Having created approximately 36,000 specialised jobs, high-tech companies are some of the biggest employers in Wrocław. And as they continue to transform and grow, they report special leasing requirements. They are likely to post growth rates of 100 or 200 per cent or more within the next two years. That’s why lease flexibility is a major factor for the IT sector, says Michał Grabikowski, Head of the Wrocław Office, Cresa Poland.
Office take-up amounted to just 66,000 sqm in Wrocław in the first three quarters of 2019, significantly lower compared to the same period last year. What are the reasons for this decline?
I wouldn’t call it a decline, but a natural phase of the market’s cycle. Wrocław has posted several very good years, including the record-breaking 2018, which saw nearly 147,000 sqm delivered – which pushed up the city’s total office stock beyond the 1 million sqm mark – and more than 157,000 sqm leased. And yet, in the first three quarters of this year there was a marked decline in office development activity following a period of rapid growth. The market shows no sign of slowing down, though. Quite on the contrary, there is currently approximately 160,000 sqm under construction, a lot more than the average development pipeline of about 100,000 sqm in earlier years. Wrocław continues to be seen as one of the best places to locate a business in Europe and as an innovation and high-tech hub.
And it is being increasingly called the Polish Silicon Valley…
Yes, it is. This expression is being used with reference to the specialisation of the Lower Silesian capital, which has been a destination for the IT sector for years. High-tech companies are some of the biggest employers in Wrocław – according to the Wrocław Agglomeration Development Agency this sector employs approximately 36,000 specialists. What’s more, over 80 per cent of high-tech firms intend to grow further and increase headcount.
In addition to being home to such giants as Nokia and IBM, Wrocław is also a city of local companies including a game developer Techland, a provider of business communication software LiveChat Software, and Ten Square Games, a developer of browser and mobile games and a leading provider of hobby games. All these companies have been hugely successful overseas. Start-ups account for approximately 10 per cent of Wrocław’s high-tech sector. And all companies – both large corporates and small start-ups – have turned to technology universities to recruit new talent.
Will they find talent in Wrocław?
I’m sure they will. And I also believe that well-educated and experienced high-tech specialists are one of the city’s advantages. Wrocław has seen its high-tech sector grow for years, for which it has been favoured as a place to live by young people wanting to work and improve their skills in this industry.
IT companies grow and mature in this city, and handle increasingly complex processes. Wrocław universities, including the Wrocław University of Science and Technology, are responding to market changes. The capital of Lower Silesia is Poland’s third largest university city, with more than 15,000 students doing IT or related courses. And most importantly, recent practice and statistics demonstrate that most graduates will remain in Wrocław.
Does Wrocław’s office market meet the demands of expanding IT and high-tech companies?
IT tenants have special requirements as they continue to transform and grow. They are likely to post growth rates of 100 or 200 per cent or even more within the next two years. That’s why lease flexibility is a major factor for this sector. The traditional lease length is at least five years, and developers are quite inflexible when it comes to lease duration. That’s why IT companies sometimes are forced to operate out of several locations throughout the city, which is quite inconvenient and may hinder business operations.
How could they therefore prepare for growth when looking for new locations? What would you advise your clients?
Each situation is different and depends on how big the company is, what its development plans are and how well it can plan ahead. If we know that we will need additional space at some point in the future and the developer has such space nearby, we can include in the lease agreement a priority right to lease that extra space or plan in advance to expand within the specified phases. In practice, this means that if a different company wanted to lease such office space, the landlord would have to ask us first whether we are still interested in it.
Another good solution is to lease space in a building that houses serviced offices that could accommodate newly-hired employees or newly-established teams whenever required. Incumbent tenants are usually offered preferential serviced office lease conditions. But as I said, each situation is different and the choice of an optimum solution also depends on the advisor’s experience and local market expertise.
Wrocław’s vacancy rate has stood at 10 per cent for quite a time. Does it mean that tenants have more options to choose from?
Not really. This ratio of unoccupied stock only indicates that there is a supply-demand balance. Office space is well dispersed across multiple buildings, so a company reporting very specific location and building requirements will have to wait for a new office to become available. For example, if a tenant sends me a request for 2,000 sqm or more for immediate occupancy in the city centre, such space will be quite difficult to find. But as I said earlier, this situation is expected to change next year, with new office developments coming onto the market.
What’s happening in the city centre now? Anything interesting?
There’s a lot going on in the vicinity of the Sky Tower. One of the most awaited projects is Centrum Południe, which is under construction at the intersection of Powstańców Śląskich and Szczęśliwa streets. Skanska will construct five mixed-use buildings there that will deliver approximately 85,000 sqm of GLA to the market. The first two of phase one are to be completed next spring. They will be Wrocław’s first WELL-certified buildings. Echo Investment has started a large office project on the adjacent plot.
The vicinity of Jana Pawła II Square is expected to transform in the space of the next few years. Development projects at the site of Bulwar Staromiejski are nearing completion, and construction of the Infinity office building will get underway soon. The plot vacated by Cuprum still offers development opportunities; Cavatina is also planning an office project in the area.
There’s also robust development activity outside of the city centre, isn’t there?
Yes, there is. Especially in west Wrocław. It’s also an area where office space is a lot more easily available for large tenants needing it relatively quickly. Its largest project is Business Garden, an office park near Galeria Magnolia. The construction of a new tramline towards Nowy Dwór and the redevelopment of Robotnicza Street have spurred office development in this area.
What’s your outlook for Wrocław for the next two or three years?
Office developers are very active in Wrocław, albeit cautious. Some office projects won’t break ground unless they find strategic tenants. This is also a clear evidence of an equilibrium on the Wrocław market, which continues to attract multinationals while companies with a presence in the city continue to grow and lease ever larger offices. That’s why we advise our tenants, particularly clients seeking large spaces, to begin looking for a new office well in advance, even two years before their existing lease is due to expire. They will have a lot more options to choose from, including buildings in the pipeline.