RE firms reap rewards of tenants' market

Tenants have governed the commercial office space sector in Warsaw for most of the past year, prompting more money-hungry real estate consultancies to target them rather than landlords - a trend that may not end until Poland joins the European Union, consultants said. The amount of vacant office space in Warsaw has increased this year, from 16.1% in the first quarter of 2002 to 17.3% in the second quarter. In the April-June period a year ago, there was 13.6% vacant office space in the capital. While real estate analysts expect to see a rise in vacancies in the next few years due to new Warsaw office projects, these figures translate into a tenants' market, which has forced some consultancies to reinvent their businesses to stay afloat. Colliers International was one of the first consultancies in Warsaw to shift the bulk of its business to tenant representation. When the company entered the Polish real estate market in 1998, there was no room to operate on the traditional landlord-centered business model, according to Hadley Dean, the managing director of the Warsaw branch of the U.S.-based consultancy. At the time, all the firm's competitors had already cemented lasting relationships with the city's wealthiest landlords. "We couldn't get to where the money was," said Dean, referring to his firm being blocked from new business by existing real estate players.

So the company decided to provide consultancy services for tenants since this segment of the industry was the only avenue to revenue. And the decision paid off, as other consultancies, such as Jones Lang LaSalle (JLL), have followed Colliers' lead. "There are many more (tenant) clients than office-leasing clients," said Katarzyna Dziewulska, the Central and Eastern Europe research manager at JLL, which underwent restructuring to adapt to the market changes. At present about 60% of JLL's business is tenant representation, while 40% comes from landlords representation. Less than a year ago, about 30% came from tenant representation, while 70% was generated by office leasing, she said. But while the tenants' market seems rosy for consultants, its translates into empty office space for developers. Nevertheless, the most optimistic ones say that the market will move toward equilibrium once Poland enters the EU, slated for 2004, since demand for office space in Warsaw is expected to increase. And more power would then be put in the hands of landlords. For nearly the past six months, Eight Star, a developer, has hardly received any interest from prospective tenants for its 12,500-square-meter office building, Eurocentrum, on Warsaw's Aleje Jerozolimskie, said Marta Kustek, Eight Star's spokeswoman. But Poland's impending EU accession offers Eight Star new prospects, which in turn would bring more rental opportunities for landlords. "Right now, (EU-related institutions) are starting to look for office spaces," said Kustek, whose office has already fielded several calls from EU-related organizations. "We're hoping that prices will go up (and) that we'll enter a better time."