Krakow back at the heart of the nation
If there is a city in Poland capable of challenging Warsaw for the top spot as the country's business center, it's probably Krakow.
The former capital, founded in the 10th century, is less than half the size of Warsaw with a population of 740,000, but has everything the capital lacks: a rich history, major tourist attractions, a thriving nightlife and most importantly a motorway linking it to other centers. Krakow's cultural hot spots, which include the medieval Old Town and Wawel Castle, were enough for the United Nation's Educational, Scientific and Cultural Organisation (UNESCO) to designate the city a world heritage site in the late 1970s.
Unsurprisingly, Krakow is the first port of call for most foreign visitors, said Ewa Mroz, head of the city's tourist center. According to city hall figures, up to 2 million tourists visit Krakow each year.
But tourists aside, Krakow is also a dynamic center of industry. The city is the capital of Malopolskie province, covering 15,144 square kilometers, with a population of 3.2 million. The province has a mixed agricultural and industrial base. The main industry includes the Dwory chemical plant in Oswiecim, the Rafineria Trzebinia oil refinery in Trzebinia and pesticide manufacturer Zaklady Azotowe in Tarnow. Malopolska also hosts local Telefonika cable company in Myslenice and beer maker Okocim in Brzesko. In addition, the province contains the Tatra mountains and the country's major spa resort of Zakopane.
With much of Poland's heavy industry based in southern Silesia, only 40 kilometers west of Krakow, a number companies have set up in Malopolskie province, using the city as their regional base. Krakow and the Silesian capital of Katowice are also linked by a highway, which is the first toll highway in Poland and the most modern section of road in the country.
Krakow is the site of several homegrown industries such as the Huta Sendzimira steel mill, the largest in Poland, located in the industrial suburb of Nowa Huta. Along with the steel mill, there is also the Cementownia Nowa Huta cement plant, which was bought by Turkey's Rumeli in the 1990s. Other foreign investors that have bought into existing industrial assets include U.S. cigarette giant Philip Morris and Croatia's Pliva, which bought local drug producer Polfa Krakow.
Along with industrial companies, Krakow has attracted a number of greenfield firms that are tapping into it's educated workforce. The city has one of Europe's oldest colleges, the Jagiellonian University, and remains a major university hub. About 108,000 students study in Krakow at any one time, and as many as 16% of the city's residents hold master's degrees. "The skilled workforce is one of Krakow's most important advantages," Mroz said.
City authorities are relying on greenfield investments to help boost the local economy. The high-tech sector, in particular, has been moving to Krakow. The Krakow Technological Park was established in 1998 to encourage more high-tech businesses to the area with tax incentives. U.S. mobile phone giant Motorola recently announced it would invest $110 million to develop a software center in Krakow that will employ 500 workers.
Other recent greenfield projects include a print factory developed by U.S.-based RR Donnelley & Sons. The local branch of U.S.-based car component producer Delphi Poland also has a $20 million investment in a technology center, which covers 13.5 hectares and is only 10 minutes from the city.
Delphi recently relocated its Polish head office to Krakow from Warsaw because of its proximity to Silesia and its skilled engineers, said Leszek Waliszewski, the country president of Delphi Poland. In addition, the city is home to major companies such as BP Amoco, the Anglo-American oil giant, and Tesco, the U.K.-based retailer.
Industrial/warehousing
Krakow is lagging behind other cities when it comes to the development of its commercial and industrial warehousing facilities.
The development of commercial warehousing is limited in the city as most tenants need ready-made warehouses for their projects, said Monika Suldecka, head of the Krakow office of Knight Frank, the U.K.-based property agency. "Companies have their own warehouses," Suldecka said.
Warehouses for rent are typically located on the city's older industrial sites. The properties are rented out at zl. 9-zl. 13 per square meter per month, according to Knight Frank. Those facilities meet existing demand for warehousing space, which comes mostly from small companies that need fewer than 500 square meters of warehousing, Knight Frank said. The company estimates that 65% of warehousing tenants occupy fewer than 500 square meters. Additionally, more than 60% of warehousing tenants in Krakow quizzed by Knight Frank said they had no plans to expand.
Office
There are 55,000 square meters of office space in Krakow about 5% of that currently available in Warsaw. The city's office supply is similar to that of Wroclaw. But future demand in Krakow is high compared to other regional cities. The demand comes primarily from IT companies, international financial institutions and service companies setting up branches in the city.
Krakow is also the headquarters of several domestic banks including Bank-Przemyslowo-Handlowy, Bank Wspolpracy Regionalnej, Regionalny Bank Malopolski and Bank Spoldzielczy Rzemiosla.
According to Suldecka, the majority of smaller tenants, including representative offices of multinationals, have their headquarters in the Old Town. She said law firms and international companies often have offices in renovated mansions near the Old Town square, which adds to their prestige. "The atmosphere is what counts," she said. Standard rents in these prestige blocks range from $17-$23 a square meter.
But she said traffic is the main drawback when using these historic locations, particularly around the Old Town where there are few places to park. As a result, demand for space in modern buildings outside the center is high and this is fueling the development of new office buildings.
The city's first modern office building was the Cracovia Business Center, a 16,000 square-meter office block developed by the Netherlands' Swedeprop, which opened in 1998.
Recently, several other modern office projects have been completed in the city. Mostostal Export's 16,000 square-meter Centrum Biznesu Lubicz was completed earlier this year; local firm Azbud completed a 6,000 square-meter office block on Aleja Pokoju in 1999; Warsaw-based businessman Sobieslaw Zasada developed a 3,000 square-meter office block on Aleja Armii Krajowej this year; and Mostostal Krakow completed its 3,000 square-meter project on ulica Zwierzyniecka earlier this year.
Further developments include the 8,000 square-meter Krakow Business Park scheduled for 2001 and the 17,000 square-meter Centrum Biznesu Olsza planned for 2001.
When these developments are completed, there will be more than 100,000 square meters of modern office space in the city and, according to property watchers, this should satisfy short-term demand.
"When it comes to large lease deals not that much happens here compared to Warsaw," said Suldecka of Knight Frank. She said that a company based in Warsaw typically rents 2,000-3,000 square meters, while in Krakow it would rent only about 400-500 square meters for a representative office.
"But more companies are deciding to make this move (to set up a presence in Krakow)," Suldecka said. She added that rents for premier office space are now falling to just $20-$23 a square meter from last year's $27-$30 per square meter.
While the office market is becoming saturated, hotel construction is still in its infancy. So far, despite its tourist attractions, Krakow has only one hotel operated by an international chain an Ibis operated by Accor of France. "Hotel investment is most urgently needed," said Wojciech Brudziana, deputy director for city development at Krakow's city hall. Krakow has about 13,000 rooms in 34 hotels, motels and hostels, but this is far too little for the 2 million visitors a year. New hotel developments include a Holiday Inn planned by developer Global Hotels, which holds the exclusive license to build Holiday Inn hotels in Poland. The U.S.-owned, Polish-based hotel group would give no further details about its Krakow project.
Retail
With its population of 740,000 and a constant stream of tourists, Krakow has huge potential as a retail center. To date, there are 180,000 square meters of modern retail space in the city, less than in many other large Polish centers. Lodz and Wroclaw, for example, have more than 200,000 square meters of modern retail space.
These lower figures are a result of the city's policy of keeping modern shopping centers away from the Old Town, but the center does have a great deal of retail activity. Major retail spots include the Main Square (Rynek Glowny) and along ulica Karmelicka, Florianska, Dluga and Zwierzyniecka. The retail outlets along these streets are typically restaurants, pubs, retail banks, and clothing and other consumer good stores. Rents in the center average $25-$55 per square meter, but can go as high as $80 a square meter.
In the suburbs, major retail centers include France's Carrefour, Castorama and Geant, Tesco and Nomi, Germany's Hit, Obi and Makro Cash and Carry, Hypernova of the Netherlands, Austria's Billa, Ikea of Sweden and the U.S.-owned Office Depot.
U.S.-developer Tishman Speyer also plans to develop the $300 million Nowe Miasto retail and office complex near the city's main railway station. The 75,000 square-meter project promises to dramatically reshape Krakow's retail landscape. Construction of the project is planned to start next year and is scheduled for completion by 2004.
Other projects in the planning stages include local developer Super Krak's Olsza Mall to be built in the suburbs. "Krakow has huge potential and investors should take advantage of this," said Aleksander Noworol, president of Super Krak. Super Krak has already developed a water park and a Geant hypermarket. The company plans to expand its project by building a multiplex cinema and office buildings.
Residential
The residential market in Krakow is the country's second largest after Warsaw. Residential properties in Krakow are popular with executives, who want premium apartments, and among the large student population, who look for apartments at the lower end of the scale.
Last year there were 3,533 apartments completed in Krakow or 47.7 per 10,000 residents compared to Wroclaw's 43 and Poznan's 38.7.
Krakow's new residential projects are mostly being built by local developers such as Herbewo, DrQ Bud, Budopol, Geo and Leopard. But international companies are now targeting Krakow. Sweden's Skanska has chosen Krakow as its first regional city for residential investments and plans to complete seven apartments in the Zwierzyniec area by 2001.
The most popular area for new residential building are districts surrounding the Old Town including Zwierzyniec, zabiniec, Krowodrza, Pradnik and Wola Justowska. The latter is the most exclusive residential area in Krakow, inhabited by high-income earners such as Delphi's Waliszewski.
Krakow is also attracting foreign business managers operating throughout southern Poland. For example, executives of Isuzu, the Japanese car company that has set up a diesel engine factory in Tychy in Silesia, are based in Krakow, only about 50 kilometers away from the plant.
To house its managers, Isuzu built more than a dozen apartments in Krakow, said Jaroslaw Roztocki, general manager of Isuzu Polska. The American school in Krakow as well as the Japanese cultural center, Manga, were the main reasons why Isuzu managers wanted to live in Krakow, Roztocki said. "Krakow is well known to the Japanese," he said.
Krakow's popularity has pushed up prices. "Residential prices are not that different from those in Warsaw," said Barbara Krakowiak, head of Interdom, a local real estate agency. Typically, new apartments cost zl. 2,600-zl. 3,000 per square meter, she said. But high-end projects located close to the Old Town could cost as much as zl. 8,000 per square meter, Krakowiak said. Skanska, for example, charges $1,620 per square meter.
