Two projects throw off existing office-supply demand curve
This September, two buildings are scheduled to come on line: the Warsaw Trade Tower, a 38,000 square meter, $120 million investment by Korea's Daewoo, and the Reform Plaza on Aleje Jerozolimskie, an 18-story, 46,000 square meter project by Turkish investors.
The new buildings' combined office space will comprise 40% of the supply in downtown Warsaw, said Peter Chatfield, head of Jones Lang Wootton, the exclusive broker for the Warsaw Trade Tower. That much available space is expected to push down rates for class-A space, the asking price for which now hovers around $35-$40 per square meter. Most of that space, however, is let at about $32-$33.
"I think it is unfortunate that both buildings are coming on line at the same time," Chatfield said.
The projects, in combination with the large amount of new space already on the market, could help push prices as low as $25-$30. "I can see that happening this year," Chatfield said.
Thorsten Brudigam, president of property developer TeamWorx, agreed that rents are on their way down. TeamWorx developed the Focus Filtrowa Business Center, a 33,000 square meter building off of Aleje Niepodleglosci, which is due to be completed in 2000. "Frankly speaking, there is some room for decline," he said.
In addition to dumping a significant amount of new supply onto the market, the buildings also make developers a little anxious because both projects are speculative, meaning that they do not have tenants lined up just yet.
Daewoo plans to take 7,000 square meters of one tower for its own affiliates, but building representatives still do not have any other tenants completely nailed down.
Adam Rejczak, a negotiator with Healey & Baker, admitted that he was worried about the two new buildings but stressed it was only "to a degree."
"Of course they will influence the market somehow, but I don't think it will hurt the market," Rejczak said.
He noted that Daewoo's building, the Warsaw Trade Tower, might experience some difficulty because of the relatively small amount of space that is available on each floor. The spaces ranges from 1,000-1,300 square meters, which is less than other prominent buildings, he said. The Swede Center on Aleje Jerozolimskie has an average of 5,000 square meters on each floor.
He also pointed out that Daewoo, unlike Swedish developer Skanska, is known more for its manufacturing operations, not its investment into real estate.
Other observers said the two projects should not have any difficulty leasing the space. "I think there are enough companies on the market that they can fill the buildings," said Jeroen van der Toolen, agency director of DTZ Debenham Zadelhoff.
There may be a lot of companies, but now there are a number of new buildings to choose from. Approximately 3.5 million square meters of A-, B- and C-class office space are currently available in Warsaw, 400,000 square meters of which are class A, Jones Lang Wootton's Chatfield said. Another 800,000 square meters of office space are expected to come on line by 2000. "Supply is certainly running ahead of take up," he said.
A good portion of that, or about 350,000 square meters, is expected to hit the market this year, Chatfield said. Approximately 50% of that new space will be in the center of Warsaw, while the other 50% will be outside. "My feeling is that, for this year, we will see take up of 200,000 to 220,000 square meters," Chatfield said.
Chatfield stressed, however, that if the market were saturated, it would only be for a short period of time. Other cities in Western Europe sport far more space than Warsaw. For example Munich, which is demographically similar to Warsaw, has 10 million square meters of office space.
"You see that Warsaw's still way behind," Chatfield said.
That situation is helping to quiet any fears Daewoo may have. "I think we are confident about letting the space," said Daewoo's marketing director, Young Chul Park.
Park said the building would offer pre-leasing discounts that would put rents around $30-$38 per square meter. Once the building is completed, he said prices would be $40-$45 per square meter. However, he acknowledged that rental rates are falling and that Daewoo may have to lower its expectations.
Reform Plaza expects to get similar levels. Robert Ledzinski, an agent and property investment adviser with Unikat, one of several agents working on Reform, said that initially rates would be $34 per square meter. After the building is completed, they will go to $39.
Whatever rents end up at, most real estate agents and developers agree that they will be lower than the peak prices of $40-$45 a square meter this market has seen. Whether that means that large tenants will be willing to move their offices to cheaper buildings is an open question.
Samsung Electronics Polska, which leases an undisclosed amount of space in the Ochota Office Park on Aleje Jerozolimskie, has a lease running until the end of 2000.
Samsung President Jang Jae Lee said he was unsure if the company would move once its lease is up. "I want to renegotiate with the owner first," he said. But "it's possible."
The new buildings' combined office space will comprise 40% of the supply in downtown Warsaw, said Peter Chatfield, head of Jones Lang Wootton, the exclusive broker for the Warsaw Trade Tower. That much available space is expected to push down rates for class-A space, the asking price for which now hovers around $35-$40 per square meter. Most of that space, however, is let at about $32-$33.
"I think it is unfortunate that both buildings are coming on line at the same time," Chatfield said.
The projects, in combination with the large amount of new space already on the market, could help push prices as low as $25-$30. "I can see that happening this year," Chatfield said.
Thorsten Brudigam, president of property developer TeamWorx, agreed that rents are on their way down. TeamWorx developed the Focus Filtrowa Business Center, a 33,000 square meter building off of Aleje Niepodleglosci, which is due to be completed in 2000. "Frankly speaking, there is some room for decline," he said.
In addition to dumping a significant amount of new supply onto the market, the buildings also make developers a little anxious because both projects are speculative, meaning that they do not have tenants lined up just yet.
Daewoo plans to take 7,000 square meters of one tower for its own affiliates, but building representatives still do not have any other tenants completely nailed down.
Adam Rejczak, a negotiator with Healey & Baker, admitted that he was worried about the two new buildings but stressed it was only "to a degree."
"Of course they will influence the market somehow, but I don't think it will hurt the market," Rejczak said.
He noted that Daewoo's building, the Warsaw Trade Tower, might experience some difficulty because of the relatively small amount of space that is available on each floor. The spaces ranges from 1,000-1,300 square meters, which is less than other prominent buildings, he said. The Swede Center on Aleje Jerozolimskie has an average of 5,000 square meters on each floor.
He also pointed out that Daewoo, unlike Swedish developer Skanska, is known more for its manufacturing operations, not its investment into real estate.
Other observers said the two projects should not have any difficulty leasing the space. "I think there are enough companies on the market that they can fill the buildings," said Jeroen van der Toolen, agency director of DTZ Debenham Zadelhoff.
There may be a lot of companies, but now there are a number of new buildings to choose from. Approximately 3.5 million square meters of A-, B- and C-class office space are currently available in Warsaw, 400,000 square meters of which are class A, Jones Lang Wootton's Chatfield said. Another 800,000 square meters of office space are expected to come on line by 2000. "Supply is certainly running ahead of take up," he said.
A good portion of that, or about 350,000 square meters, is expected to hit the market this year, Chatfield said. Approximately 50% of that new space will be in the center of Warsaw, while the other 50% will be outside. "My feeling is that, for this year, we will see take up of 200,000 to 220,000 square meters," Chatfield said.
Chatfield stressed, however, that if the market were saturated, it would only be for a short period of time. Other cities in Western Europe sport far more space than Warsaw. For example Munich, which is demographically similar to Warsaw, has 10 million square meters of office space.
"You see that Warsaw's still way behind," Chatfield said.
That situation is helping to quiet any fears Daewoo may have. "I think we are confident about letting the space," said Daewoo's marketing director, Young Chul Park.
Park said the building would offer pre-leasing discounts that would put rents around $30-$38 per square meter. Once the building is completed, he said prices would be $40-$45 per square meter. However, he acknowledged that rental rates are falling and that Daewoo may have to lower its expectations.
Reform Plaza expects to get similar levels. Robert Ledzinski, an agent and property investment adviser with Unikat, one of several agents working on Reform, said that initially rates would be $34 per square meter. After the building is completed, they will go to $39.
Whatever rents end up at, most real estate agents and developers agree that they will be lower than the peak prices of $40-$45 a square meter this market has seen. Whether that means that large tenants will be willing to move their offices to cheaper buildings is an open question.
Samsung Electronics Polska, which leases an undisclosed amount of space in the Ochota Office Park on Aleje Jerozolimskie, has a lease running until the end of 2000.
Samsung President Jang Jae Lee said he was unsure if the company would move once its lease is up. "I want to renegotiate with the owner first," he said. But "it's possible."
