WBJ Observer sat down with Czarek Jarząbek, founder and CEO at developer Golub GetHouse, to talk about the current situation in the office market in Warsaw and the plans of the company in the sector
By Adam Zdrodowski
WBJ Observer: There are recurrent worries about the large amount of new office space which is now under construction and in the pipeline in Warsaw. Do you agree with those claiming that the market is overloaded?
Czarek Jarząbek: I agree that there are many new office projects in the pipeline, most of which will be delivered in the years 2016-2017. Will the market absorb the space? The leasing activity in Warsaw is still at a high level – a total of approximately 600,000 sqm of space is taken up in the city every year. On the other hand, not all of the planned schemes will be developed – this is a business that requires a lot of capital. As for those developments which will be completed, I think that new, well-designed office investments in good locations will find tenants. It is mostly the owners of the existing buildings that are going to have leasing problems as we are now clearly witnessing a trend of tenants relocating from old office buildings to new ones. This is not only because new buildings tend to be technically better than old buildings, but also because the developers of new buildings are usually able to offer tenants better lease conditions than the owners of existing facilities. Besides, a number of tenants in Warsaw are now going through consolidation processes and need large amounts of office space that can only be found in new projects. Raiffeisen Polbank, which will occupy all of the space available at our Prime Corporate Center scheme, is a good example. Real estate is a cyclical business. I can already see that there are not so many new office schemes in the pipeline, which are scheduled for completion in the years 2018-2019. It usually takes approximately five years to develop a new office investment in Warsaw, from buying the land to delivering the building. With many investors now increasingly cautious about launching new office developments in the city, there are going to be far less new schemes in the pipeline in a few years than there are now.
Many of the office projects in Warsaw that are planned and under-construction are located in the Wola district. Are you not concerned about the leasing prospects for your upcoming Mennica Legacy Tower scheme which will also be located in Wola?
Mennica Legacy Tower will, technically speaking, be located in Wola but the site lies so close to Rondo ONZ that both we and the potential tenants perceive it as part of the downtown, the area around Rondo ONZ. We are definitely talking about a completely different sub-market than that of the Rondo Daszyńskiego area where many of the new office projects are located. Now, taking into consideration the fact that Mennica Legacy Tower is scheduled to be delivered in 2018, there are not many office projects in downtown Warsaw that will present direct competition.
Is Wola going to remain the hot spot on the office map of Warsaw in the coming years?
I think that Wola has already become a very attractive location for office developers and tenants alike and that many of the tenants who are now in Mokotów, where there are many office buildings but insufficient transport infrastructure, will in the future, move to Wola. Those tenants will probably have to pay slightly higher rents than in Mokotów, but in return for this they will get much better infrastructure, a new subway line, several bus and tram lines and easy access to downtown Warsaw. The process has already started and will continue in the near future.
Some experts argue that Wola needs more public investments and the development of the office market there needs to be controlled better in order to avoid the mistakes made in Mokotów…
When it comes to infrastructure, the most fundamental elements – good roads that provide easy access to the downtown and the airport and a new subway line – are already there. The rest will come in due time. As for the worries that too much office space will be concentrated in Wola, I am definitely in favour of providing for other functions there too – I really hope that new residential and retail projects will appear in Wola and that the district will thus remain a lively place after working hours.
Which other locations in Warsaw will be gaining in significance in the coming years?
I believe in locations along the subway lines and in locations close to the Vistula River. I think that the Powiśle and Stara Praga neighbourhoods are currently becoming more and more attractive as office locations. Of course, also the precise downtown of Warsaw will always remain attractive for office developers. I believe in locations with considerable concentration of business activity – it is always easier to
do business when there are many other businesses around you. Which sectors are now driving demand for new office space in Warsaw? The biggest tenants tend to hail from the financial, banking, insurance, IT and consumer goods sectors. Interestingly, major tenants are now signing lease agreements for longer periods of time than before – often these are seven or even ten, rather than five years. This is because tenants today are better informed, have good advisors and have realized that longer deals are not only favourable for developers, but also for them – they give tenants stability and put them in a better negotiating position.
Has the situation with regard to the availability of bank financing changed in any significant way in recent months?
The situation has not changed much of late, but of course it is much better than in the years after the outbreak of the global financial crisis. Banks in Poland today have enough capital to finance real estate projects, but they remain selective as to which projects they want to finance. Like in every other business, developers with good track records and good projects are good partners for banks. Well-designed office schemes in good locations do not have problems with getting bank financing.
What about the investment market in Warsaw – do you still see investor demand for office product in the city?
Yes, definitely. There is a lot of cash in the global markets at the moment, the markets are very liquid. A considerable portion of the available capital has already been allocated in the most developed markets – in the United States and in Western Europe. Now the capital is coming to Poland which is perceived as a stable market that brings good returns. We have seen a number of major transactions in the largest regional cities, but of course Warsaw also remains highly attractive for international investors. We are now putting our own Prime Corporate Center project in Warsaw up for sale, which is scheduled to be completed in February and is now fully leased. We expect to receive the initial bids in the coming days.
When are you going to launch construction on the Mennica Legacy Tower scheme which will be developed in cooperation with Mennica Polska? We want to launch construction at the beginning of next year – we are now in the process of selecting a general contractor for the project. The development will stand out due to the very efficient and flexible space arrangement possibilities for tenants – the typical office floor will comprise 2,000 sqm of gross area and will be characterized by a very low add-on factor. This efficiency and flexibility in arranging space for tenants will translate into less space required by each individual tenant for the same amount of people it employs and therefore will result in direct cost savings on total rent costs. We believe that Mennica Legacy Tower will be both a landmark building from an architectural standpoint, with a full set of amenities, high-end finishes and technological features, but also a highly efficientand flexible building for tenants.
Are you currently planning any other office projects in Warsaw?
We are actively looking for sites for new office projects in Warsaw. Our next scheme will most probably be located either in the central downtown of the city or just east of it, alongside the subway line. We are interested in the development of office projects offering between approximately 10,000 sqm and around
50,000 sqm of leasable space.