Kraków shows off

While some obstacles to investment linger, the city is focusing on its growth opportunities

At this year's Mipim real-estate forum in Cannes, Kraków displayed an impressive selection of offers dedicated to hotel and office space, as well as residential development. This was the third consecutive year that Kraków maintained its own stand at the forum.

"We have so much to offer that we felt it better to display it separately from other Polish cities presenting in Cannes," said Kazimierz Bujakowski, Deputy Mayor of Kraków.

During the event, Bujakowski and other representatives of Kraków's authorities held dozens of business meetings with international investors. According to Kraków City Hall, the outcome of these meetings should be disclosed within a few months, but officials are as yet reticent to discuss details.

Rooms for improvement

According to the City of Kraków's "Real Estate Market Report for 2006," there were 97 hotels operating in the city, offering a total of 9,987 beds, as of July 2006. According to the report, most hotel operators choose locations in the historical areas of the city, such as Planty or Kazimierz.

Over the past decade, Kraków has developed a significant base of tourist-class hotels as well as hostels. High-standard hotels (with four or five stars) amount to 20 percent of the city's hotel beds and 25 percent of its hotel rooms.

Having considered these statistics, Kraków's authorities decided to put more focus on developing high-standard hotel space and City Hall will soon announce an investor for the city's latest plan to build a five-star hotel in the city center.

Deputy Mayor Bujakowski said that the new hotel would be built next to Planty Park, close to the Old Town Square. "There are lots of budget and tourist-class hotels in Kraków at the moment and what we want now is to put more emphasis on developing an offer for people who travel to Kraków on business," he commented.

Office areas

According to CB Richard Ellis' figures, the total office stock in Kraków now stands at around 660,000 sqm. Modern office complexes, including newly built and fully refurbished class-A and B space, amount to 197,019 sqm, over 29 percent of the total. Approximately 20 percent of modern office stock, around 40,500 sqm, is accounted for by owner-occupier buildings.

Rafał Oprocha, Associate Director in CB Richard Ellis' Kraków office, says that the majority of modern office buildings in Kraków are class B, although there are eight buildings of class A standard. Of these eight, only three are located in the center.

"Around 20,000 sqm of modern office supply was delivered to Kraków's office market in 2006," said Oprocha. He added that the overall take-up for 2006 was approximately 45,000 sqm, close to 25,000 sqm of which was the result of pre-let agreements.

"The structure of transactions indicates that the majority of signed leases are for units ranging from between 100-500 sqm," explained Oprocha. "The vacancy rate in modern buildings decreased from five percent in 2005 to around one percent in 2006," he said, and added that Kraków's office space will increase by some 140,000 sqm over the next few years.

"In addition, the demand for office space is expected to rise dramatically due to a considerable wave of [business process outsourcing]," said Oprocha. "At this point, however, it should be noted that many planned projects require pre-lets, and developers are not ready to commence construction works prior to these agreements being signed."

Kraków's tenants had to accept an increase of rents which came in 2006, caused by high demand. "Currently, rents stand at E15-15.5 (zł.58-60) per sqm per month and are likely to remain stable in the foreseeable future," added Oprocha.

Interested parties

Globe Trade Centre (GTC) is one investor that sees an investment opportunity in building office developments in Kraków. In Q1 2008, the developer will deliver its Edison building, comprising 10,000 sqm of modern office space in an attractive Kraków location.

Edison will be the third building in the GTC business park, following its Galileo and Newton buildings, located at the junction of Al. Armii Krajowej and ul. Przybyszewskiego streets in Kraków. This will be an 11-storey building with 10,000 sqm of class A office space and 400 sqm of shopping and services space on the ground floor. The total cost of the Edison building is estimated at E16 (zł.61.8) million.

"The idea of the business park is to give a company the possibility to develop without needing to move a new place," said Katarzyna Pankiewicz, deputy marketing manager at GTC, adding that this is the reason why GTC develops business parks. "Poland is a very attractive country for investors and it helps companies when they can focus on planning their development and not be so concerned with their office space." Pankiewicz also commented that it takes only 14 months for GTC to build an additional building within its business park area.

"The success of Galileo and Newton highlights the fact that Kraków is in need of modern, high-class office space. More and more international and Polish firms are investing and opening offices in Kraków" says Mariusz Kozłowski, a member of GTC's board.

This month, GTC will open the Newton office building, which was fully rented out three months prior to investment completion. Among the international firms which have chosen Newton as their Kraków residence are IBM, which has rented nearly half of the space, Hewitt, with 2,000 sqm, as well as Fortis Bank and Deloitte.

Remaining hurdles

Despite the city's obvious merits and the strength of its offers, Kraków must also face challenges to its future development. Perhaps the biggest obstacle is (as in most Polish cities) a dearth of zoning plans, which impedes developers. Among major Polish cities, Kraków has the lowest amount of its space covered by zoning plans.

"We have 10 percent of the city covered by the October 2006 zoning plan. However, we are already working on plans to cover 40 percent of the city," said Deputy Mayor Bujakowski.

Bujakowski noted that investors should understand that Kraków is a unique, historical city. They need to be patient and keep this in mind while planning their projects.

"But the city is dedicated to its development and to helping all investors, this is why even if a particular location is not in a zoning plan, we can always grant a permit for construction (plan zabudowy), so the green light can be given to a project," he added.