we have not identified other markets in the region. In the near future we are planning to strengthen our position and develop more in the Czech Republic, Poland, Romania and Hungary over regular time intervals while delivering more attractive products for tenants and investors on each of those markets.

Is the current political situation in Poland creating favourable conditions for real estate projects, is it having a negative impact – or is it irrelevant?

AR: Our economy is still very strong. Of course, the changes on the political scene have an impact on our image abroad and they can also impact investor sentiment. However, over the longer term they should not have much influence on the assessment of the fundamentals of our economy. When making decisions investors usually take into consideration the economic factors. And we hold all the cards: growing GDP, a declining unemployment rate and a continuing influx of new investors. The weak złoty gives us further encouragement in terms of investing in our country. Which is why we are quite relaxed when assessing the macroeconomic aspects.

KZ: Retail market investors might have a slightly different impression. We operate on the office market and have very good prospects ahead of us. Along with Poland’s strengths, which were mentioned earlier, I would also add its excellent infrastructure, very good human capital and its developed regional markets, where there is a lot happening. This provides investors with a sense of stability and security. Poland also has other assets. If we look at what is happening across the world and in Europe, we can see that we are a very peaceful country. We are considered to be one of the safest areas abroad. One of the factors behind this is the low terrorism risk, which is being taken onboard by more and more investors. This strengthens the attractiveness of our region. New political developments are an unavoidable and ongoing part of every economy in Europe. In Poland we have been experiencing a significant change recently, but the basis of our economy remains stable.

What technological innovations are you planning to introduce to your office buildings?

KZ: Our region is a recipient rather than a generator of innovation, so we have been observing the office trends very closely. We have the privilege of being able to use the experience of our colleagues in Scandinavia, Great Britain and the United States. The so-called ‘inclusive design’ trend can now be seen as part of a broader phenomenon, sustainable development. This is strongly focused on the needs of individual people, including the disabled, and it provides individuals with friendly areas. We put a great deal of emphasis on flexible solutions, which make it possible to quickly rearrange the office area. There are many approaches designed for enhancing team work, such as having one floor in a building as a designated meeting place. So we are moving towards greater flexibility and a higher quality of methods in terms of fit-out work. People are a company’s greatest asset – and it is their requirements that have been growing. They are looking for flexibility and also uniqueness and a personal touch. That’s why there are more and more approaches for increased mobility and helping to integrate professional and private life, for example, the option of ordering a taxi, having a restaurant available, as well as concierge and laundrette services and the ability to walk your child to a nursery school in the same building or nearby. We are moving beyond the frame of projects and trying to start a dialogue with their local communities. People on the street can only experience the the area in front of the first 1.5–2 metres of the elevation of the building. It is important to arrange it adequately, take care of its attractiveness, with benches, paths, green area and cafés. We put a strong emphasis on the urban planning aspect in order to make the area friendly. This is not bird’s-eye-view planning, arranging buildings and the commercial optimisation of space, but thinking holistically and in cooperation with the city and the local community. We focus on integrating the various participants of the life that takes place around the project.

Are local communities interested in cooperating with a developer?

KZ: The initial reaction often involves a degree of distrust, but the more work we put into the dialogue, the more we encourage people, establishing workshops; where there is more trust, as in the case with Superscieżka in Kraków, thanks to the dialogue we have established we have managed to create a project that responds to the needs of the local community. We achieved a similar result in Prague in preparing the area around Corso Court. There is the will and a greater understanding for such initiatives, as well as more involvement. This makes us very happy.

What are the forecasts for the development of the market over the next few quarters, such as the situation in Warsaw vs. other regional cities? Which cities in the CEE region have the greatest potential at present and which cities are losing their attractiveness in terms of investment?

AR: As far as the office market is concerned, last year was a record one in Warsaw as well as regional cities. This year should be equally good and I expect a similar result. Regional cities have strong development dynamics as this is where the business service sector has been evolving strongly. Furthermore, those companies already present in our country are significantly increasing their workforces, which translates directly into greater demand for offices. It is also worth emphasising that Poland is an increasingly attractive place to live for people who come here from abroad to work in service centres. The best products on the investment market should continue to enjoy a lot of interest. At least until the situation changes on the financial market. Investors will continue to look for properties because they are currently the only attractive investment initiative, far better than bonds or bank deposits. I am an optimist as far as this year is concerned.

KZ: I am also an optimist. Budapest had very good figures for 2015, with demand coming to over 0.5 mln sqm of office space. Investors have been active in the Hungarian capital for several years now and they are asking themselves what office buildings are up for sale. Prague had another fantastic year. In 2016 we have the prospect of repeating the 2015 levels or even exceeding them. Wherever the market is growing, the competition intensifies too. This means additional challenges for us, but, as I have already mentioned, I am optimistic. We will be making efforts to develop more space than a year ago and to increase our activity further in subsequent years.

If you had to name the most important challenge lying ahead for the office market, what would it be?

KZ: This is a challenge not only our region but for the whole of Europe. I am talking about the availability of labour. We have some fantastic specialists and talent – and our region is perceived as a know-how hub, but we have to be aware that the cost of labour is bound to grow. In order to be able to attract investors, we have to focus on innovation and offer more and more advanced processes. Another challenge is the construction market and access to specialists for contractors. A shortage of these specialists is starting to arise and employers will certainly have to contend with the growing costs.

AR: We are living in times of easy access to capital for developers. The question is, which direction is the situation going to move in? We should be aware that our business is part of a global eco-system and all our activities have an impact on current and future generations. We know that people feel best among well cared for greenery, with interesting and functional infrastructure for the local residents. This is why we are trying to build projects that are comfortable and, first of all, healthy for people. The minimal energy consumption in our buildings is also an important factor, considering climate change. So the development sector should respond to global needs and have a human face, friendly for workers, the environment and for society.

THE POLISH MD

Arkadiusz Rudzki has long-term experience on the real estate market gained through working with leading financial institutes, advisory firms and private equity funds directly involved in the real estate sector. He joined Skanska Property Poland in 2012 as leasing and asset director and was responsible for creation and realisation of the unit’s strategy in terms of the leasing and management of property in Skanska’s portfolio. During his term, Skanska was the only office developer to look into the expectations of companies from the business services sector and create an office building standard designed for their needs. In total, Skanska Property Poland has leased app. 290,000 sqm of office space in the period between 2012 and 2015. Furthermore, between 2014 and 2015, he also acted as a member of the management team at Skanska Commercial Development Europe, a unit responsible for relations with key clients within the region of Central and Eastern Europe. In January 2016, Arkadiusz was appointed managing director of Skanska Property Poland and is currently responsible for strategic decisions regarding the business of Skanska’s office unit in Poland.

THE PRESIDENT

Katarzyna Zawodna has been employed by Skanska since 2006, when she joined the marketing and leasing department of Skanska Property Poland. She was responsible for the promotion and sale of completed projects as well as introducing green building
standards to the Polish market. In 2010 she was promoted to sustainable development manager and joined the company’s board of directors. A year later, she was appointed regional director of Skanska Property Poland, responsible for establishing the company’s business strategies, project development and the coordination of investment transactions in northern Poland. In March 2014, she was promoted to managing director within the unit. During her term, Skanska strengthened its position as one of the biggest office
developers in Poland and most active companies on regional markets. Furthermore, she has signed sales agreements for seven office buildings worth a total of EUR 344 mln. The biggest transaction was the portfolio sale of four office buildings with a total of 63,000 sqm of office space in Kraków and Katowice. In January 2016, Katarzyna was appointed president of Skanska Commercial Development Europe and is currently responsible for the unit’s strategies and activities in dynamically developing markets in Poland, the Czech Republic, Romania and Hungary. She graduated from The Warsaw School of Economics. In addition, she also holds the title of a LEED Accredited Professional.