Warsaw still capital of commercial real estate
By : Tomasz Jedrzejowicz
Warsaw continues to dominate the commercial real estate business, with the capital still the No. 1 choice for most companies starting up or expanding their investments in Poland. For provincial cities such as Krakow, Poznan and Wroclaw, industry insiders usually point to long-term potential, implying that for the short term at least they will remain in Warsaw's shadow.
"I advise my clients (entering Poland) to set up their headquarters in the capital," said Pierre Couderq of Couderq & Partners, a commercial real estate agency. "Everything in Poland is centralized."
From their headquarters in Warsaw, companies tend to open regional offices later, posing a problem for commercial property developers as satellite offices are often much smaller than companies' Warsaw operations. "Companies typically rent some 4,000 square meters in Warsaw and 400 square meters in Krakow," said Monika Suldecka, a consultant with the Krakow office of Knight Frank Nieruchomosci. Major Polish firms with local roots are an exception, she said, as Poznan-based Wielkopolski Bank Kredytowy (WBK) recently leased 70% of the newly built Poznan Financial Center.
Beyond the handful of big firms based in regional cities, the market for commercial real estate in such places is tiny. Few foreign firms launch their main offices outside Warsaw and those that do often regret the decision, said Nigel Wade, a director with CB Richard Ellis. Wade cited S.C. Johnson, a cleaning products manufacturer that relocated from Poznan to Warsaw because it felt it was losing out by not being in the capital.
Companies still target Warsaw
The flow of new companies laying down roots in the capital is not showing any signs of slowing, Couderq said. With a vacancy rate of 14%, plenty of office space is available, and more is expected. According to a report by Jones Lang LaSalle, an Anglo-American real estate agency, new space for 2001 is estimated at 350,000 square meters. In addition, class-A rents in Warsaw have fallen below $30 a square meter, just 10-20% higher than for comparable space in Poznan or Krakow.
Dismissing the argument that Krakow has more to offer than Warsaw in terms of quality of life, Couderq said: "I have never seen a company choose not to open its headquarters in Warsaw because of a 'poorer quality of life.'"
To attract big companies, regional cities are highlighting advantages not found in Warsaw. Krakow, intent on becoming the country's high-tech capital, opened its Krakow Technological Park in 1998 using tax incentives to lure such investors as telecom equipment giant Motorola, U.S. printing firm RR Donnelley & Sons and U.S.-based car components producer Delphi Poland. The city's burgeoning high-tech industry has resulted in similar firms setting up offices in Krakow, such as Delphi, which relocated from Warsaw, as well as newcomers. U.S. environmental engineering firm CH2MHILL also set up its headquarters in Krakow, for example. Encouraged by the success of Krakow's Technological Park, Wroclaw has plans to create its own high-tech industry zone.
EU incentive
According to industry watchers, a number of factors could stimulate office development in regional cities. One of these is the growing number of Warsaw companies looking to establish offices in the capital. European Union (EU) accession could also significantly boost demand for office space outside Warsaw, said Jerzy Hendrich, head of Wroclaw-based property consulting firm Commercial Property Services. He said that once Poland joins the EU, many medium-sized Western businesses will be looking to set up offices here. For them, costs will play a far greater role than for the huge multinationals already in Warsaw. Smaller businesses will be limited to choosing cities where rents and labor costs are lower. The development of highways is another variable that could work in favor of regional cities. Krakow and Katowice are already connected by a highway, while work on the Katowice-Wroclaw stretch of the A4 highway is already in an advanced stage and slated for completion in 2004. Meanwhile, construction of the A2 highway from the German border to Warsaw is marred by financial and legal woes and the initial 2008 target date for its completion now seems optimistic.
Real estate professionals said that despite Warsaw's position as the most attractive Polish city for foreign firms to set up their operations, the trend will not last forever. They cited France and the U.K. as examples, where Paris and London are the centers of commerce, but have sizeable property markets that attract businesses with lower rents than in the capital.
