Potential yet untapped
Jarosław Zagórski: I would describe the market as one which still offers a lot of opportunities. When we take into consideration market indicators showing the ratio of the country's existing office stock to its population, it turns out that we lag behind many European countries and that there is still a large growth potential. Warsaw, for example, is one of the few European capitals in which there are many investment possibilities in the city center. That, together with other factors, including the Poland-hosted Euro 2012 soccer championships, makes the investment climate very friendly.
Of course, there are some macroeconomic dangers as well. For instance, the cost of labor, which previously attracted investors to Poland, has risen.
Unlike the residential segment of the market, the office market has not experienced a slowdown in recent months and rents have been rising. Why is that?
I think that the residential segment has been hit, in a way, by what happened in the United States. On the other hand, however, in Warsaw the housing and office segments of the real estate market have actually never been on the same economic cycle. When it comes to the office market, we have recently been witnessing an increase in rents caused by high land and construction costs as well as by the fact that demand has been exceeding supply.
The problem is the fact that the majority of buildings currently under construction have already been pre-leased. At the moment, a tenant looking for 4,000-5,000 sqm of office space has a very limited choice. This is not a healthy situation. And, taking the market's character and its inertia into consideration, the situation is not likely to change within the next year or two.
What about the longer-term perspective? Do you think developers could respond, increasing supply and potentially driving prices down?
This could happen. Some residential developers, for example, are said to be trying to redesign their projects as office developments because they consider the office market to be in better condition. Much, however, will depend on demand. And, unlike supply, demand is much more difficult to estimate. Tenants often simply do not want to reveal their intentions.
Will the market be dominated by large business parks or will there be room for smaller projects as well?
Business parks are and will always be fashionable, especially in a period of mergers and acquisitions. There have been cases of companies which miscalculated the amount of room they needed and had to find new locations even before the end of the leasing contract. Such problems do not exist in business parks, which offer a dynamically developing company the opportunity to lease more space in the project's subsequent phases.
There is, however, room on the market for smaller office buildings as well, because they enable a small firm to show its strength by putting its company logo on the building and creating the impression that this is their property.
Warsaw remains the largest office market in the country, but developers have already shown great interest in a number of regional cities as well. Will the trend continue?
Some regional office markets are indeed developing, which is a positive trend. We can talk of developed markets, sensu stricto, in Wrocław and Kraków, with Tri-city just beginning to attract investors' attention. In my opinion, Łódź could be developers' next target. The Silesia region also has a lot of potential, whereas the time for cities such as Lublin and Rzeszów has yet to come. Certainly, cities with well-developed infrastructure and qualified work forces will develop faster.
Will the trend to expand into regional cities also be reflected in your company's investment plans?
Yes, we are paying a lot of attention to regional markets. We are currently planning a new project in Katowice as well as another scheme in Wrocław. We are finalizing a land purchase transaction in Łódź, looking for a plot in Kraków and looking at investment possibilities in Tri-city. In general, we are building our land portfolio, especially as this seems to be a good time to buy as prices are becoming more realistic and plots previously bought by Spanish and Irish developers are back on the market.
What about Ghelamco's new developments in Warsaw?
We are working on the Warsaw Spire high-rise project, construction of which should start in spring 2009. Another skyscraper will be developed at the Rondo Daszyńskiego roundabout, but we have postponed its construction so as not to create competition for ourselves. Near Warsaw Spire we will develop Crown Square, 17,000 sqm of office space located on ul. Przyokopowa. Our projects outside the city center will include another business park, located on ul. Wołoska in the vicinity of the Galeria Mokotów shopping center. We also have one building under construction - Trinity Park III, with 3,000 sqm of office space, which is third phase of the TrinityPark complex.
