Landlords offer free fit outs at a price
Landlords are offering office tenants free fit outs amid a rising supply of new space in Warsaw. But tenants are being warned that such fit outs could cost them more than they bargained for, property watchers said.
Fitting out a modern office installing walls, air conditioning, telecom plugs and other infrastructure can cost up to $1,000 per square meter, said Marcin Klammer, senior project manager with EC Harris, a U.K.-based architectural company that offers fit-out consultations.
Until recently, he said, fit outs had been paid for by tenants. But with new office supply continuing to flood the market, landlords are now using fit outs as a bargaining chip to attract tenants.
Karimpol, the Austrian landlord of the Stratos building in central Warsaw, offers only open space officially, with tenants expected to pay for fit outs, said Andrzej Lany, the company's marketing manager. But with competition among landlords reaching fever pitch, Karimpol is offering fit-out packages on top of reduced rents to bring in customers.
"We're more flexible when the tenant is willing to sign a long-term lease." Lany said. "In cases such as 10-year lease deals, we'll pay for the fit out." So far Karimpol has financed two of Stratos' five fit outs.
But some analysts caution tenants about free fit outs, which often lead to huge surcharges not mentioned by the landlord.
In addition, Pierre Couderq, partner with the Warsaw-based real estate agency Couderq & Partners, said tenants often sign leases not knowing that they will have to pay much more for a fit out than they originally expected.
Tenants may agree to a price of $200,000 for an office fit out, he said, but in the end the cost could reach $250,000. Having already signed the lease, the landlord then refuses to cover the extra costs, leaving the tenant to pay often exhorbitant rates.
Karimpol's Lany said landlords set certain limits for fit outs and will not pay for changes beyond the limit agreed to in the lease deal. "Changes are costly," he said.
A landlord in Warsaw charges at least $300,000 for a space above 1,000 square meters, according to Klammer of EC Harris. He said that if a tenant wants to fit out a standard office, $300,000 should be enough cover it. But tenants often make mistakes in accepting low-quality fit outs that could cost more later, he said.
Klammer said that when landlords finance fit outs, they usually insist on using their own contractor. These contractors, he said, are better suited for the work because they usually understand a building's finer points. But using the landlord's contractor also means that tenants often lose control over quality and costs.
According to Klammer, fit-out problems also include working with building design flaws, such as low natural lighting, which forces them to invest in lighting upgrades. Also, low-quality carpeting requires that tenants replace it shortly after moving in, while poor-quality ceilings mean bad acoustics, he added.
Another drawback to fitting out a building, Couderq said, is having to put in immoveable gypsum walls, which are 20% cheaper than moveable ones. If tenants want to redo offices with gypsum walls, it usually takes several weeks' worth of construction work, while redesigning an office with movable walls can be done over a weekend, he said.
Tenants willing to hire a consultant to ensure a proper fit out can look to Gleeds or EC Harris, said Rhys Jones, who runs Celtic Asset Management real estate. Celtic markets properties for Swedeprop, a Netherlands-based developer. "They can help tenants understand what the costs are," Jones said.
But hiring a consultant can be expensive, Klammer said. EC Harris charges $5,000-$20,000 for a building survey plus $15,000-$90,000 per fit out, he said. Such costs are often beyond the means of small companies, Klammer added. EC Harris typically represents cash-rich multinationals wanting high-quality space.
