Escaping the capital

Is a capital city representative of the entire country? The answer is clearly no, yet many investors who come to Poland rarely ever manage to escape the environs of Warsaw. When it comes to the office market, the question still remains, what have regional cities in Poland got to offer? By Alex Hayes In 2015, 643,000 sqm of office space was completed in Poland, 366,000 sqm of which was in the top eight regional markets. In the years 2016-2017, modern office stock will continue to grow and “unless external factors, such as the macroeconomic situation, slow this trend, we can expect another record-breaking year on the modern office space market,” said Kamila Wykrota, head of Consulting & Research at Cushman & Wakefield. Take-up increased by as much as 44 percent in these cities, reaching 580,000 sqm. A new record as well. “Global corporations have more and more confidence in the Polish market, and the general outlook for the coming years is more than optimistic,” said Krzysztof Misiak, partner and Regional Cities Director at Cushman & Wakefield. As per usual, business services, HR, IT and financial companies played the biggest role in creating demand for offices in regional markets, accounting for 70 percent of the total take-up, according to Knight Frank. “As a result, despite high developer activity and against earlier forecasts, vacancies remained stable with a slight downward trend,” said Agata Holak, consultant at Knight Frank’s Market Research department. [caption id="attachment_98350" align="alignleft" width="300"] Image: QUATTRO BUSINESS PARK/Buma[/caption] Kraków Kraków currently has 672,000 sqm of class A office stock with 258,700 sqm under construction, 60 percent of which is scheduled for delivery by the end of 2016, according to Colliers International. The city has boasted the lowest vacancy rate for years (around 4 percent). It also features an international airport and the second highest student population in the country. Currently, the BPO sector occupies 52 percent of the office space. One of the developers in the city is Buma. When asked why the company had chosen Kraków for projects such as Quattro Business Park and DOT the company replied, “Kraków has been the permanent base of our company for 25 years. It is here we took our first steps, and contributed to creating standards that match the region’s specific character.” But who wants to set up in a regional city like Kraków? According to Buma, the answer is clear. “Just like in the majority of regional cities, the main sector that leases office space is that of business service companies, such as BPO, SCC, IT, and R&D businesses.” Wrocław In 2015, Wrocław’s office stock increased by 78,000 sqm, which was the highest new supply among all regional cities. Currently, the southern city has some 600,000 sqm of class A office space, but this represents less than half of the total stock. There is currently a further 186,000 sqm under construction, which makes Wrocław the second fastest developing regional city, after Kraków. Thanks to the high volume of leases (112,100 sqm over the course of 2015), the vacancy rate in Wrocław fell to 8.8 percent from 11.1 percent a year earlier, according to Colliers International. According to Arkadiusz Rudzki, the managing director of Skanska Property Poland, “Wrocław has always been important for us. This is illustrated by the fact that we have developed more office projects there than in any other regional market in Poland.” The company’s Green 2Day project should be completed by December 2017 and will offer a total of 17,000 sqm. Again, it’s the business services sector that the company is targeting, which Rudzki described as, “the biggest motor engine for the development of office markets in cities outside Warsaw.” Tri-City [caption id="attachment_98348" align="alignright" width="300"] Image: GREEN 2DAY/ Skanska[/caption] The Tri-City (comprising Gdańsk, Gdynia and Sopot) is the fourth largest agglomeration in Poland with its own international airport. Moreover, despite the poor connections with cities such as Kraków and Wrocław, the infrastructural situation is still improving, with most of the A1 north-south highway already ompleted. Current modern office stock stands at 463,800 sqm, with a further 112,300 sqm currently under construction. The vacancy rate stands at 14.1 percent, as per Colliers data. In 2014 the BPO sector took up 28 percent of the available space.  Torus, one of the local developers active on the market, has chosen to concentrate on the BPO sector. “From the very beginning we targeted BPO/SSC and IT companies as our key customers. We were observing the Kraków and Wrocław office markets and we were absolutely sure that some of the companies present there, as well as new investors, would come to Gdańsk to expand their operations,” Maciej Brożek, head of business development at Torus explained. The company’s flagship Alchemia project in Gdańsk will offer 80,000 sqm, with the final stage to be completed in October 2017. Poznań Poznań is another city that boasts a large student population, and also one that has a good knowledge of the German language. The vacancy rate stands at 16.9 percent with an existing stock of 341,400 sqm and 57,100 sqm under construction. This is another market where Skanska is currently active. “Poznań is listed among the best regional locations for investments in Poland. The city plays a very important role in our strategy. We are already building Maraton, our second office project here, and we are at the procurement stage for the next strategic plots of land for new schemes,” explained Rudzki. Maraton will offer 25,000 sqm and should be completed in November this year. For him, the strength of Poznań as a regional business city is almost self-evident. “Poznań is a city with the lowest unemployment rate in Poland and the highest living standard among the regional cities,” he explained. Katowice Katowice, along with its surrounding cities, is the second largest agglomeration and the third largest academic hub in Poland. It has 298,000 sqm of existing office stock, with 48,000 sqm in the pipeline. The vacancy rate currently stands at 15.4 percent. One of the biggest projects under development in the city is Silesia Star, which is being developed by LC Corp. On completion of its second stage, which is scheduled for the third quarter of the year, the twin buildings will offer over 25,000 sqm of office space. [caption id="attachment_98353" align="alignleft" width="300"] Image: SYMETRIS BUSINESS PARK Echo Investment[/caption] Łódź Łódź is yet another city to boast an international airport. Currently, however, the average low wages and the city’s proximity to Warsaw has resulted in a situation where young workers would often prefer to try their luck in the capital instead. City authorities have been trying to stop the exodus by refurbishing large chunks of the city’s post-industrial red-brick real estate. The vacancy rate in Łódź stands at 8.1 percent with an office stock of 261,800 sqm. At present, 94,300 sqm is under construction. Echo Investment, one of the developers active in the city, is currently developing the 19,000-sqm Symetris Business Park project, which is scheduled for completion in October 2017. “Łódź is beginning to stand out more and more as an interesting place for investors. It doesn’t yet have such a big office market, but relatively speaking, a very large amount of space is under construction. This reflects the positive attitude and belief of investors in this aspiring market,” said Bianka Kuchcińska, a senior associate in the office agency division of Colliers International. Szczecin and Lublin Szczecin is planning to become a major BPO hub, but suffers from poor connections to the capital. It has over 110,000 sqm of modern office stock with a vacancy rate of 10.6 percent. Currently, there is only 7,500 sqm under construction in the northwestern city. Another market that has only recently joined the “100,000+” club is Lublin, in eastern Poland.  In 2015, the city’s office stock increased by a mere 3,000 sqm. However, with 66,200 sqm in the pipeline, the city’s stock of 101,300 sqm will soon increase by over 50 percent. At the end of 2015 the vacancy rate in the city fell to 10.6 percent. The office market across Poland appears to be booming, and the importance of regional cities seems certain to increase. At the end of 2015, the total amount of office space in the nine major Polish markets reached 7.5 million sqm, with regional cities accounting for nearly 40 percent of the entire stock. “The so-called yield gap between Warsaw and regional cities is expected to decrease substantially within the next few years,” explained Kuchcińska. In her opinion the markets that you should be keeping your eye on are Kraków, Wrocław and the Tri-City. u