Mind over matters

Your team is responsible for the asset management of the Gdański Business Center office complex in Warsaw as well as 17 warehouse developments. How has the approach of your tenants changed over recent years?

Julia Racewicz, the head of asset management, office and logistics at Savills Investment Management Poland: In both the office and the warehouse sectors, tenants have become much less likely to change location. This is most evident in the office market. In 2022, renegotiations made up 34 pct of all leases – but last year the proportion was 40 pct. From our point of view, this is a healthy trend because lease renegotiations with tenants have become much easier. Among our warehouse tenants, light manufacturing firms stand out, as they are choosing to stay with us for longer and signing leases for five or seven years. What’s important for them is the location and standard of their buildings, whereas the rental costs have become a secondary consideration. It’s this group that are also asking us more often about options to expand. This is a rapidly growing group of tenants and is becoming more important to us, but they are still relatively small, representing around 20 pct of all our tenants. Similar to our logistics tenants, they are more likely to ask for lease extensions, but only for periods of two to three years.

How soon in advance do your tenants normally come to you to discuss extending their leases?

The period has been widening and can now even be 18 to 24 months prior to the expiry of their existing contracts. We are currently negotiating extensions for contracts that end in 2026. However, such discussions have become much more drawn out over the last two years. They used to only take from six to nine months. But what’s now important to tenants is to secure tried and tested locations. We are also seeing a greater willingness to accept higher rents. I would say that we are entering a period of more mature growth for the Polish real estate market as it stabilises. Warehousing is still set to grow as a sector and it’s also seeing the most interest from investors. Poland is becoming a strong player in this regard. It has the fifth largest warehousing market in Europe and at the same time has the largest volume of the most modern warehouse stock.

And what about office tenants? How have their attitudes changed?

One trend that we have been seeing on the office market is that of smaller space being leased. Of course, this doesn’t mean that all the tenants of class A office buildings are reducing their office space, but the fact remains that space that is being vacated in this way has become a challenge for the owner. These gaps are normally filled by tenants who move in from buildings that are clearly of a lower standard in terms of technology or location. It’s also clear to see that firms are investing in the quality of their offices – and I believe this trend will continue. In Warsaw, the current average lease size is around 700 sqm, which is considerably smaller than in previous years. I also believe that at some point the market will become saturated by hybrid-style leases and soon come to the point where the average lease size will again rise above 700 sqm.

It’s often said that ESG plays a vital role in maintaining a property’s value. How is this seen in Savills IM’s portfolio?

When we consider this question, we always ask ourselves two things: What impact do the buildings we manage have on the environment? And how can we measure this? Without collating the initial data, we can’t plan any further effective action. We took the decision to pre-certify all of our buildings, including those that already have environmental certification, and our aim is to achieve a rating of BREEAM ‘Excellent’ across our entire office portfolio and most of our warehouses. We’re also preparing a report on our carbon emissions and our decarbonisation, while working with our tenants to support them in applying guidelines and achieving our goals. And we’ve been organising webinars along with traditional training programmes. Last year, we were able to reduce the energy usage of our offices by 10 pct. Other options are also being looked into, while we are also checking our internal algorithms to see if they can tell us how to further improve the installations in our buildings. We also try to encourage best practices by, for example, publicising our work with Arup, which was extremely conscious of environmental issues for the arrangement of its offices in Gdański Business Center.

Do you have your own special way of maintaining the balance between your working and your personal life?

I spend at least three days a week in the office and I love coming here and meeting people while soaking in the surrounding greenery. The commute might sometimes take me an entire hour, but during that time I have the radio on and can be alone with my own thoughts. Managing such a large portfolio is a huge challenge that requires flexibility and an ability to cope with stress. Mindfulness meditation techniques have helped me significantly with this task and, above all, to maintain the balance between my work and personal life. Breathing meditation helps me concentrate in tense meetings, while taking a conscious break from work helps me recharge my batteries and return to my responsibilities with new energy. As a result, I’m more present and engaged in what I do and this in turn results in better work and more satisfaction.

Interview: Magda Rachwald