Capacity to endure the crisis

There is still room for growth in the Polish office property market, although turmoil on international financial markets will definitely have some impact on developers' and investors' plans in the country. That was the opinion voiced by the participants speaking at the Office Buildings in Poland conference organized by Nowy Adres in Warsaw last week.

Market needs

Although there has been much activity in the office segment in recent months, and as much as 990,000 sqm of new office space is being developed in Poland at the moment, the Polish office market remains characterized by a relatively low level of saturation in comparison to other top European cities.

The total stock of existing office space in Warsaw, for instance, amounts to 2.96 million sqm, giving the city a 68 percent stake in the overall Polish office property market, said Bartosz Mierzwiak, associate director in Jones Lang LaSalle's office agency department. He pointed out that Amsterdam has more than seven million sqm of office space, despite being much smaller than the Polish capital in terms of both population and area. Mierzwiak described the Warsaw market as lessor-friendly, with high rents and a limited choice of available office space for tenants.

The situation looks similar in Poland's quickly developing secondary cities. Virtually no office space is available in Kraków and vacancy rates in Poznań, Wrocław, Katowice and the Tri-city area stand at one to three percent. As a result, secondary cities are expected to see many new projects in the upcoming years, with approximately 170,000, 75,000, 49,000 and 42,000 sqm of new office space scheduled for completion in 2009 in Kraków, Łódź, Wrocław and Poznań, respectively.

"The majority of large office developers in Warsaw are already working on, or considering, office projects in Poland's secondary cities," said Mierzwiak.

Uncertain future

Could the global financial crisis harm those plans? Experts agreed that some kind of impact would certainly be felt, but said that the exact consequences for the market were hard to predict.

Krzysztof Misiak, a negotiator in the office department at Cushman & Wakefield Polska, pointed out that one of the unknown factors was how the financial crisis would affect banks' and other firms' budgets and employment policies, and, in turn, their demand for office space.

"The office market in Poland is, to a large degree, based upon pre-lease agreements. These, in turn, are based on predictions concerning increases in employment," said Misiak. According to Mierzwak, developers' growing problems with obtaining bank loans could drive rents up, starting in 2010.

According to Jarosław Zagórski, commercial and business development director at Ghelamco Poland, the crisis will slow the real estate industry, but the office market will continue to function anyway. "Unlike at the beginning of the decade, the demand for office space is now mostly generated by tenants who are already present in the market and whose lease agreements will soon expire, and not by foreign companies willing to enter the country," he said.

The crisis may hit some of the smaller and less experienced office developers, Zagórski added, but could, at the same time, prove an opportunity for large players with long-term strategies to purchase plots at attractive prices.