High-end commercial developers build on clout

Gazing across the jagged Warsaw skyline from the peak of the concrete skeleton of his company's flagship project in Poland, Bogusław Woźniak, the sales and marketing director of U.S. developer Hines in Poland, is certain he's on to a winner. Last week he touted Hines's new Metropolitan development, a 36,000-square-meter office and retail complex, as the most modern and prestigious building in Warsaw. Designed by English architect Norman Foster and a mere five-minute motorcade ride from President Aleksander Kwaśniewski's official residence, the building will see its topping-out ceremony next week. Although the celebration will take place amid a slump in Poland's economic growth and business confidence, Hines is counting on the building's status to draw tenants from the banking, legal and professional services sectors. "When Porsche releases a new model, it doesn't matter what the economic conditions are - there will always be a waiting list," Woźniak said. While some new office buildings on the Warsaw market are facing problems with finding tenants, other developers, such as Hines, are using their clout to secure financing to allow them to offer specifications that would put their building projects in a secure high-end niche. "Ultimately, given the nature of the location and the quality of the product, the (Metropolitan) is likely to perform perfectly well despite almost any market," said Simon Trappes-Lomax, the managing director of U.K. property agency Lambert Smith Hampton.

The optimism behind costly investments like the Metropolitan belies the current state of the Warsaw development market, where high rental prices and declining margins have prompted banks to shy away from financing new construction, putting Western developers with cheap capital on tap ahead of their competitors. "Quite a few projects are still coming through, but most of the access to construction finance was switched off in the past 12-18 months," Trappes-Lomax said. "Therefore, we'll see a lull in supply during the course of next year." With a shortage of finance to complete projects, some other Polish developers, such as Warsaw's PIA Piasecki, suddenly found their cash tied up in land, leaving no money to pay subcontractors, who responded with a bombardment of bankruptcy filings. But capital-intensive developments like the Metropolitan are not the only recipe for success on the Warsaw market. Belgian developer Ghelamco adheres to a formula of moderate-sized buildings located between the city center and the airport, which are easier to populate and sell to institutional investors than office towers. "I am afraid of towers," said Paul Gheysens, the president of Ghelamco. "Warsaw will not be ready for more towers for another five to 10 years. Nice buildings of 10,000 to 20,000 square meters will work every time … You have to remember that a client who occupies 5,000 square meters is a big client on this market."

Ghelamco has spent the past 10 years sniffing out shrewd property deals that have yielded 26 prime plots for office, retail and industrial developments, which will hold the company over until 2012, Gheysens said. Thanks to its property reserves, Ghelamco is able to maintain a hectic construction timetable that will see four new projects break ground in the next nine months. The largest one, a complex of three office buildings totaling 70,000 square meters on ulica Prosta, will begin its first construction phase in February 2003. Solid finance and a stock of development land will also allow developer Globe Trade Center (GTC) to build on the reputation acquired for its two-year-old Galeria Mokotów (GM) project to expand beyond Warsaw. This year, GTC made use of its extensive land holdings in the south of Warsaw to add 68 new retail units totaling 11,500 square meters to GM, which fully rented its new units before the extension's completion in October this year. "It's a sign of our tenant's satisfaction that 10 of the stores are extensions of those in the first phase (of construction)," said Yoram Reshef, the managing director for shopping centers at GTC. "There was so much demand that we didn't have to drop prices for units like we did on phase one. We have a waiting list of hundreds of retailers who want space when we open new shopping centers outside of Warsaw." While Reshef was reticent about when the next GTC mall would break ground, he said the firm had already secured land in Kraków and was currently processing construction permits.