Hotels Integral to Office Development, in Poland

Main Photo: The Holiday Inn Express, part of  Krakowskie Tarasy in Kraków, which is being developed by IMS Budownictwo.

Date: March 2020

Locations: Poland – Krakow, Bialystok, Warsaw, Lodz and Wroclaw

Names: Holiday Inn Express, NYX , Radisson Red and Crowne Plaza

No. of Keys: TBA

Who: When companies are looking for a new office, they no longer expect just to have a good location, an attractive level of rent or hi-tech installations. Having hotel accommodation handy is increasingly being added to their list of requirements. There are fewer sites available for new projects, so developers are now building mixed-use projects where offices and hotels go hand-in-hand.

According to the Polish Chamber of Real Estate (PINK), the modern office space stock in Warsaw amounted to almost 5.6m sqm at the end of December 2019. Since the beginning of that year, almost 162,200 sqm of office space has been completed in the Polish capital. Meanwhile, the total supply of modern office space on the country’s eight major regional markets amounted to slightly more than 5.6m sqm.

How has the hospitality sector been benefiting from all this office development? According to CBRE (citing data provided by Hotstats), the demand for rooms is being driven primarily by individual guests, who make up 55% of the total occupancy.

Hotels with conference and banqueting facilities tend to fill more than 30% of their available rooms exclusively with those taking part in events held inside the hotel. Corporate guests make up around 12% of occupancy and organised groups of tourists only account for 2%. This data shows that guests travelling on business, including for conferences, could be responsible for up to 42% of hotel occupancy. It is not difficult to conclude, therefore, that this figure is going to be much higher for hotels that form part of office buildings.

Offices have long been a natural source of demand for hotel services, but what has changed is that developments that include an office and a hotel section now constitute one of the most important trends on the real estate market in Poland.

“The supply of commercial space in such projects has increased almost six-fold over the last ten years and could double in the next five years,” believes Agata Janda, the hotel consultancy director at JLL. “We forecast that mixed-use complexes, combining office, retail and hotel functions, will keep on growing in popularity in Poland,” adds Christoph Salzer, the managing director of Warimpex, which is now preparing a mixed-use project with a hotel section in Bialystok.

As he points out, hotels are generally being built in the centres of large cities and are popular among tenants who recognise the business value of a good location in attracting the best employees. Jacek Tokarski, a partner and the chief operating officer at Hotel Professionals, has also noticed a certain pattern. “We have found that office space in a complex that includes a hotel is easier to rent,” he reveals, adding that the best ratio for a hotel–office project to function well is one–to-four.

A hotel component was integral at the design stage of Ghelamco’s Warsaw Hub complex. Rafał Rosiejak, the head of the hotel department at CBRE, offers several reasons for why mixed-use projects with hotel components should be all the rage. “First of all, the efficacy for the investor is crucial.

Mixed-use projects are mainly built in large cities, where land banks are increasingly scarce and land prices are high,” he explains. And so, investors are anxious to exploit every single square metre they can get their hands on. “Zoning plans in cities are another important aspect,” he adds. “Then the developer is looking for the best approach for the project.”

Another important issue in the construction of a mixed-use project is the developer’s possible desire to sell the project immediately after its completion. “It’s difficult to find investors on the market who would like to buy an entire complex. Therefore, with a well-planned project, the developer can sell each part separately to a different fund or company,” explains Rafał Rosiejak.

Jarosław Zagórski, the commercial and development director of Ghelamco Poland, provides as an example the company’s Warsaw Hub development, which is one integrated building from the user’s point of view but actually consists of three independent properties, which makes it an attractive product for different investment funds.

However, there are some exceptional situations when selling a mixed-use project turns out not to be so easy. “This can happen when the components are stacked on top of each other. Then it becomes difficult to divide up the parts of the complex when selling it,” admits Jacek Tokarski of Hotel Professionals. “The land beneath must be assigned to the building for a sale to take place.

In spite of this, it’s often possible to successfully sell the entire complex, without dividing it into functions,” he explains. However, the vertical separation of parts in such designs is the best approach. Jacek Tokarski argues that having a mix of a hotel with offices is highly beneficial for both parties despite the potential difficulties. “Tenants in the office section are in a comfortable situation when they can provide their guests, colleagues or clients with accommodation in a hotel within the same complex,” he says. It’s a convenient and desirable system, especially for people staying in a city for projects lasting several weeks.

Not every location is ideal for such a mixed-use project, however. “For the developer as well as the hotel operator, the location of the building is of fundamental importance,” explains Karol Wyka, the director of leasing and a board member at HB Reavis Poland – the developer of the Varso Place mixed-use project in central Warsaw.

“It’s difficult to imagine how such a hotel could be successful far from the city centre or transport infrastructure, lacking easy access to the airport or a train station. In the case of Varso Place, guests of the NYX hotel are a short walk from Central Station and can get to Chopin Airport within 20 minutes by city rail, while most of the capital’s tourist attractions are also within walking distance or a short ride on public transport,” he points out.

Jacek Tokarski of Hotel Professional gives us a more nationwide perspective. “Mixed-use projects with a hotel section are appearing all over Poland. They should be able to succeed wherever there is a demand for office space,” he explains. “The eastern part of the country is, however, certainly less attractive to developers as well as to funds, but it’s also a region where such projects can be built and still be attractive,” he emphasises. He also draws attention to the fact that the entry of a global hotel operator into a smaller regional city provides an incentive for investors and funds to make the same move, along with, and perhaps almost as importantly, office tenants. “It’s not only in tourist resorts that a solid case can be made for mixed-use projects,” he adds.

Developers are now taking on mixed-use projects with much greater boldness. Apart from good locations, the latest hi-tech and attractive rents, office tenants also increasingly expect to have a hotel in their immediate vicinity. Karol Wyka of HB Reavis Poland draws attention to the specific range of services in commercial buildings aimed at increasing the day-to-day comfort of their users. He also does not under-estimate their city-forming role. “A hotel, especially a lifestyle brand such as NYX in Varso Place, is ‘alive’ for most of the day and a place that is used not only by business travellers,” he points out. This makes it possible to avoid the kind of stagnant office monoculture that has come to dominate in some urban districts.

Christoph Salzer of Warimpex also point to this as a major advantage. “A rich, multi-functional range attracts local residents, enlivening and making the area more attractive after business hours,” he says. And finally, such development is also driven by pure pragmatism, as Karol Wyka explains: “The availability of suitable locations in large cities in Poland is becoming increasingly limited, so mixed-use project developers and hotel operators joining forces is the ideal solution for both parties,” he concludes.

Jarosław Zagórski of Ghelamco reveals that for The Warsaw Hub, including a hotel was integral to the entire enterprise from the very outset. “The complex itself is under construction in the most rapidly developing part of Warsaw. There are hotels in the area, but judging by their occupancy, you can see that they are unable to satisfy the growing demand,” he remarks.

“There was no hotel at Rondo Daszyńskiego, which – it can be safely said today – has become the heart of Warsaw’s new business centre. So this combination stems from the market’s expectations. And at the same time we wanted to create the perfect complex for dynamic companies,” he adds.

Golub GetHouse’s Liberty Tower is to be the address of the Radisson Red Warsaw

“The growing popularity of mixed-use projects with a hotel component is also the result of the changing business model that hotels operate in,” insists Agata Janda of JLL. “International chains have recently appeared in Poland, mainly from Germany and Spain, which lease out real estate for hotel needs instead of providing hotel management themselves. This is done on terms similar to those for the kind of office tenant developers are familiar with, and this, in turn, encourages a greater willingness to embrace the inclusion of hotel functions within developments,” she explains. Added to this is the fact that the market is showing a heightened investment appetite for hotel lease agreements – thus increasing the opportunities for exiting such an investment.

Marcin Szymfel, the general manager of the InterContinental Hotels group’s Crowne Plaza The Hub and the Holiday Inn Express hotels that are to open in The Warsaw Hub complex, explains that hotel chains are now going wherever they see the potential for growth. “Mixed-use projects are a response to the market demand, which in turn is leading to
a radical change in approach,” he explains. He also emphasises the need to create micro-districts that will be able to meet the requirements of the local community in a single place – and this is actually what mixed-use projects are all about.

An increasing number of mixed-use projects are now being launched on the Polish market, and – judging by what developers and hotel market experts are saying – even more are on their way. According to Jacek Tokarski, half of the projects that Hotel Professionals is currently involved in are mixed-use, including: the Radisson Red Warsaw (part of the Liberty Tower), the two-brand Crowne Plaza and Holiday Inn Express Warsaw Hub, and the Holiday Inn Express Wrocław South (part of a larger office and residential complex). Ghelamco also says that if the conditions allow, it will also be including a hotel component in its future projects. “This is the case in Łódź, where we are designing what will be a genuine, lively city district with hotel, office, retail, catering and residential functions, each permeating and complementing one other,” claims Jarosław Zagórski

THPT Comment: Interesting perspective from Poland…and we have seen several examples in the USA and other parts of the world.

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