Many office developers expect to see a supply gap in Warsaw over the next few years and some are ready to take advantage of this opportunity. Jeroen van der Toolen, Managing Director – CEE at Ghelamco talked to Property Forum about the changes in the Polish office market, the incoming supply gap and the company`s interest in the PRS sector.
You have been recently celebrating the 30th anniversary of Ghelamco`s presence on the Polish property market. Could you please briefly describe, how has our market changed during these three long decades?
We can confidently say that during the 30 years of our presence in Poland we have grown together with the market, we have built it. After the fall of the Iron Curtain, we immediately noticed the potential in the region. Newly emerging Polish companies needed office space to grow, and we provided it. It also helped to attract foreign investors to the country. We built a lot, which allowed us to quickly gain knowledge and experience in the market. Today the market has definitely changed, as shown by the success of our first skyscraper, Warsaw Spire. Now it is not only the amount of surface that matters, but its quality, this is what attracts the world's largest corporations. That’s why we build the most modern and ecological buildings in Poland. Today, creating public space is an important aspect, hence our creation of Plac Europejski. In addition, the role of public transport has increased as well. Employees of our buildings, especially those located at Rondo Daszyńskiego, reach work by metro, trams or bicycles. That is why car parking will not consume such a large area of the building anymore.
Office developers in Warsaw have put on hold almost all new projects in the pipeline. Will we see a supply gap in the following years in this market?
Definitely. Please note that at the moment the only tower under the construction stage in Warsaw is our The Bridge. Everything indicates that it will be the only large office building in the capital that will be put into use in 2025. Of course, the pandemic has caused some serious reflections on the future of office buildings, but we knew that office buildings will remain important places for employers and employees. Therefore, during the pandemic, we were the only developer to start three investments in 3 locations - The Bridge in Warsaw, Craft in Katowice and Kreo in Kraków. Of course, we do not stop there and are already planning further investments.
Or maybe it is just because of the lack of good plots for new investments? Do you plan to move to the other regional markets, like with Craft in Katowice?
Our main market is Warsaw, but we also invest in other key cities, including Łódź, Kraków and Katowice, as we see their development. Of course, there is a shortage of attractive plots of land – especially in city centres – but we are in a good position because over the years of operating on the market, we have built a strong plot portfolio. Based on them, we can develop new projects.
How are you going to deal with the ongoing conflict of tenants pushing for shorter agreements and smaller offices versus the investors, constantly requiring well-secured, long-term leases?
Such situations do not affect us. We have not even had a single case where a tenant wanted to shorten the lease agreement or reduce the office space. Today, tenants expect buildings of the highest quality, providing both health safety and the highest ESG standards. Our buildings have all the most important environmental certificates, with the highest ratings. We have also placed a bet on the highest quality anti-pandemic solutions, never seen before on the market. Tenants also expect more and more digitization and integration of internal systems with building systems. In response to this, we created Signal OS, an analytics platform that allows for deep analysis of the energy consumed by tenants. Signal OS also improves the comfort of moving through the building.
This is also what investment funds are looking for. Of course, they expect long-term contracts, but at the same time, they pay a lot of attention to the technological quality of the buildings. They want the buildings to be at the highest ESG standards, and they want the technology to not age too quickly.
Do you believe that demand for „classic” offices will shift to flexible, serviced spaces permanently or is this just a temporary trend?
The working method has changed. That's a fact. A lot of companies are choosing a hybrid model. A small number of companies are choosing to work completely remotely. We still don't know which model will prove to be the most beneficial. However, we can clearly see that the office is still extremely important for creating an organization's culture. Perhaps its function will change, but it will still remain an important element of companies' existence.
Virtually everyone is buying warehouses and PRS. Should we expect a withdrawal of investors from pandemic-stricken retail and office markets?
Let me ask you a question: the biggest investment transaction in recent times? The sale of The Warsaw HUB to Google. Google becomes the owner of the office part, the retail and service passage as well as the underground part of the complex. The transaction value is close to €583 million, making it historically the largest single transaction on the office market in Central and Eastern Europe (CEE). The demand for modern office space in Warsaw is growing. This proves that offices have a future ahead of them, and investments in office buildings will continue. There is currently a lot of capital on the market that needs to be invested. We are currently in advanced talks with several investors interested in Warsaw UNIT.
The residential market in Poland is currently red-hot. Do consider strengthening your presence there and starting some new projects after the completion of Foksal 13/15, Flisac and Groen?
Do not forget about our investment in Piaseczno. We have also further phases of Groen in the pipeline. We are also working on 3 PRS projects. The residential sector is becoming more and more important for us, and our experience in this segment grows with every project. I am pleased to say that our investments have been very well received. Foksal 13/15 has practically been sold in its entirety, Flisac in its entirety and the first phase of Groen also. It is a very promising market, and we will certainly invest in it further.
