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Developers have chosen the good access strategy. They are locating office buildings along main transport corridors.
A new address has been charted on the Krakow office map. On October 17, the Buma Group handed over the second building (marked A) in the Green Office development in Czerwone Maki St. to Motorola Solutions Systems Poland. By the end of the year, the same developer will also commission the second building of the Quattro Business Park in Bora-Komorowskiego St. At the end of 2011, Krakow will have over 500,000 m2 of modern office space, not including the space in office buildings constructed by companies like Ericpol or Comarch for their own use.
Krakow is the second office market in Poland. There was only one year when it lost that rank to Wrocław. The first place taken by Warsaw in the ranking of cities with the greatest floor area of modern offices is undisputable, but this is because it represents a metropolitan market. It also seems that, today, no Polish city can compete with Krakow for the second rank.
“We have been observing a recovery on the office property market in Poland. Krakow is gaining new office blocks while vacancies are decreasing. This proves the acumen of developers in this sector, who can adjust supply to demand in difficult times” judges Jarosław Czerski, an analyst from the Analysis Institute – Property Market Monitor.
Around this time of last year, the rate of vacant office space in Krakow reached 17 per cent. This was due, among other factors, to the record amount of new office space commissioned in 2009. Even in 2008, only 1% of vacancies was recorded. In practice, hardly anything could then be leased at modern office blocks. The worst situation ever occurred in 2003, when office vacancies amounted to as much as 26% of space, which was in turn due to the commissioning of the CBL office block which was occupied very slowly while representing a significant portion of Krakow’s office space.
In 2010, Krakow saw an additional 63,000 m2 of modern office space. This year, regardless of the economic recession, new office blocks keep being commissioned. The Bonarka4Business development provided two buildings, marked A and B, with the areas of 7,700 and 8,000 m2. Yet another two buildings were completed (in May and October) by Buma as part of the Green Office. In addition, construction started on the 1st stage of the Enterprise Park in the Zabłocie district, a project postponed because of the crisis. Jarosław Czerski, an office market analyst, estimates that over 40,000 m2 of office space will be commissioned in Kraków in 2011. Regardless of new space coming online, at 11 per cent, the vacancy rate is lower than a year ago. “I expect it to fall still lower in the nearest future” – forecasts Jarosław Czerski.
The most important tenants, who have significantly reduced vacancies in office buildings, are Shell, Capgemini, Sabre and Motorola, which may employ over 1,000 staff at two Green Office buildings. Usually, when a large corporation leases a new office building, this is the result of it implementing its growth strategy and means new jobs. Growing companies change buildings, those doing well look for more attractive sites of a higher standard and in a better location. When they move to new office blocks, they vacate space in their old ones. At present, the entire Krakow office market offers altogether more than 900,000 m2 of offices. The analyst believes that not every office building will find tenants for all of its space.
“This problem concerns not only offices of a lower standard, but also new buildings, but in the wrong location. Office blocks whose address had not been thought out will lose tenants. A problem that scares companies away are insufficient numbers of parking spaces. Class A calls for 1 space per every 50 m2 of office space. Unfortunately, at many newly build office blocks this level is unattainable. Developers have clearly focused on producing space, but not on ensuring good conditions for future tenants. In Krakow, we so far have only one multi-level car park next to the Azbud office building (in Pokoju Ave.). The second one is being erected next to the Quattro Business Park (703 spaces). The parking space situation can lead to conflicts with local residents, which have occurred in the vicinity of Lea St.” – comments Jarosław Czerski. “Developers have chosen the good access strategy. They are situating office buildings along main transport corridors ensuring good access by public transport.”
Saving on car parks allows an office building to be built cheaper. This leads to office properties being dispersed. Krakow does not have a typical office district. However, four locations with high office concentrations can be distinguished. These are primarily the Kraków Business Park in Zabierzów (KBP) – 70,000 m2, strongly impacting the office market in the city even though it is 3 km outside its borders; the Special Economic Zone in Czyżyny – 50,000 m2, and the SE Zone in Pychowice – 38,000 m2 as well as the offices in Armii Krajowej St. – 50,000 m2.
Projections
The analyst of the Property Market Monitor estimates that 40,000 to 60,000 m2 of office space will be commissioned annually in the next 3 years in Krakow. “Developers have prepared many projects, some of which have already been granted building permits” – says Jarosław Czerski. “If only the demand is there, they will be ready to react quickly. The KBP in Zabierzów alone has set aside land for building 90,000 m2 of offices. They can also be built in Zabłocie and Czyżyny districts, along 29 Listopada Ave., Pokoju Ave., Zawiła St. You have to remember the developments already initiated, like Bonarka4Business or the Quattro Business Park, which will offer 82,000 m2 in total.
This April also saw the construction of the 3rd stage of Green Office begin, with completion scheduled for July 2012. Altogether, the developers are reporting projects of over 200,000 m2.
The question arises: Will such a large amount of office space not work to developer’s disadvantage? Will it not cause a glut on the market, which is already a tenants’ market today? It is pushing rents down. Jarosław Czerski’s analyses indicate that in class A offices, rates of €13 - €14 per m2 are offered, with €11 to €13 in class B. Service charges are inching up (PLN 12 – 15 per m2). A market boom or bust depends on many factors.
“The Krakow market has many strengths contributing to good perspectives for the office market” – Jarosław Czerski believes, referring to the good brand of the city, which attracts international investors. What counts is the reserve of well-educated staff and the great location of Krakow both in Poland (close to the Silesia urban area) and in the middle of Central and Eastern Europe. The rich cultural and entertainment offering of the city is also listed as a strength, as it provides the right quality of after-work life. This is an argument for foreign multinationals looking for locations. The vicinity of an airport providing easy access is also significant.
“In addition to the above upsides, we also have another important asset: the rents, living expenses of the staff, costs of legal and marketing services are lower than in Warsaw. This is Krakow’s chance for developing the office market”- adds Jarosław Czerski.
However, we also have weaknesses: no possibility of creating a compact commercial centre near the downtown, constant problems with public transport, no local spatial development plans, lengthy legal and administrative procedures in construction and Krakow’s speciality, i.e. protests against new developments. Krakow residents aspire to higher and higher salaries, which may scare off new investors, who can find cheaper educated staff in Bulgaria, Romania or Asia.
“In addition, Krakow has a robustly growing competitor - the expanding Silesia urban area - with much more demand, well-educated young staff and a better solution to the transport problem, including the burgeoning Pyrzowice Airport” – comments the MRN analyst. “However, the greatest threat comes from the economic crisis. Recovering from it will determine the pace and direction of development of all economic sectors, and therefore also of the property market.”
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