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31 October, 2013

Krakow’s Booming Office Market

Back in 2003, the number of modern office buildings in Krakow of any size or quality could be counted on the fingers of one hand.

Home Blog Krakow’s Booming Office Market

 Warsaw, boasting over 60% (almost 4mln sq m) of all office space (approx 6mln sq m) in the whole of Poland, is unlikely ever to be knocked off the top spot but Krakow’s office market (over 500,000 sq m) is growing dynamically and attracting attention from all over the world.

Back in 2003, the number of modern office buildings in Krakow of any size or quality could be counted on the fingers of one hand. The Euromarket building located on the Rondo Ofiar Katynia roundabout with a total leasable area of 16,000 sq m, the first Centrum Biurowe Lubicz building in the city centre (of the same size), and Buma Square (eventually to measure almost 30,000 sq m) on Wadowicka Street were then the vanguard of Krakow’s fledgling office market.

Besides a few large multinational companies such as Philip Morris, Shell and BP which were interested to base Polish or European operations in Krakow and the influx and expansion of international consulting and auditing companies, the city also began to attract companies such as Cap Gemini and IBM who were instrumental in putting Krakow on the map as regards BPO (Business Process Outsourcing). It was this growth of demand for office space from outsourcing tenants that pushed the market another step forward encouraging foreign development and investment companies also to become interested in what was then a small regional office market.

The Israeli developer, GTC, was quick to see the potential and swiftly developed a trio of office buildings on Armii Krajowej and the Centrum Biurowe Kazimierz next to its Galeria Kazimierz shopping centre whilst local Krakow developer, BUMA, moved ahead with both of its Rondo and Onyx projects. Construction stepped up too at Krakow Business Park in Zabierzow near Balice airport as the concept of an ‘out-of-town office park’ took off and there was also expansion of the office segment eastwards into the Czyzyny special economic zone. The Krakow market was just getting into its stride in fact between 2005 and 2007 as the economic crisis loomed on the horizon.

The effects of the financial crisis in the wake of the Lehman collapse were so profound that despite Krakow being a low-cost location for business, large companies were still fearful of incurring any costs of moving staff to Krakow in the short-term even despite the obvious long-term cost benefits. Hence absorption of office space slowed down to a crawl during 2009 with some developers offering opening rental rates even below 10 EUR per sq m (currently rental levels are back to a healthy but reasonable 14 EUR) just to lure in potential tenants to fill space. It may have felt like years for office developers and investors but at last after a relatively short period of over-supply, Krakow’s market bounced back fairly quickly and this time at a greater pace and with greater volume than ever before.

Global household names such as State Street, UBS, Cisco, Alexander Mann and Brown Brothers Harriman continue to enter the Krakow market and expand as tenants whilst international investors from Ireland (Avestus), Hungary (Tri-Granit), Sweden (Skanska) and Holland (East-West) as well as local Krakow developers such as BUMA have driven ahead with projects of umpteen thousand square metres each over the last 3 years.

Thing have grown and progressed to the extent in fact that Krakow is now rated as one of the top 10 worldwide locations for outsourcing. International investors like Spanish fund Azora have recently purchased buildings such as Avatar from Echo Investment and Green Office from BUMA in Krakow and graduates from all over Europe are consciously moving to Krakow for job opportunities. In short, the Krakow office market is a world away from its humble beginnings in the late nineties and still with a bright perspective ahead.

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