Public administration on the way to modern offices

Despite the fact that leaving the old buildings by public administration offices could bring considerable savings for the institutions, leasing transactions concluded by public institutions for the new office buildings still include a small percentage of the total volume of the lease. However, according to Walter Herz consulting company experts, the institutional tenants have recently begun to look around the office market more boldly.

The tradition of leasing office space on the commercial real estate market by the budgetary units has been going on in our country for merely a few years. In 2010, it was launched by the Agency for Restructuring and Modernisation of Agriculture, which leased 16 thousand sq. m. in Warsaw Poleczki Business Park complex. Also, the Public Procurement Office leased a small area in Mokotów Adgar Plaza.

Although recently the public sector has become much more active on the office market, it is still essential for the public administration to use state resources when it comes to offices. The existing rules ensure that the public sector still depends primarily on real estate remaining in the state resources. Walter Herz experts acknowledge that authorities and state institutions are in no hurry to change their headquarters, although technical condition of the facilities that they use leaves a lot room for improvement. What is more, the effort to maintain these facilities is inadequate to benefits. – Especially when we compare the expenses (including repairs) with leasing office space in modern buildings - say the experts.

Chasing Europe

It is mostly the EU institutions that follow the example of the European countries, where the public sector has been an important tenant of the new office buildings for many years. Last year, the units managing the European funds moved to the new complex in Warsaw – Warsaw Spire. Centre for EU Transport Projects, responsible for implementing programs and projects of development of transport infrastructure co-financed by the European Union, took an area of 6.2 thousand sq. m. in the building C. The company moved from the North Gate building. A major tenant of the largest complex in Warsaw is also Frontex - the European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union, which decided on leasing an area of 14.6 thousand sq. m. in the building B.

Another institutional tenant, which decided to move to a commercial office space last year was the companies from Poczta Polska group, which leased a total of 18 thousand sq. m. in Domaniewska Office HUB, located in Warsaw district of Mokotów. The building belongs to Polski Holding Nieruchomoci. The Ministry of Foreign Affairs took the whole exclusive building of Foksal City with almost 3.4 thousand sq. m. of office space, also belonging to the PHN. In addition, Polskie Sieci Elektroenergetyczne located their offices on 6.3 thousand square meters in Delta Eurocentrum Office Complex by al. Jerozolimskie Street, and the Office of Electronic Communications moved into the office building by Kasprzaka Street.

Record-breaking contracts

The biggest lease agreement in 2015 signed by institutional tenant was a contract concluded by Powszechny Zakład Ubezpieczeń for 17.5 thousand sq. m. of space in Konstruktorska Business Center building.

A significant lease agreement was also signed by the state-owned company in Katowice. PKP Cargo leased almost 8 thousand sq. m. in the A4 Business Park complex, which belongs to Echo Investment. PKP Cargo moved the key functions of the headquarters to Silesia and consolidated Katowice and Cracow offices in one location. In Cracow, the Marshal's Office extended its contract to lease 4.5 thousand sq. m. in Wielicka 72 office building.

- Despite the fact that public institutions sometimes sign spectacular contracts, the public sector still has a small, single-digit share of the total volume of office space. Last year, it generated over 80 thousand sq. m. of demand for offices, while the total amount of the lease in Warsaw in 2015 amounted to over 800 thousand sq. m. and less than 700 thousand sq.m. on the rest of the office markets in the country - say Walter Herz experts.

Stable level of market share

Representatives of Walter Herz point out that the activity of state institutions on the office space lease market remained on a similar level for several years. - In 2012, public institutions leased almost 70 thousand sq.m. of commercial office space, and in 2014 the public sector was particularly active on the Warsaw market. State-owned companies signed a contract for ten per cent of office space leased this year in Warsaw. One of the largest transaction was a contract signed by the Office for Registration of Medicinal Products for 13 thousand sq. m. in Adgar Park West - say Walter Herz experts.

According to the specialists, state institutions planning to optimize spending on offices are currently in particularly good bargaining position, due to the high supply on the market. In their opinion, public administration should use the recent competitive situation in the office real estate segment, because it creates an incredible opportunity to negotiate favorable lease terms.

Walter Herz experts are of the opinion that,moving to the new premises not only has a positive impact on the image of the institution, but also increases the comfort and provides significant savings - Operating costs in the new buildings compared with the facilities of the older generation are disproportionately lower, especially if the facilities are in poor condition and require a constant effort to renovate - say Walter Herz specialists.

- Costs associated with maintaining outdated buildings are often so large that the transfer of the institution or the state office to the modern office building means in many cases a considerable decrease in expenses on office maintenance. Analysis of relocation variants, which we develop, often bring surprising results - admit Walter Herz experts.

Leasing with a prospect of purchasing the building

Specialists point out that the terms of contracts concluded by state-owned entities also include provisions that guarantee the pre-emption rights or the lease along with the purchase of the building, which give companies owned by the Treasury full control over the facility. - Due to the nature of administrative units, these are attractive conditions for the institutional tenants. In such situation, companies may decide to sell their property and to raise capital this way - say Walter Herz representatives.

The experts list the advantages of new facilities. According to the specialists a big asset of the emerging modern buildings is energy efficiency and rational use of their own resources, which translates into lower maintenance costs. – Nowadays, office buildings also offer extra convenience because of the rich furnishings and attractive services infrastructure in the building. Moreover, they are more secure than the older office buildings.

- We believe that the public sector will become a more active player on the office market in the upcoming future. It is showing in the higher number of requests from institutional tenants and growing interest in Institutional Tenant Guide, which we created especially for public institutions looking for office space on the commercial real estate market, in order to optimize costs - say Walter Herz representatives.

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Public administration on the way to modern offices

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