Demand for office space is returning and the real estate sector is slowly making up for losses it suffered as a result of the global economic downturn in 2008 The role of the brake is still played by the banks, that when providing loans for new investments make the decision dependent on the number of pre-lease contracts signed - this is how one can briefly summarize the heated discussions at the conference "Office buildings in Poland", organized by the company Nowy Adres SA.
In just three years, a series of conferences "Office buildings in Poland" made its own mark of the largest and most prestigious office real estate industry meeting in Poland. In last Tuesday at the Warsaw Marriott Hotel, more than 220 people met - office developers, brokers, managers and representatives of banks and financial institutions. Prevailing opinion was the one that states that with the improvement of the overall economic situation of the country, the demand for offices will also increase - We estimate that all currently available office space in Warsaw could be absorbed by the market during a year."Downside" of the highest availability is already in the past: the supply of new space is limited, demand is increasing and rents will likely rise in the first half of 2011 - expects Hadley Dean, Managing Partner of Colliers International in the region of Central and Eastern Europe, a special guest of the conference. Tomasz Czuba of advisory firm, Jones Lang LaSalle, agrees with his opinion: - The best year for the Polish market was 2008. There were contracts signed for 520 thousand square meters of office space.In this year, contracts for 380 thousand has already been signed, and we expect that by the end of December the volume reaches 460 thousand sq m. So you can see in black and white that this year is much better than the previous one, and developers may have reason for optimism. This result, of course, consist of the renegotiation of expiring contracts, but analysts say the companies increase the area they already occupy, and not limit it, which was a common occurrence in 2009 The phenomenon of reducing costs by subleasing occupied space is disappearing .
So if anyone would like to rent office space in the near future, should hurry up - but the current situation can be described as "tenants market" it is likely in the next 12 months it will begin to transform to the "developer market". - In 2011, the supply will be minor.This is due to the fact that in 2008-09 the banks, developers and investors, focused on the defending the financial results and minimizing losses, did not started any new projects. Next year demand should surpass low supply, asking rents will begin to approach the effective rents, and the incentive packages for new tenants will shrink. Further development will depend on how many developers would dare to take a chance and start new projects in the next six months - says Tomasz Buras, director of leasing office space at King Sturge.
Only the biggest developer, that can finance the project entirely with their own funds will be able to start new investments. Because banks are still wary of the commercial real estate market and make the loan dependent on the number of pre-lease contracts for at least 30 percent of the space, before the construction - The requirement of high pre-lease is a non-market behavior and simply exclude banks from participating in the profits of the office market.Pre-lease at over 30 percent is a cost of over half a million Euros yearly. It should not be surprising, that they will not agree to this condition and will look for other sources, such as mezzanine financing - said Adam Trybusz, CEO Andersia Property Sp. z o.o.He was seconded by Sergiusz Gniadecki, CEO of Tri-City developer company, Allcon Investment Sp. z oo: - Currently, the requirement of pre-lease is almost impossible to fulfill, especially for smaller developers - only the investors, who can skip the banks and build with their own capital will be able to exist on the market. Customers will be satisfied, developers will be happy, and banks will lose because they won't participate in the distribution of profits. Banks, however, do not predict any ease in the lending conditions for new office projects - The requirement of a high pre-lease is like democracy - it's a requirement that harms the developers, and is a huge barrier for new players, but still there is no better way to verify the developers - defended banks Krzysztof Czerkas, a board member of BRE Bank Hipoteczny.
Radoslaw Popko had the same opinion. He is a representative of German banks, BerlinHyp and LBB in Poland: - As long as the vacancy rate will remain high, the bank will not give up the requirements of pre-lease.It is a sign of acceptance of the location and design of the market - the developer and the bank may be wrong, customers do not. Thus, although the abolition of this requirement by the banks at the moment is a no-go, Popko remains optimistic: - Polish office market still has great potential. In Warsaw, we have now less than 2 square meters of office space per capita. In Western Europe, there is an average of 6-7 sq m Capital market consists of a total of over 3 million square meters of offices - in Paris it is 54 million square meters, of which 6 million are vacant. Paris is, of course, a much larger city than Warsaw, but the comparison shows how great prospects for development this market has.
Slightly less optimistic is the outlook for the regional office markets that are heavily dependent on large tenants in the BPO / SSC sector. Limitation of expansion plans by these companies particularly struck cities like Lodz, where the vacancy rate is higher than 20 percent. - When it comes to traditional call centers, good times for Poland has passed - we are less numerous than the Chinese and the Indians, we will always lose with them in the category of labor costs.More advanced shared service centers should be created in Poland - accounting, development of new products, etc. There is already a number of such investments, and there should be more and more of them - predicts Tomasz Buras.However, the commonly held perception that the tenants of the BPO sector are satisfied with the space of the lower class is no longer valid in the face of fierce competition, which takes place in regional cities - If someone wants to build as cheaply as possible, as the location of investments he may consider a city that offers the availability of cheap, skilled labor, and where it does not yet offer office space for tenants in the BPO sector, as Lublin and Bydgoszcz.In more mature markets, such as Krakow, Wroclaw, Poznan and Lodz, tenants are increasingly demanding quality and, despite low rents, they demand some additional conditions, such as adequate interior finishing, dedicated technical infrastructure and good communications - said Maciej Golebiewski, director of leasing and marketing of Avestus Real Estate.