The elixir of youth

Many of the office blocks built in Poland at the beginning of the capitalist era are not quite vintage and certainly couldn’t be regarded as monuments. As the years go by, their standard can fall considerably short of what’s offered today by modern office projects. This can also even be the case for younger buildings, give the transformation that has occurred over the last twenty years or so: the tech, the standards, working patterns and what people actually like. Indeed, the whole concept of office space has undergone a revolution. The time for some extensive modernisation work on many of these buildings is long overdue, but at the moment the scale of such activity is still not significant. “When compared to the US or Western Europe, Poland is still a relatively young market. There the average age of a building is from 30 to 50 years, while in Poland it is around the 13-year mark,” points out Rajmund Węgrzynek, the managing director of Tétris in Poland and the CEE region.

Dawid Wątorski, a senior leasing manager at CA Immo, concurs with this picture of Poland. “For our Western neighbours, the market grew at its fastest rate in the 90s, but in Warsaw the market didn’t pick up speed until after 2000. This, however, doesn’t mean that as technology develops and expectations evolve we don’t have to make sure that properties keep up with modernity as the years fly by. There is a range of factors that are prompting owners to make changes, starting with the environmental and economic issues,” he explains.

When you can’t build – modernise

While the pandemic clearly slowed down development activity, the reduced supply of office buildings is also due to there being a smaller number of plots available in attractive locations. Increased construction costs are also playing their part. “These factors have all combined to increase the interest in modernisation work, both among owners and property managers as well as the tenants themselves” points out Dawid Węgrzynek.

Anna Patrzyk-Sperzyńska, an associate director at Knight Frank, has a similar view of the situation. “We are increasingly hearing about more office building modernisations taking place. This trend is growing, as it offers fresh opportunities for the owners of existing older buildings. Until recently, it was generally modernisation projects in Warsaw that we were hearing about. Now this is also happening in the largest regional cities,” she says, pointing to the modernisation of Centrum Orląt in Wrocław, which is owned by Quartum Adventum International, as an example.

Decisive action

But sometimes such a course of action is in fact necessary. “The main reasons for a modernisation project are the lack of interest from potential tenants, resulting in the number of occupants falling off, as well as users frequently reporting technical problems, while these also result in increased operating costs for the property,” notes Anna Patrzyk-Sperzyńska. “Trends change, new technology emerges, and each year new office space comes onto the market. Moreover, tenants are becoming increasingly aware of the solutions offered in modern office buildings, including ESG policies,” she argues.

Of course, how extensive the modernisation needs to be depends on the specific situation. And the financial outlay has to correlate to the expected benefits. “It’s not common for a building to require total modernisation. At CA Immo we analyse the kinds of changes that are going to be worthwhile, both in terms of the cost and for the environment. Every rebuild is not only an expense but also a question of managing waste and reducing CO2 emissions during the work,” adds Dawid Wątorski.

Older buildings are sometimes repurposed or even knocked down, but this is more the exception rather than the rule. “Demolition isn’t that simple. For it to be profitable, a building has to have lost a lot of its value; either that, or it’s possible to construct a much bigger building in its place. On principle, we don’t like knocking down buildings and much prefer to give them a second life. Behind every single one of them there is an architectural idea, something of value. And ESG also comes into play here. A refurbishment does less harm to the environment than constructing a new building,” emphasises Witold Zatoński, the managing partner of Syrena Real Estate.

Keeping up appearances

Any decision to modernise and by how much stems from different needs. “The main reasons why a building modernisation might be necessary are firstly the need to raise the current standard of the building and for it comply with current regulations, or because a change in the use of the building is necessary, and the space needs to be adapted to a future tenant’s requirements,” explains Rafał Latoszek, the managing director for leasing and property management at Polski Holding Nieruchomości (PHN). He also points out that modernisations are not just limited to adjusting the building’s technical specifications, while changes to its appearance might go further than just the reception and other communal areas. “Aesthetic changes to modernised buildings also play an important part. For buildings that are landmarks of their cities, it’s important that any changes to their external appearance fit in with the surrounding area,” he insists.

One property that has undergone such a transformation is the Hop building (formally known as Aktyn) on ul. Chmielna in Warsaw city centre. The project was carried out jointly by Syrena Real Estate and PineBridge Benson Elliott. “Hop was one of Warsaw’s first modern office buildings when it opened in 1994,” relates Witold Zatoński. “The idea was to create something that would offer more than a standard office building. We came to the conclusion that Hop should indeed raise the bar for modern buildings. We focused on the architecture and gave it a new meaning. Hop is a postmodern building, so we focused on its postmodern character and decided that we were going to raise the stakes. Anna Łoskiewicz, who was behind the design of Hop, added many new distinctive architectural elements, while new functions were also added. “An office building has to allow the life within it to flow freely, and so it now has a coworking area and a lounge as well as additional conference rooms and locker rooms for cyclists. For all this, 600 sqm was provided, reducing the building’s leasable area by about 5 pct, but in doing so we also increased its value,” reveals Witold Zatoński. On the completion of the modernisation project, Hop was awarded a BREEAM certificate with a rating of ‘Excellent’.

At first glance the changes are obvious that have been made to Centrum Orląt due to its refurbishment by Tétris. Not only have improvements been made the interiors, but also to the façade. “Centrum Orląt is an office building in the centre of the city. The surrounding area has changed a great deal over recent years. The city has invested in many interesting modernisation projects and as a result the building no longer fitted in so snugly with its surroundings. What was needed, therefore, was an upgrade to the building’s image and design,” explains Tomasz Spalik, the business development director at Tétris. As well as enhancements to its external appearance, including the addition of three terraces, the roof and interior of the building has also been renovated, while all the internal installations have been replaced. “The main idea behind the entire process was to improve the comfort and security of the user,” he adds.

Changing perceptions

One of the most recognisable office buildings in Warsaw is Saski Crescent, which came into use in 2003. Its owner, CA Immo, is planning its comprehensive renovation, but unlike our previous examples, the fruits of all this work won’t be visible on its façade. “Above all, the refurbishment will involve improving the thermal comfort of the user, through the introduction of energy efficient lighting and higher quality ventilation,” explains Dawid Wątorski. “In addition to that, we will be introducing new functions and a new look for the common areas of the building. Saski Crescent is to be BREEAM and Well Core & Shell certified. We also want to obtain a SmartScore certificate for it. So you could say that all the work we are planning is not so much to modernise buildings, but to create a totally new product for the market,” he claims.

The mention of products also brings us to the marketing of these buildings. “You definitely need to rebrand a building after its modernisation,” insists Anna Patrzyk-Sperzyńska. “It’s worthwhile getting the marketing department involved from the very beginning, as when they work with the architect, the project manager and the department responsible for recommercialising the space they can come up with a strategy for relaunching the building onto the market. The next goal is to alter the perception of the building, since up to this point it is likely to have lost its lustre and is seen as unattractive by potential tenants. A successful rebranding results in a more effective recommercialisation and at the same time an increased value for the property,” she explains.

Restoring that competitive edge

Jacek Korwin-Małaszyński, a board member of APP-Projekt, also sees the potential in modernised buildings when attractive plots become thin on the ground, particularly in city centres. “The modernisation of older office buildings is a response to the intense competition in the present real estate sector. There’s a clear growing need for modern office buildings that fulfil the criteria laid out in the latest environmental regulations as well as those related to technical specifications and changing Polish and EU legal requirements. A modernised office building that stands out due to having an excellent location and well-developed infrastructure around it will certainly have an advantage,” he says.

Tenants like successful modernisation projects and their value is also appreciated by investors, both those who want to sell and those who are looking to buy. “In my opinion, there are many interesting buildings in Warsaw and across Poland that could be modernised. Right now, this is one of the biggest topics in our business and we are working on further projects,” reveals Witold Zatoński of Syrena RE, who with PineBridge Benson Elliott are also preparing to renovate Marynarska Business Park in Warsaw’s Mokotów district. “Most office buildings built before 2015 will require modernisation work due to the latest energy requirements set by the EU. Owners who are planning to sell their buildings or want to maintain the value of their investment in the building cannot be blind to how attractive modernised projects are for the market. Buildings that are not adapted to the new energy requirements will simply not possess the kind of liquidity that they do,” concludes Witold Zatoński.