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edition 5 (240)
May 2019
Investment & finance

Mokotów reborn?

Mokotów reborn?
The Helion building in Służewiec was bought, together with its twin Luminar, by White Stone earlier this year for EUR 21 mln

POLAND Warsaw’s Mokotów (Służewiec) office district is now very much back on investors’ radars, according to the latest report, ‘Mokotów is Back’, by Avison Young.

In Q1 a total of EUR 65 mln was invested in the district – around two-thirds of the total for the whole of last year. Two transactions took place: the Helion and Luminar buildings (valued at around EUR 21 mln), acquired by White Stone Development from Deka Immobilien; and Graffit, which was bought by Zeus Capital Management from Hines Russia & Poland Fund (HRPF). These purchases came after a year-and-a-half without any major transactions in the Służewiec sub-district of Mokotów. In addition, four properties worth around EUR 140 mln are currently in the advanced sale process, while eight (worth EUR 325 mln) are currently being offered for sale. Avison Young expects that the total office investment turnover for 2019 will come to around EUR 350 mln. Yields remain stable, averaging at 7.25 pct – and relatively high, compared, for example, to central Warsaw, where the best properties are achieving yields as low as 4.3 pct. The yield gap between the city centre and Mokotów is now the widest in history due to high vacancy levels (after tenants left the district to escape such problems as traffic congestion), the strong competition from buildings in other districts, such as Wola-Centrum, as well as the growth in the office supply in the district. The vacancy rate was 15.5 pct in Q4 2018 – but the level has in fact fallen from 20 pct in 2015 after the demand started to pick up once again. Rents are still at a historic low, but the consultancy expects them now to bottom out and rebound due to the rising construction costs for new buildings and their shrinking availability. As a result, the consultancy claims that the district once more represents excellent investment potential. Prime properties in Służewiec are currently being traded in the range of EUR 2,400–2,750 per sqm, but less well occupied buildings that are less well located in the district can be bought at a discount, sometimes even less than the construction cost, giving them significant value-add potential. There has also been increased interest in residential development in the district, pushing prices up from PLN 1,000–1,500 per sqm of residential sale area four years ago to PLN 1,500–2,000 today, while prices for land designated for office development are PLN 250–500 per sqm of gla, depending on the convenience of transport links.

Rising construction costs and raw material prices are also making existing buildings more competitive in relation to new projects, despite the need for capital expenditure. Improved public transport, such as a planned tramway to the metro, should also add to the attractiveness of the area. In Avison Young’s opinion, the former industrial district of Służewiec, which earned the nickname ‘Mordor’ due to its image as an uninhabitable office desert, is now going through another transformation as it becomes more residential and companies move back into it.

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