WBJ: The Tri-City has in recent years emerged as one of the most important regional office markets in Poland. What are the main reasons for the agglomeration’s growing popularity with developers and tenants?
Sławomir Gajewski: The Tri-City began to build its position in the business services market – the sector that is largely responsible for office space take-up in regional cities – quite late compared to Kraków and Wrocław. Its growth, however, has been rapid and noticeable in the rest of the country, allowing the Tri-City to forge a strong position. The foundations of the office market were created by local players, our company among them, which also meant the creation of modern infrastructure to allow large, foreign companies to relocate here. Respectable investors who came in later and successfully developed their business centers here have served as the best possible calling card for the Tri-City agglomeration and its sizeable potential as a result of the availability of skilled labor.
The large demand and optimistic forecasts continued to entice developers to pursue further and bolder office investments and so we have reached a supply level of about 800,000 sqm. More recently, the natural, location-related attributes of the Tri-City have gained prominence – one can have a good life here and this quality of life has been recognized by more and more people relocating from other regions in Poland, as well as from abroad.
Torus has long been the dominant local player in the Tri-City office market, but several large international developers are now also active there. Is the market getting more competitive?
Definitely. The level of competition is higher than just a few years ago, but the tenant market has grown as well. New investors continue to emerge and there is strong internal demand generated by the rapidly-growing companies already present in the market. Developers are able to offer a variety of options, so tenants are spoiled for choice. Our company has been concentrating on the quality of the office space we provide, its proximity to roads, public transport and an attractive array of shops and retail services. We get all our buildings certified to ensure they meet the global green building standards.
Work on Torus’ flagship Tri-City project – Alchemia in Gdańsk - is nearing completion. What are the company’s further development plans in the Tri-City office market?
We have procured land for tens of thousands of sqm of office space located across several investments in the Tri-City. One of these projects – Officyna – is already underway in the Gdańsk suburb of Wrzeszcz. The first phase of the investment will be ready towards the end of this year and construction work on the second phase will have begun by then. Further investments are in the pipeline.
Torus is a typical commercial developer that develops and subsequently sells its projects to investment funds. Is it more difficult for a local developer from Gdańsk than for an international developer to create a valuable product that will entice foreign buyers?
Yes, it is undoubtedly harder for a local company with a relatively short history to get noticed by institutional investors than it is for more renowned, global developers. One must remember, however, that the main guarantee of security, value and profit in this market is the quality of the product, rather than the developer’s brand alone. This means that selling buildings is not an endeavor that can be accomplished by desire alone. We have proven on many occasions that our products are attractive for investors. So far, we have completed five sale transactions of our office real estate to four different funds, for a total of approximately €200 million. This equals over half of the total office transactional volume conducted by Tri-City developers. Over the next few days, we will be completing another transaction, the largest to date in the history of our company and one of the largest to date in regional Polish cities.
Torus has been looking at other markets in Poland for some time now – the company is currently working on hotel investments in Wrocław and Warsaw. Are you planning any office investments outside the Tri-City?
We are currently engaged in hotel projects outside the Tri-City – we are completing a project in the historical Lepziger Palace in Wrocław and preparing another in Warsaw. We are also intensively looking for opportunities to apply our office real estate experience in other cities, particularly in one of the largest regional markets in the country. There is a good chance that we will start implementing our plan before the end of the year.
Looking at supply and demand levels, the office property market in Poland is in very good shape. Will the boom in this sector continue this year?
The market is starting to have us somewhat worried; a slowdown is to be expected. At this stage, it’s hard to predict when exactly it will happen, and what the scale and impact will be. The market we are working in has a global dimension to it because the majority of our partners are international companies. We belong to a world ecosystem; that’s something we need to take into account in our plans and actions. Last year brought another record in terms of transaction values in real estate sales, which is evidence that Poland is still an attractive place for investment. I think that, over the next year, we will not be seeing any significant changes in the office real estate market, though developers may exercise more prudence when commencing new projects.
Despite the strong performance of the market, developers have been faced with major challenges such as growing land prices and rising construction costs. What is your long-term growth strategy in these uncertain times?
The increase in land prices and construction costs is a serious challenge for the entire developer community. Everyone is attempting to tackle it in their own way and carefully calculate the profitability of their projects, depending on their chosen business model. We must keep in mind that a challenge for one developer can equal an opportunity for another. We try to broaden our portfolio and seek opportunities in other markets. Developers must remain vigilant, but also continue their strategy.
Torus has been investing in CSR activities a lot lately. Why? Will the company continue this course in the near future?
Our engagement in CSR stems from a natural need and approaches witnessed among business owners, managers
and employees, and the nature of our business as well. We create buildings where people come to work, be active and spend their time. We are changing the city in a noticeable way. It’s a big responsibility that requires the right approach to business development. We could have done many things differently and not have seen through many of our initiatives; but then we would not have been who we are and we would not have had the same satisfaction from our achievements.
For us, it’s important that both our core and supplementary activities have a positive influence on our environment, that we stimulate the local economy, that we get people involved and that we support local sporting activities. All that gives a profound sense of meaning to our developments.