Property developers think long term, shrug off weak economy

Major property developers are not revising their plans for Poland this year despite continued gloomy economic forecasts. "Developments and properties are long-term investments and we may be in a weak economy today but in a year's time we will see the economy improve," said Chris Grzesik, the managing partner of the Warsaw office of King Sturge, an international property consultancy. "Now is the time for (developers) to prepare for the upturn in the market that will come in two, three, four years." Several ambitious development projects underway in Warsaw, including AIG/Lincoln Polska's $40 million, 15,150 square-meter Saski Crescent office building, Hines Polska's 36,000 square-meter Metropolitan office and retail complex and Swedish construction group Skanska's 330-room Westin Hotel, are proof that the soft economy is not affecting developers' plans, Grzesik said. Since major projects usually take three to five years from planning to completion, they tend to ride out short-term economic highs and lows in the business cycle. Instead, a range of other factors, including negotiations with local government authorities and other parties, access to credit, and - most important - demand have a greater influence on the timing and completion of building projects. Dutch developer ING Real Estate's 205,000 square-meter mixed-use retail and entertainment complex near Warsaw's prodigious Palace of Culture and Science, for example, was slated to get under way in 2000. But the actual groundbreaking was moved to this May and completion of the project set for late 2004 or early 2005 due to myriad negotiations with municipal authorities and long waits for obtaining construction-related permits, according to Jan van Hensbergen, the president of ING Real Estate. Industry professionals add that the large developers, such as Global Trade Center (GTC) and Apollo-Rida Poland, have proven track records of erecting quality structures, which cushions them from downturns in demand - unlike smaller developers. "We are less affected by the slowdown than weaker and smaller developers," said Mariusz Kozłowski, GTC's marketing manager. "We think we benefit from the (economic) slowdown because the tenants want to make longer-term contracts with builders with track records." But while the economy continues to stagnate, some office tenants will continue to hold off on leasing new space this year, especially in the Warsaw metropolitan area. "The demand from occupants may be affected (by economic conditions) because most companies are delaying decisions to move," said Grzesik, whose firm's client base includes AIG/Lincoln and Apollo-Rida. As a result, some developers may have to continue lowering their leasing rates in 2002 as they did last year to attract new office tenants. GTC, for example had to reduce rental rates from $22-$24 to $20 per square meter late last year to entice tenants to its 17,900 square-meter Taurus office tower in the nine-building Mokotów Business Park. The new building, which has taken longer to lease than others in the buisness park, is only 60% full, Kozłowski said, although GTC expects to lease the remaining space this year. Still, developers are keeping a watchful eye on how the economy will unfold in 2002. Rafał Nowicki, the vice president of Apollo-Rida, which owns the 56,000 square-meter Żerańpark warehouse park, said that while the souring economy has not affected plans to add four new buildings of 10,000 square meters each to the park during the next two to three years, a worsening economic situation this year could cause his firm to slow its plans for new office building projects in central Warsaw. Likewise, Brian Patterson, a managing partner at AIG/Lincoln, reported no revision plans for Saski Crescent's construction this year but added that his firm would not introduce any more projects in 2002 until the economy improves.