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Edgar Rosenmayr and Piotr M. Krawczyński, managing directors and board members of Kulczyk Silverstein Properties, answer our questions about the importance of a good location, the interest of Western investment funds and environmental certificates.
Holland Park on Plac Trzech Krzyży in Warsaw is the latest acquisition for Kulczyk Silverstein Properties. What’s next on your shopping list?
Edgar Rosenmayr (ER): We are looking at several projects in the centre of Warsaw. We are interested in projects with excellent location and original architecture. Projects with potential for us to give them a new quality, turn them into buildings with the world’s highest architectural standards and efficiency. And thereby – to significantly increase their value. Indeed, an excellent example is the old Holland Park which, following a general overhaul and conversion, will become the most desired address in Warsaw. For it will be the only top-class office building located in the most prestigious location of Plac Trzech Krzyży, in the immediate vicinity of Warsaw’s stock exchange, Polish Parliament, embassies and luxury boutiques. An office building with its own life, as plans include a prestigious service area on the ground floor, and one which will exist in the very heart of vibrant Warsaw.
What criteria must an office property meet to find itself in the orbit of interest of KSP?
ER: We are interested in facilities in the centers of the largest cities in the Central and Eastern Europe region, with excellent access to public transport. There are not too many attractive locations for new investments in the centers of European cities anymore, therefore general overhauls and raising standards of existing facilities make it possible to build a high-quality property portfolio. Another criterion we consider important is the possibility of ecological certification. We want all our facilities to have environmental certification. For example, last June the complex on Plac Małachowskiego received BREEAM pre-certification with an expected rating of “very good”.
In your opinion, can the high activity of German and Austrian investment funds in the metropolitan office market exert price pressure on prime projects, or “will there be room for everyone”?
ER: The activity of international investors will certainly drive property prices up. But it does not change the fact that Poland maintains its leading position in the commercial property investment market in the Central and Eastern Europe region, both in terms of transaction volume, market liquidity and availability of financing for prime projects. In spite of price pressure, the transaction volume amounted to over EUR 1 bln in the first half of the year, against EUR 850 mln in the same period of last year. Warsaw remains the dominant market, accounting for ca. 70 percent of the total transaction value. I believe that demand on a stable, strong level and supply of space mean that from tenants’ point of view this is a good time for making decisions to change locations. From KSP’s point of view, the growth of the market and the prochange attitude of tenants are positives. We offer unique facilities, both in terms of location and quality of workmanship, management and prestige. Therefore, we have many reasons to attract the best tenants.
Aren’t you afraid of an “oversupply crisis” in the metropolitan office market? Over the next several months, more than half a million square meters of new office space will hit the market…
ER: No, oversupply does not involve the segment we operate in, that is top-class office buildings. The facilities most threatened by new offices are older buildings and those situated in worse locations. We don’t have these in our portfolio. Companies, for whom prestige and quality play a key role, aren’t in short supply in the market. They are willing to pay more both for location and management standard. Such companies naturally constitute a group of potential tenants for our buildings. It is also noteworthy that few top-shelf projects are currently being developed in the heart of Warsaw. Property market experts estimate that only 72 thousand sqm of luxury offices will be delivered to the market by 2016.
What, in your opinion, determines the success of an office building? Location, price, design, or possibly something else?
Piotr M. Krawczyński (PMK): The success of an office building is always determined by the sum of several factors, but location is key. Next, looking for a good quality to price ratio. Additional elements, such as the building’s efficiency, operating costs, environmental certification, technological solutions or security are increasingly taken into consideration. What also matters is individual approach to customers and quality of management. These days tenants expect something more than work comfort or access to conference rooms. They cherish comprehensiveness and exclusiveness, hence a growing popularity of office center’s located in business-supporting environments – prestigious commercial, hotel and entertainment space. It is an added value particularly appreciated by foreign companies. The project on Plac Trzech Krzyży will be just such a building.
After the deal was made you announced a renovation of Holland Park and an upgrade to the standard of the building. Could you tell us about this project?
PMK: Over the next several months, we will thoroughly renovate the property and greatly enhance its functionality. We are planning to expand the office space, now slightly more than 10,000 sqm, which will then receive class A. Just like with our other facilities, we will proceed with the work taking into account the BREEAM certification. We also want to greatly expand and rearrange the commercial part on the ground floor. In its new look, instead of the current 1,400 sqm, it will have more than 5,000 sqm and become one of the few such spaces in Poland to be fully adapted to the needs of premium brands. The Plac Trzech Krzyży area will soon be a combination of business and social life with first-class commerce. Warsaw has been missing such a place.
And what about the work in two of your other projects, on Plac Małachowskiego and Mazowiecka St.? When will the first tenants be able to move in?
PMK: Both buildings are currently undergoing comprehensive modernization and revitalization works, which will adapt them to the highest standards of Class A. What makes these projects stand out is the fact that we are successfully combining state-of-the-art technological solutions for office buildings with opportunities provided by historic locations. Future tenants will benefit from: the central building control system BMS, HVAC systems, suspended floors and ceilings. The highest comfort and work safety come first for us. The opening of the complex on Mazowiecka 2/4 is planned in the coming months, but even as we speak, we are talking to potential tenants interested both in office space (2,250 sqm) and commercial space (766 sqm). The complex on Plac Małachowskiego will expand with new office space of more than 7,500 sqm and offer tenants a total of more than 12,500 sqm of modern offices. A commercial part of more than 1,500 sqm will also be available at Plac Małachowskiego. We intend to make the building available to tenants at the end of next year.
What do you think about the recently fashionable environmental certificates? A temporary marketing fad or a sign of market maturity and concern for the environment?
PMK: In my opinion, it is a sign of market maturity, concern for the environment and a thoughtful investment strategy. The past two years have undoubtedly been marked by environmental certification of office buildings. Developers are becoming increasingly aware that such facilities are cheaper to maintain. Moreover, it is easier to obtain bank financing for the so-called “green buildings”. Certified buildings enjoy greater investor interest and many funds invest their resources only in such projects. Green certificates also influence the property’s liquidity.
Are you considering a strictly developer activity in the office sector in the future?
PMK: The projects we are currently developing, on Plac Małachowskiego and Mazowiecka Street, as well as the project on Plac Trzech Krzyży, share many features of developer projects. The changes are fundamental, the space, functionality are increasing, and the entire infrastructure of the buildings is rising virtually from scratch. This comes from the fact that Kulczyk Silverstein Properties is primarily a developer company, not only an investment one, and this is where our advantage lies, because we control the entire investment process and provide tenants with the highest quality, both in terms of workmanship and property management. In the future, we are also planning projects which are much more like property development in their character.
Source: Office Buildings in Poland, Autumn 2013