Taifun, UBC entice suburban players
Two developers of suburban office buildings, Karimpol and Swede Prop, last month signed two deals for a total of 13,000 square meters, indicating a possible high demand for large, inexpensive office space outside of Warsaw's center, property sources said.
'There are large-space tenants looking around Warsaw," said Harald Jeschek, managing director of Karimpol Polska, the Polish unit of the Austrian developer.
In late April, Karimpol signed a contract with Tel-Energo, a telecom service provider, for the lease of the 7,000-square-meter Taifun building located on Aleje Jerozolimskie in western Warsaw.
Also last month, Swede Prop, the developer of the University Business Center II (UBC II) building in southern Warsaw, entered into a five-year lease with IT company Hewlett Packard (HP). HP will move to its 6,000-square-meter offices in UBC II next January, two months after the building's planned completion, said Rhys Jones, who runs Celtic Asset Management, which represents Swede Prop.
HP committed to lease space in UBC II for five years and will occupy one-third of UBC II, whose total space is 18,000 square meters. "We are very happy," Jones said.
In the case of the Taifun building, Tel-Energo will take the entire building, which will be used to accommodate its offices and data-transfer facilities.
Karimpol, which is represented by the Couderq & Kubas agency, signed a 10-year lease deal with Tel-Energo for undisclosed rent. "It was quite favorable," Jeschek said. He wouldn't reveal rents but the asking price was slightly above $20 per square meter a month, he said.
The lease deal with Tel-Energo paves the way for the sale of Taifun, a $15 million development, to institutional investors, Jeschek said. Leasing the entire building also gives the developer the green light to start a new suburban development the Mistral office building. The project will also be located at the western end of Aleje Jerozolimskie, Jeschek said. Karimpol already has a construction permit for the first 11,000 square meter phase of Mistral.
Real estate a kinky business
When the Polish textile business was in a recession in 1997, five local entrepreneurs active in textile trading and manufacturing decided to look at other investment options.
In those days, skyrocketing demand for office and warehousing space in Warsaw, coupled with low supplies, made real estate seem like an ideal investment.
The textile investors decided to acquire 30,000 square meters of land in Warsaw's Okecie district and established an office and warehousing center developer, the Space Distribution Center.
Three years later, the real estate market turned around in favor of tenants, and real estate proved not as easy or profitable as textile investors had believed it to be, said Zbigniew Ciszkowski, president of Space Distribution. "Now we find ourselves in a not very good moment," Ciszkowski said. "When we had this idea (in 1997), the situation was much better."
Space Distribution is about to complete its building on ulica Modularna in Warsaw and has yet to find tenants.
The mixed-use warehousing and office project, planned for completion this summer, will include 6,500 square meters of warehousing space and 1,500 square meters of office space. In addition, the developer has enough land for another 5,500 square meters of warehousing space.
The developer hired Maxon and Unikat agencies to market the project. Until now, however, despite some interested clients, the developer has failed to sign a deal. Ciszkowski said clients now prefer to wait until the building is completed. "They don't want the risk," he said.
Plummeting rents also make getting a return on investment difficult. The developer paid $10 per square meter of land, but high infrastructure costs put total development costs at zl. 30 million ($7.1 million). Approximately half of that was financed by a loan from local banks, Ciszkowski said.
Space Distribution is asking $7 per square meter a month for warehousing space and $14 per square meter a month for office space. "We cannot go much lower," Ciszkowski said. "We hardly accept those prices, but we have no choice," he said.
Despite problems with its current project, Space Distribution said it would look for more real estate projects in the future. The developer has acquired 11 hectares of land north of Warsaw along the highway to Gdansk with an eye to develop warehousing projects there. "We want to expand," Ciszkowski said.
Pioneer to invest
Pioneer Real Estate Advisors, which manages the $33.5 million Polish Real Estate Fund, said it was continuing to negotiate investing in real estate in Poland despite calls from some of its some U.S. shareholders to pull out from the region.
"We are in active negotiations," said Gren Carr-Jones, managing director of Pioneer. The company is finalizing a couple of investment deals in Poland and is likely to make announcements as soon as this month, Carr-Jones said. In June, the company plans to have a second closing of the fund, which will increase equity to $60 million, Carr-Jones said.
The firm plans to invest in Poland despite the fact that its leading shareholder, U.S.-based Lens Investment Management, wants Pioneer to sell off its Central European real estate business, according to information published by The Boston Globe in April.
But Carr-Jones said those calls were not affecting Pioneer's investment negotiations in Poland. "There is no impact," he said.
Carr-Jones also said that the fund is looking to investment money in commercial real estate throughout Poland, including offices, retail and light industrial sectors.
In addition to Pioneer Group, investors in the fund include Canadian real-estate financier Cadim; the European Bank for Reconstruction and Development (EBRD); the Foundation for Polish Science; Vienna Leas International; and Ton Agro, a firm that manages state-owned agricultural land.
In Brief: Swedish construction giant NCC Group has started development of the 22,000-square-meter Brama Zachodnia ("West Gate") project in Warsaw, according to the DTZ agency, which is representing the developer in the deal.
Brama Zachodnia, the firm's first office development in Poland, will be located between Aleje Jerozolimskie and the railway tracks not far from plac Zawiszy. The 14-story development will include 21,000 square meters of offices and 1,000 square meters of retail area.
NCC has been active in construction projects throughout the country, as well as in the development of a residential project in Piaseczno, south of Warsaw.
