A real estate fairy tale
Alan Colquhoun, managing director of DTZ Zadelhoff Tie Leung's Warsaw office, analyzes the difference between fantasy and reality in the struggling local
property market.
Now that the European Union referendum is out of the way and went better than many expected, I suppose we can all sit back, relax and wait for the tidal wave of inward investment and a return to the boom market of the late 1990s. Imagine - no more awkward questions from head office about targets and budgets, happy landlords who have nothing to blame agents for, more institutional investors than you can shake a stick at, and fantastic bonuses for everyone at the end of 2004.
Then, just as I was entering the showroom to order the red Ferrari, my dream took a different turn. I now found myself sitting at the bar in a brand new Warsaw hotel but could not find anyone to talk to - apparently there were only three guests staying at the hotel, but they were all out looking for new offices. Luckily they had taken Lokale Immobilia from the reception desk so they were armed with at least five pages of vacant space listings. Some new buildings had been completed earlier that year, a number of companies were still offering space for sub-lease and a major telecoms firm apparently didn't need all of their two buildings, so even more space had been dumped on the market.
Just as I thought I heard someone say that the service charges at a well-known landmark office building had come down by $2, I woke up and realized that I had, in fact, fallen asleep in the middle of the 5th Conference on Realty And Predictions (better known locally as the CRAP event).
While reality is definitely not dreamland, I was relieved to find that it isn't a nightmare either - at least not for everyone. Some developers of good quality product were continuing to make sensible deals with good tenants, although the deals were taking longer to bolt down. A few pre-lets were being done off of plan at advantageous locations by developers with proven track records and a quality product to offer. Even the better consultants were keeping their heads above water by providing sound, useful advice to either tenants or landlords and by assisting with renegotiations in cases where no physical move was taking place.
The shed-shifters were noticeably more upbeat, as they were convinced that rents in the warehouse sector had definitely bottomed out and were even showing some signs of recovery in the in-town market, since existing space was leasing up. They also sounded excited by a new wave of larger requirements for regional or national logistics centers, and their eyes lit up at the very mention of places like Stryków, Piotrków Trybunalski, Mszczonów, Sochaczew and Żory. Very strange indeed if you are an office guy.
Meanwhile the glamor girls in retail (and the few lucky guys that work with them) were all buying new gear at H&M, Mango or Peek & Cloppenburg and falling over themselves to entice them all to open even more stores. Contrary to popular belief, the 3rd-Generation Mall isn't the name of the latest Star Trek movie, but is rather the concept that will replace the hypermarket as the dominant retail development in Warsaw. Even a leading retailer has opined to us that "the retail scene in Warsaw will be dominated by about four large schemes such as Galeria Mokotow, Blue City and Arkadia."
Critical mass (isn't that another Star Trek term?) is apparently the way to go, and another theme that was mentioned by many at this year's ICSC (International Council of Shopping Centres) conference in Budapest is that shopping centers must be designed with their local market in mind and cannot simply be "transplanted" from another market. It is therefore ironic that one such scheme, which has the advantage of huge amounts of space, has been completely reconfigured to include all the elements of a modern mall combined with some very local ideas such as a home improvement center, a multi-brand car showroom and Poland's first real family entertainment center that isn't comprised of a cinema or a bowling alley. Yes, Blue City is defying its critics and its success will no doubt surprise many.
Finally, by the time it takes you to read this rambling article 50,398 times, it is highly probable that at least 2 percent of the due diligence work for another investment deal will have been completed - another giant step for the investment market. One of the reasons for the long, drawn-out nature of investment deals is that the investment agents are all so busy showing new investors around the market that they get delayed in writing the due diligence reports. Rumor has it that one agency is thinking of competing with MPT 919 and will move its office near the airport. And that brings us back nicely to the EU referendum. The convergence theorists seem to have won their bet and it seems certain that a mix of healthy demand and post-EU economic convergence will indeed put further downward pressure on property yields. Some reports say that the church was quite influential in the referendum result. Maybe it's time for the real estate industry to get religious.
