King Sturge: 2010 brings recovery

July is the time to summary the first half of the year. interviewed Aleksandra Malanowicz, Head of King Sturge* office in Katowice, to find out her opinion about the office market in Katowice. She also spoke about the future and image of the City.

Can you describe the office market situation in Katowice in the last few months?

The economic downturn hit the office market in the City hard last year. However, the beginning of 2010 brought a slow recovery and several important transactions were successfully concluded. Office spaces were leased by PricewaterhouseCoopers for its audit shared service center (2 200 sq.m.), PKP Cargo (5 800 sq.m.) and PZU (1 700 sq.m.) which decided to centralize company’s units in Katowice and Atrium building has been chosen. This year also brings a completion of three office projects – Katowice Business Point (17 000 sq.m.), Francuska Office Center (21 500 sq.m.) and Reinhold Center (8 600 sq.m.). The Reinhold’s project is almost fully leased by PKP Cargo and the medical centre, Enel-Med.

Additionally, a few companies such as HSBC Bank and Infiniti dealership decided to lease retail space. Both transactions were signed in Katowice Business Point for approx. 600 sq. m. each. The Infiniti’s car showroom is the second one in Poland after Warsaw. The Katowice area was chosen because of the highest expected demand among all Polish regions. The same reason was crucial for the opening of Porsche unit in Katowice last year.

Francuska Office Center has also won first tenants. Nordea Bank and Philips have decided to leased office space amounted to approx 800 sq. m.

What are the prospects for the office market in Katowice for next months?

We hope that two, the biggest, office projects such as KBP and FOC will be occupied at least in 50% till the end of this year. It strongly depends on new BPO projects entered to Katowice. New companies have to decide to invest in the city and it is extremely important to do all the best to solicit new businesses. A lot of new transactions were signed by companies already present in Katowice. Most of new deals, which are going to be finalized soon, are coming from local market. However, the biggest transactions are usually coming from new projects generate by big companies like PwC, PZU or Capgemini last year. An exemption was PKP Cargo, which due to technical reason has to relocate from DOKP building. There is no doubt, that Katowice still trying to win new BPO projects. Among other cities like Wrocław or Kraków, Katowice is still immature. Two new companies with approx. 250 new workstations would be enough for the beginning, to decrease vacancy rate amounted to 14% at the end of second quarter of 2010.

In that case, what about many office projects announced over the recent years?

All these projects need pre-lease agreements. None of banks is willing to finance new developments speculatively. Additionally, it is very difficult for large projects, where 30-40% of required pre-lease is amounted to approx. 6 000 – 8 000 sq. m. Silesia Towers is an example. There is a chance that Skanska Property Poland will start the first building of Silesia Business Park. The project will be finance by Skanska itself but the company will not launch construction works on a speculative basis. Some part of the office space has to be pre-leased to minimize the risk. Project consists four buildings for 10 000 sq. m. each and is divided into phases. 30-40% of pre-lease is approx. 3 000 – 4 000 sq. m. – possible to be achieved.

So what advantages can encourage companies to sign the pre-lease agreements?

First of all, if companies sign today this type of agreement, they receive a very favorable financial terms than it is usually offered in existing buildings. Developers are willing to offer many incentives like cash contribution, rent free periods and turn-key fit-out. In other words, they get an actual market price for a product which will be newly developed and ready to occupy in 1-2 years.

Can you characterize main opportunities and threats of the office market in Katowice?

Image of Katowice is an issue which does not helpful in attracting potential, new companies to start business here. The City still does not have city center with public areas, coffees, pubs, restaurants where inhabitants want to spend time after work nicely. When investors are visiting Katowice they have 2-3 hours for meeting in the City Hall and short viewings to visit office locations. The first impression when driving around the city is crucial and very often not positive.

The important thing is to show the real size of the Agglomeration, its advantages and present all assets which shall be compact. Very well developed roads infrastructure enables more than 2 million inhabitants to move fast between the cities and it is not a problem to live in one city and work in another. Universities located not only in Katowice but in many cities around Silesia deliver number of graduates every year which become a strong workforce for new BPO companies which are a driving force in creating a modern business in the region and which are the tenants for new office buildings, residential projects and customers for shops in shopping malls, as well as for restaurants, pubs and coffees in the center.

* King Sturge is one of the largest international property consultancies in Europe. The office in Katowice was established in 2008 and is one of the two King Sturge’s locations in Poland. The main office is located in Warsaw.