Is it still possible that the economic crisis may influence the office property market in Krakow?

The economic crisis caused by credit market crunch in the USA has exerted a strong impact on the real estate market.

4/5/12 10:26 PM CET

The economic crisis caused by credit market crunch in the USA has exerted a strong impact on the real estate market. While the residential market transactions decrease and the decline in the apartments’ prices were caused by limited mortgage possibilities, breakdown of commercial market was also connected with Stock Market crash.

 

 

The situation of modern office area market in Krakow is quite interesting: it is the second biggest market in Poland with almost 540,000 sq m supply but simultaneously there is no main location for business, like for example Mokotow in Warsaw. Because of the historical significance of the city and the limited availability of the quality plots, the A-class buildings are not located in the very city centre, they are not as high as in other cities and that is why there is one of the highest percentage of rented surface in Poland. The city centre is reserved for the tourist purposes and there is no business centre typical for other Polish cities. Most modern office buildings are located beyond the city centre, on the outskirts, in places with good transportation and high accessibility. Demand for office area in Krakow is really high, many multi-national corporations such as Shell, Motorola, State Street Bank, IBM, KPMG, Philip Morris, International Paper or CapGemini have decided to locate back-office functions in this city. There are huge multinational players on the office space like TriGranit or GTC but simultaneously the office space is delivered by smaller local companies, such as PPB Azbud, GD&K or Krakowskie Centrum Biurowe.

 

The biggest projects, like Krakow Business Park Zabierzow (58,000 sq m) has been placed outside the city, while in the very city center there are a lot of exclusive offices located in small buildings, like Nowa Kamienica (3,500 sq m) on Rakowicka Street. There are modern A-class office buildings, like Vinci Office Center (18,720 sq m), Bonarka4Business (16,000 sq m), Cracovia Business Center (13,200 sq m), Avatar (12,000 sq m), Centrum Biurowe Lubicz (11,800 sq m), GTC “Korona” Office Complex with Galileo, Newton and Edison (31,000 sq m of total area), Green Office (11,000 sq m), Quattro Business Park (23,800 sq m), Euromarket Office Center (13,000 sq m), Centrum Biurowe Kazimierz (15,000 sq m) or Buma Square (35,000 sq m) but it is still not enough for the city with almost 800,000 population. That is why the total vacancy rate in the office area for Krakow was at the lowest level in Poland till 2010 (less than 1% in 2008). In 2012 the office space vacancy rate in Krakow amounts around 8%. What is more, despite the economic crisis, new developments are being under construction. In the nearest future, there will be more square metres of A-class office area thanks to GTC Pascal (5,342 sq m) which date of completion has been postponed or other investments like Enterprise Park I (15,000 sqm). In the forthcoming two years the total supply of office area in Krakow will be around 600,000 square metres and with this result Krakow will strength its position of the second city in Poland, after Warsaw.

 

Is there a threat that the developing market of Krakow may be affected by the crisis? It seems that there wasn’t significant slowdown’s influence in the last three years despite the fact that average rental fees dropped a little bit and vacancy rates increased while there are still under the level of 10%. Nowadays, there are no visible marks of stagnation in the office area market. We still have a demand for a new space, low vacancy rates, limited supply and a few projects under construction. Taking into account this relatively low activity on new office space completion in 2012, it is predicted that the overall vacancy rate will be reduced.

But let’s see what may happen in the nearest future.

 

Limited supply of office space was the main reason for almost 90% office surface being rented and the highest price per square metre except for Warsaw. If all office complexes under construction are finished on time, then there will be new balance between supply and demand, probably with lower prices per square metre. What does it mean for the companies locating its headquarters in Krakow? They will have a choice because there will be more possibilities. There won’t be a need to rent the first area available but an option to focus on better location, lower price or more prestigious building.

 

On the other hand, the economic crisis should have a definite impact on demand for the office space. If this impact is really heavy, then the owners of the office properties will be forced to reduce the rental rates. In many Polish cities the first quarter of 2009 meant a breakdown of the office space market. For example Warsaw as a capital suffered a lot. In Krakow 2009 was quite special because despite the global credit crunch, over 102,000 sq m of modern office space was completed. It seems that in 2012 with an average monthly rental rates per square meter in prime location ranged from 15 to 17 EUR prices in Krakow will remain relatively stable. The difference in office rental rates between Class A and Class B is around 25%. The rental fees for Class B office space start from 10 EUR up to 14 EUR per square meter per month.We have noted one spectacular purchase transaction last year: Green Office was bought by the Azora Europe fund for the price of 24,000,000 EUR. It was the only purchase on Polish office space market which took place outside Warsaw.

 

There are some optimistic predictions for the second quarter and that is why it is still possible that the office space market of Krakow will develop. It is believed that another international companies, such as Heineken or Cisco which just entered the market, will set up new offices in our city. Krakow, named as a BPO operations capital of Europe, will surely attract new companies to run their business in the capital of Malopolska. Maybe it is hard to imagine such bright future at the times of recession but actually which city in Poland has better back-up than Krakow?

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About Lukasz Skowronski Advisory

Real Estate Advisory.
Lukasz Skowronski has strong academic background in Economics and Real Estate Management enriched by taking part in many conferences, projects and researches of Polish and European real estate market.
After graduating the University, he has four years of professional experience in the sphere of real estate in companies with strong market position.
He successfully concluded almost 100 deals for a total amount of PLN 30 million.

Website http://www.linkedin.com/in/lukaszskowronski

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