Warsaw office rents high but falling
Office rents in Warsaw have dropped by 10% annually during the past couple of years, but the capital remains more expensive than most other similar-sized European cities, said Healey & Baker, a U.K.-based property consulting firm.
The annual cost of renting office space in Warsaw this year is $348 per square meter, according to a Healey & Baker report on the office market in Poland. Only world business capitals such as London, Paris and Frankfurt, or cities in the throes of an economic boom such as Stockholm and Dublin are more expensive, the report said.
Warsaw is more than 60% pricier than Budapest and Prague, where the annual cost of renting office space this year was $201 and $212 per square meter, respectively, Healey & Baker said.
The majority of Western European cities are cheaper than Warsaw, with Amsterdam at $300 per square meter a year; Milan at $259; Brussels at $203; and Copenhagen at $189, Healey & Baker said.
But Healey & Banker said Warsaw rents would start to come down soon. "A further moderate decline in rents will be seen in the near future," the report said. But company officials said the downward trend would not be dramatic. "In our opinion, one shouldn't expect a significant decline," said Adam Rejczak, senior negotiator with Healey & Baker's Warsaw office. Rejczak said that he expects rents to fall by an additional few percent and stabilize next year. "I'm convinced it (the drop) will be less 10%," he said.
Another reason for the fall in rents is the large number of vacant offices in Warsaw, among the highest in Europe at almost 13%. Only Budapest, with 15%, and Prague, with 16%, have higher vacancy rates, while all Western European cities surveyed by Healey & Baker have vacancy rates in the single digit range.
This oversupply of office space also looks set to continue as an additional 410,000 square meters of office space is now under construction in Warsaw, Healey & Baker said. The new construction will increase total modern office stock here by about 40% to 1.46 million square meters, the company said.
Even if vacancy rates match those of Budapest and Prague, that doesn't necessarily mean Warsaw rents will drop to the level of those capitals, Rejczak said. He added that the Warsaw market is different, and can support higher rents than in neighboring countries. "The price results from the market," he said. "If the market accepts it, the price is justified."
Chelverton denies new
Wisniowy project
U.K.-based developer Chelverton denied earlier press reports that it was planning to develop a new office project next to its Wisniowy Business Park.
Last week, the Polish press reported that Chelverton which developed the 32,000 square-meter Wisniowy Business Park at the intersection of ulica 1 Sierpnia and ulica Zwirki i Wigury near Warsaw's Okecie airport planned to build another project on the intersection's southern corner. The undeveloped plot is now occupied by cooperative gardens.
"We, Chelverton, are not involved," said Graham Kilbane, project manager with company. Kilbane said that Chelverton's only project is an expansion of Wisniowy that has nothing to do with the site located south of the intersection.
Chelverton has five buildings in the Wisniowy Business Park so far, and plans to build another one, called phase F, with a total of 10,000 square meters, Kilbane said. The company could start construction next spring provided it finds tenants willing to sign a pre-let deal. "We are talking to three interested tenants," he said.
Kilbane added that the information about Chelverton's plans on an adjacent site to Wisniowy resulted from a misunderstanding that arose during the Warsaw Commercial Real Estate Tour, a promotional event during which participants were driven around Warsaw in a bus. When the bus visited Chelverton's Wisniowy Business Park, a commercial agent making the presentation on the property was misunderstood by journalists, Kilbane said. "That was a complete misquote," said Ben Bannatyne, the Jones Lang LaSalle agent in question. Property sources said they are unaware of any other developers planning projects next to Wisniowy. "I haven't heard about any other developer buying land in the area," said Pierre Couderq, co-owner of Couderq & Partners, a Warsaw-based real estate agency. Couderq added that anyone interested in the plot south of the intersection would have a tough time developing it, as the area is occupied by cooperative gardens. Developers have found it virtually impossible to transform cooperative gardens into development sites because of their complicated ownership structure. "I don't know any cooperative gardens that have been transformed (into development sites)," Couderq said.
Lafarge out with the old,
in with the new
French construction materials giant Lafarge plans to close one of its three cement plants in Poland to concentrate production in modern facilities, the company said.
The plan follows similar moves by competitors, industry watchers said.
Lafarge, which owns three cement plants in Poland in Malogoszcz, Kujawy and Wierzbica, and has more than a 20% market share, plans to stop cement production in Wierzbica, about 140 kilometers south of Warsaw, said Stefan Makarczyk, spokesman for Lafarge in Poland.
"Continuing production in Wierzbica is unprofitable," he said. "Modernizing would be too expensive."
Makarczyk said Lafarge plans to focus on the modernization of its Malogoszcz and Kujawy plants, while Wierzbica will only be kept as a supplier of raw materials to those plants, he said.
"I'm not surprised they want to shut Wierzbica down," said Adam Murza-Murzicz, a financial adviser who in 1996 worked for two of the National Investment Funds (NIFs), which sold Wierzbica and the other cement plants to Lafarge. "It will be economically justified," Murza-Murzicz said. "It (Wierzbica) is too small."
The Lafarge decision comes on the heels of a similar move by a competitor, Belgium-based CBR. CBR also has more than a 20% market share and owns four cement plants in Poland in the towns of Gorazdze, Strzelce Opolskie, Groszowice and Wiek. Over the past two years, the company has closed the Groszowice and Wiek plants.
"The facilities that were closed were outdated. We had to subsidize production there," said Maciej Kaliski, board member of the CBR-owned Gorazdze company.
Poland's cement industry boomed in the mid-1990s when multinationals such as Lafarge, CBR, Dyckerhoff, Miebach, Readymix and CRH went on a cement plant shopping spree. The acquisitive streak was a major source of income for the NIFs, which had been established to privatize several hundred state-owned companies, Murza-Murzicz said. "If we hadn't owned those cement plants, the NIFs would have collapsed during the first year of operation," he said.
Lafarge alone has invested $357 million in its Polish cement and construction materials plants between 1995 and 2000, and plans to invest an additional $252 million in the next three years, Lafarge said.
Murza-Murzicz said cement multinationals were ready to pay substantial funds for inefficient companies to gain a foothold in the Polish market.
CBR's Kaliski said the multinationals buying into the industry in Poland would probably shut down several plants. He said they were also buying cement plants to acquire limestone reserves owned by the companies, he said.
The slowdown in demand for cement in Poland has also helped prompt the decision to shut some factories, Kaliski said. "This is a normal situation you shouldn't subsidize production," he said.
Demand for cement in Poland has increased by only 1-3% during the past year. "Currently, capacity is higher than consumption," Kaliski said.
This year, Poland is expected to use slightly more than 14 million tonnes of cement, while the capacity of local companies is about 16 million tonnes, according to figures from the Association of Polish Cement and Lime Producers.
