Witold Zatoński, Founder of Syrena Real Estate, talked to Property Forum about the profitability of revitalizing older office buildings, the challenges related to such projects and the development of the PRS market in Poland.
What is the status of work and your Diuna project in Warsaw?
The key works in the modernization of Diuna have been completed. The courtyard has been transformed from a huge concrete car park into a public green park. The common areas of the four office buildings have gone through a metamorphosis, and modern building systems have been implemented throughout the project. The effects of the upgrade are clearly visible. At the moment, the General Contractor of the modernization project is still carrying out work on the area around the buildings. The two main entrance gates, the ramps leading to the underground car park, and the underground car park will also soon be upgraded.
Where did the idea come from to turn a concrete car park of almost 6,000 square metres into a green oasis open to all in the "Mordor" area of Służewiec?
When we bought Marynarska Business Park in 2020 we were devastated. The vacancy rate was 40%, and food & beverage tenants were gone. The complex was a bit forgotten and with poor prospects for the future. We understood that only a drastic change would bring the project back to life. We observed that a yard is a car park desert which suffocates the whole project. The only antidote was to dramatically change it from cars only to no cars at all, from concrete desert to flourishing greenery. Together with PineBridge Benson Elliot, we created a proprietary modernization program that covered three areas: the exterior and surroundings of the buildings, the entrance lobbies of the four office buildings, and improvements to the building systems. The strategy worked well. Since we started the revitalization process, all existing tenants have renewed their leases of office space and we have signed new contracts. At this time, the commercialization of the complex is close to 75% and we are in the process of negotiating leases for further space. The new office park is popular with both the employees of the complex and the local residents.
Revitalising and raising the standards of older office projects in Polish cities is a trend that will probably gain in popularity, given that new space is practically not being created today…
The main driver of revitalization is not really a lack of new constructions but rather a change of expectations of what the office building has to offer to its tenants. We believe that the market has redefined what an office building should be. Additionally, we have carbon emission thresholds to which all of us have to adjust. The only way to address these two factors is the revitalization and modernization of older office buildings and our goal is to become a leader of such projects on the Polish market.
Raising the value and attractiveness of buildings in terms of ESG guidelines is something that investment funds obviously like. And what do potential tenants think about this? In your opinion, are they really willing to pay higher rent to have an office in a 'green' building?
Improvement of the value attractiveness of the building is however very costly. Therefore it is possible only for buildings which has lost a lot of value or have a significant rent increase potential. Only under these circumstances revitalization is able to create value for investors. On the other hand, tenants will be ready to pay a premium only if the building offers this additional value defined by what ESG stands for. But not only environmental aspects are important. Social and governance features are gaining importance to maintain balance and to achieve truly sustainable projects.
Is Syrena Real Estate trying on more developments of this type in the near future? If so, which ones?
We love challenges and we love to add a creative element to each revitalisation process. We also feel that we learn lessons during each project that may be applied only to the next one. We started with the HOP building on Chmielna Street in Warsaw and despite it was relatively small project, we managed to change a lot. Now the building lives again thanks to the restaurant LUPO or our common program with the Museum of Modern Art in Warsaw. We have made one of the non-obvious rooms in the building available for cultural purposes - an apartment that is serving as an artistic apartment. Artists cooperating with the Museum of Modern Art from abroad live here free of charge as a part of the artistic residencies project. In the case of Diuna, we had more freedom and in this project, we could implement changes that were not possible in HOP - such as a huge, publicly accessible green space, basically a mini park in the centre of the business district. Therefore, we are constantly looking out for new challenging revitalisation opportunities and hopefully, we will communicate the next investment projects soon.
How is your PRS brand Habitu developing? When can we expect the announced new projects outside Warsaw?
We are working very intensively to grow our Habitu PRS platform on the basis of our single operating asset with results of which we are very happy. It has been completely commercialized in two months in 2022 and remains at this level. Recently, the Lux Med Group joined the investment and will occupy three commercial premises on the ground floor of the building. We hope to be able to communicate within the coming months new projects both in Warsaw and in regional cities.
How do you think the PRS market will develop in Poland? After a very dynamic start, the sector seems to be catching a bit of breath for a while...
In my opinion, there is no alternative to the further rapid growth of this segment, as the availability and affordability of apartments are constantly decreasing. The only way to improve it is to increase the number of apartments both for sale and for lease. In my opinion, it should become the priority for the new government.
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