Good times are back: Colliers
Companies will also begin moving back to the Central Business District (CBD) following a period of exodus, according to new research by consultants Colliers International, which was presented to journalists at the firm's Polish headquarters on October 12.
The findings, which the company claims came as a surprise even to itself, may cause some eyebrows to be raised in the capital's office market. The CBD has been plagued by high vacancy rates (they currently stand at 18.47 percent) for such a long time now that it must be difficult to envisage that they might be whittled down to anything but a nightmare for landlords. A good many of the significant leases of late have also occurred outside the city center, with companies such as the insurance giant Commercial Union moving out to take up space on the city fringes.
At the heart of the sea-change is GDP growth in Poland which is set to be 6 percent per annum in 2005-6. "Wherever you are in the world," said Hadley Dean, head of Colliers International in Poland, "there's a direct relation between real estate activity and GDP, though there's usually a time lag. What is of particular interest is that if you have 6 percent GDP across the whole country, what will Warsaw generate? My guess is that it's something like 15-20 percent, if not higher. So isn't it realistic to assume that take up and demand will increase by that amount as well? You can probably pick some holes in it but I think there's a fairly direct comparison to be made."
The total office stock in the capital currently amounts to 2.83 million square meters of which 253,652 square meters, 12.76 percent, is vacant. In non-central areas, however, that figure is only a third of the total, 97,708 square meters, (8.87 percent). "The city fringe locations and the suburban markets have done extremely well," said Dean. "Tenants have said: "We don't need to be in the city center where rents and service charges are higher and so many employees live in the south [in the low vacancy Mokotów district, for example] anyway." The CBD, on the other hand, has been a bit of a desert."
A closer look at the individual districts in the outer-lying districts suggests a more complicated scenario, however. Whereas in Mokotów the vacancy rate stands at 5 percent, in Ochota it's close to the CBD level at 17 percent, because of the recent arrival of Blue City (which brought with it 1,200 square meters of new office space) to the area. "A couple of big deals can take vacancy rates down," said Dean. "The market is a lot thinner than most think."
Colliers' research reveals that though they remain high, vacancy rates in the CBD are on the way down and that market activity in this district is set to be the highest of any in the city this year. In Warsaw generally, moreover, more deals have already been done in 2004 than for the whole of 2003 and Colliers' forecast is that 300,000 square meters will have been leased by the end of the year. And they are not just renegotiations: "65 percent were new transactions, new facilities," said Dean. "Tenants are expanding."
Though the arrival of Rondo 1 and Złote Tarasy in the CBD in 2005/6 will add to the vacant office space in the CBD, it will only amount to 200,000 square meters and will not be enough to absorb the market activity that is about to intensify in the capital over the next two years, insisted Dean. "What we have now is a classic swing of supply and demand."
Colliers' prediction for 2005 is that it will match this year's take up. The research department, headed by Karolina Fras, is reluctant to add another 15 or so percent, because, said Dean, "there were some seriously big deals in the market this year which will probably not be in the market next. We do think that market activity is going to increase but we've factored in the big deals in 2004 in our forecasts for 2005." What it will mean, however, is a plunge in vacancy rates across the city which could fall to as low as 8 percent. "What we're seeing in the CBD," said Dean, "is that vacancy rates will dip in the first, second and third quarters and then go up sharply when Złote Tarasy and Rondo 1 arrive."
Next year, said Dean "we're going to see tenants moving back into the CBD, because effectively the prices for a class A building are the same as they are in Mokotów; you can get e12 per square meter if you're a big tenant in the city center."
Despite the obvious thoroughness of Colliers' research, other players on the market with their ears close to the ground aren't so certain that its fortunes have taken a turn for the better just yet. "I think you need to very careful," says Maciej Golębiowski of CB Richard Ellis. "Vacancy is still very high and I don't think it's going to be decided whether it's a landlord or tenants' market [in the next year]. Maybe there'll be fewer concessions given to tenants but I wouldn't predict any clear change in the market."
Golębiowski maintains that there simply isn't the demand at the moment to fuel a revival in activity. "I think it's quite stable," he says. "Companies are beginning to employ more people but they've been downsizing for the last few years, so the net absorption effect is not really that impressive just yet." He points to the new trend among western firms to outsource some of their back office operations to Poland but this will have little or no impact on the Warsaw market as these tend to be established in the cheaper regions of the country. "In general people tend to move from A to B and basically reduce space at the same time," says Golębiowski. "Some companies are growing such as telecommunications and consultancy firms but others, like banks, are reducing their staff."
Pierre Couderq of Couderq Binswanger Poland, however, believes that boom time has already returned to Warsaw. "It's obvious that companies are starting to grow again and at a faster rate than 10 percent a year. It is very rare that I talk to clients who are downsizing. If vacancy then goes down to 10 percent, what will the situation be in two years' time?"
Rather than preoccupy himself with current vacancy rates, Couderq prefers to underline the fact that supply is arriving to the market at a chronically slow pace. "Since the late 1990s the amount of new commercial stock delivered to the market has fallen 70 percent. When I learnt about this figure, I couldn't believe it," he says. "The only new projects are Rondo 1 and Złote Tarasy. It's going to be very tough for some people who'll have the choice between nothing and, say, e30 per square meter in the not-too-distant future."
The findings, which the company claims came as a surprise even to itself, may cause some eyebrows to be raised in the capital's office market. The CBD has been plagued by high vacancy rates (they currently stand at 18.47 percent) for such a long time now that it must be difficult to envisage that they might be whittled down to anything but a nightmare for landlords. A good many of the significant leases of late have also occurred outside the city center, with companies such as the insurance giant Commercial Union moving out to take up space on the city fringes.
At the heart of the sea-change is GDP growth in Poland which is set to be 6 percent per annum in 2005-6. "Wherever you are in the world," said Hadley Dean, head of Colliers International in Poland, "there's a direct relation between real estate activity and GDP, though there's usually a time lag. What is of particular interest is that if you have 6 percent GDP across the whole country, what will Warsaw generate? My guess is that it's something like 15-20 percent, if not higher. So isn't it realistic to assume that take up and demand will increase by that amount as well? You can probably pick some holes in it but I think there's a fairly direct comparison to be made."
The total office stock in the capital currently amounts to 2.83 million square meters of which 253,652 square meters, 12.76 percent, is vacant. In non-central areas, however, that figure is only a third of the total, 97,708 square meters, (8.87 percent). "The city fringe locations and the suburban markets have done extremely well," said Dean. "Tenants have said: "We don't need to be in the city center where rents and service charges are higher and so many employees live in the south [in the low vacancy Mokotów district, for example] anyway." The CBD, on the other hand, has been a bit of a desert."
A closer look at the individual districts in the outer-lying districts suggests a more complicated scenario, however. Whereas in Mokotów the vacancy rate stands at 5 percent, in Ochota it's close to the CBD level at 17 percent, because of the recent arrival of Blue City (which brought with it 1,200 square meters of new office space) to the area. "A couple of big deals can take vacancy rates down," said Dean. "The market is a lot thinner than most think."
Colliers' research reveals that though they remain high, vacancy rates in the CBD are on the way down and that market activity in this district is set to be the highest of any in the city this year. In Warsaw generally, moreover, more deals have already been done in 2004 than for the whole of 2003 and Colliers' forecast is that 300,000 square meters will have been leased by the end of the year. And they are not just renegotiations: "65 percent were new transactions, new facilities," said Dean. "Tenants are expanding."
Though the arrival of Rondo 1 and Złote Tarasy in the CBD in 2005/6 will add to the vacant office space in the CBD, it will only amount to 200,000 square meters and will not be enough to absorb the market activity that is about to intensify in the capital over the next two years, insisted Dean. "What we have now is a classic swing of supply and demand."
Colliers' prediction for 2005 is that it will match this year's take up. The research department, headed by Karolina Fras, is reluctant to add another 15 or so percent, because, said Dean, "there were some seriously big deals in the market this year which will probably not be in the market next. We do think that market activity is going to increase but we've factored in the big deals in 2004 in our forecasts for 2005." What it will mean, however, is a plunge in vacancy rates across the city which could fall to as low as 8 percent. "What we're seeing in the CBD," said Dean, "is that vacancy rates will dip in the first, second and third quarters and then go up sharply when Złote Tarasy and Rondo 1 arrive."
Next year, said Dean "we're going to see tenants moving back into the CBD, because effectively the prices for a class A building are the same as they are in Mokotów; you can get e12 per square meter if you're a big tenant in the city center."
Despite the obvious thoroughness of Colliers' research, other players on the market with their ears close to the ground aren't so certain that its fortunes have taken a turn for the better just yet. "I think you need to very careful," says Maciej Golębiowski of CB Richard Ellis. "Vacancy is still very high and I don't think it's going to be decided whether it's a landlord or tenants' market [in the next year]. Maybe there'll be fewer concessions given to tenants but I wouldn't predict any clear change in the market."
Golębiowski maintains that there simply isn't the demand at the moment to fuel a revival in activity. "I think it's quite stable," he says. "Companies are beginning to employ more people but they've been downsizing for the last few years, so the net absorption effect is not really that impressive just yet." He points to the new trend among western firms to outsource some of their back office operations to Poland but this will have little or no impact on the Warsaw market as these tend to be established in the cheaper regions of the country. "In general people tend to move from A to B and basically reduce space at the same time," says Golębiowski. "Some companies are growing such as telecommunications and consultancy firms but others, like banks, are reducing their staff."
Pierre Couderq of Couderq Binswanger Poland, however, believes that boom time has already returned to Warsaw. "It's obvious that companies are starting to grow again and at a faster rate than 10 percent a year. It is very rare that I talk to clients who are downsizing. If vacancy then goes down to 10 percent, what will the situation be in two years' time?"
Rather than preoccupy himself with current vacancy rates, Couderq prefers to underline the fact that supply is arriving to the market at a chronically slow pace. "Since the late 1990s the amount of new commercial stock delivered to the market has fallen 70 percent. When I learnt about this figure, I couldn't believe it," he says. "The only new projects are Rondo 1 and Złote Tarasy. It's going to be very tough for some people who'll have the choice between nothing and, say, e30 per square meter in the not-too-distant future."
