Regional markets still offering a lot of development potential

WBJ Observer spoke with Rafał Mazurczak, office and hotel department director at Echo Investment, about the current situation in, and prospects for, the office property markets in Warsaw and the largest regional cities across Poland

by Adam Zdrodowski

WBJ Observer: A record amount of office space was leased in Warsaw last year and despite the large supply, the vacancy rate in the city fell to 12.3 percent. Will this encourage developers to launch even more projects, or can we expect a slowdown in the near future? Rafał Mazurczak: Undoubtedly, Warsaw is the most active, but also a more and more saturated office market. In such a well-developed market, the offer is very diversified. One can clearly see that it is taking owners more time than they expected to lease space in particular projects, but developers who have schemes in the best locations do not need to worry. The Warsaw market continues to mature, with developers and funds tempting tenants with both [attractive] rents, and interesting ideas and solutions that are in line with tenant expectations. New projects will continue to be launched, so we can expect the vacancy rate to show an upward trend. However, as I said, quality office projects in exquisite locations will still attract tenant interest. Which locations in Warsaw are the most sought-after at the moment? Are developers predominantly focusing on Wola and Śródmieście, or will the interest in Mokotów be retained? A considerable number of projects are in the pipeline in Warsaw and I think that some developers are still not certain whether they should be starting schemes right now, while others are still in talks with lending institutions. The market is in flux – companies are moving from the downtown to Mokotów and from Mokotów to the downtown. Wola is gaining in popularity. Some tenants are looking for two locations because they want to divide their office space so that the headquarters are in the downtown and the back office is in Mokotów, or even outside Warsaw. The regional markets continue to grow in significance, with the BPO/SSC sector now generating the most demand for space in cities including Kraków and Wrocław. How large is the risk of shared services centers moving from Poland to cheaper locations? Our market analyses show that these locations still have significant potential. That is why we want to be active in Kraków, Wrocław, Katowice, Gdańsk and Łódź, consistently developing projects in those locations. This year, we are planning to launch a total of five schemes in the largest cities in Poland, including two located in the capital of Lower Silesia. Last year, 50 percent of the office space leased by us was located in investments outside Warsaw. I think that this year the figure may even be higher, so for the time being, I do not see any risk of shared services centers moving away from Poland. Łódź has been stricken with demographic problems for many years – the number of its inhabitants has been steadily decreasing. How does this affect the prospects for further development of the office market in the city? We are happy with our investment in Łódź – Symetris Business Park. In my opinion, Łódź is already over the hump – last year, one could clearly see the symptoms of revival in the local market, which translated into increased investor interest. Our decision to launch construction on Symetris Business Park was based on analyses that allow us to be optimistic about the Łódź market. Poznań saw a threefold increase in tenant activity in 2015. What is the reason for the trend, and can we expect more growth in the market in the near future? Poznań is a mature market, which does not suffer from a lack of investor and developer interest. There is no shortage of modern office space in the city. However, in our opinion, there is still potential for new projects there. This is why we are now continuing work on a new office investment in the capital of the Wielkopolska region – we have already secured the land for it and would like to start the development soon. We know the Poznań office market very well – we developed the phased Malta Office Park scheme there that has been very well received by our tenants. Also, the Tri-City has witnessed an office boom of late – can we say that the agglomeration has already become one of the most important regional office markets in Poland? The Tri-City has undoubtedly already become one of the leading office markets in Poland. Our experience with Tryton Business House – our Gdańsk investment, which obtained an occupancy permit at the beginning of this year – confirms this. There are many companies in the Tri-City, especially in the new technologies sector, that are looking for prime office space in the best locations. No wonder then that developers are trying to meet that demand. What are the prospects for the other growing office market in northern Poland – Szczecin? Who leases office space in the city? We have an office project there – Oxygen. For some time, there was a vacant floor in the building, but a tenant from the SSC sector has leased the space. We are also very happy to see the growth of our current tenants from the IT industry. Will the so-called emerging office markets, including Lublin, Rzeszów and Bydgoszcz, continue to grow in the near future? We are currently focused on the largest cities in Poland and are mainly directing our attention there. Such cities as Lublin, Rzeszów and Bydgoszcz are developing at their own pace, and due to the availability of young skilled employees, the outsourcing services sector will grow there too. Last year, for the first time in the history of the Polish investment market, regional cities accounted for a larger share of the total transaction volume than Warsaw. Is there a chance this result will be repeated this year? I think that this year we will witness a similar situation. While last year, half of the office space leased by us was located in the regional cities, I expect the figure to be even higher in 2016. This shows that the regional markets are going to play an equally significant role this year. Is Echo Investment planning to enter any office market in Poland in which it is not yet present? We aim to deliver a total of 120,000-150,000 sqm of office space in Warsaw and the other large cities in Poland every year. We are constantly looking for interesting sites in regional cities. However, we still want to concentrate on Warsaw, as well as Kraków, Wrocław, Katowice, Gdańsk, Łódź and Poznań.