Office assets: five factors for success that matter to investors

Press release 3/14/2016 3:15 PM CET

In 2015, office buildings located in Central and Eastern Europe attracted a great deal of interest from investors. Projects situated in prime locations such as Warsaw, Prague, Budapest, Bucharest, and Polish regional cities have often found buyers even before construction has been completed. However, the requirements of investment funds are increasingly demanding with developers needing to create products with added value. To successfully create added value, Skanska not only builds offices but nurtures good relationships with their clients as well.

Dominikański, Wrocław

According to CBRE, CEE[1] office market investment volumes in 2015 was in excess of 3.9 bn EUR, making office products the second most traded in the region. Long-term profitability and high quality are must-have features of an attractive product. However, what more can a developer offer to win in a competitive real estate market? Skanska Commercial Development Europe, a company which in 2015 sold 11 office buildings and achieved a total transaction volume of nearly 500 mln EUR, identifies five key factors which lead to the successful closing of a transaction.

1. Good relationships from the start

Adrian Karczewicz, Skanska’s Transaction Director for CEE, says that an open and friendly approach to an investor is the best way to develop a good business relationship and trust. “At the beginning of the year I usually reach out and talk to potential buyers. It helps me to find out what their expectations, needs and investment strategies are for the new year. At the same time I have the opportunity to present profitable CEE markets in which we operate, share our plans for divestments and offer further cooperation with Skanska. Such long-term partnerships with investors are greatly valued by us as they confirm the quality of our work and engender a positive buyer experience,” he explains.

2. A smooth and quick transaction process

Skanska's aim is to close a sale within six months from the moment the marketing of a project begins. To ensure that the process is efficient and simple for investor partners, the company conducts an in-depth evaluation of the building, internally called pre-due diligence. The process is led by external advisors, as it guarantees a third-party opinion about the property’s technical documentation and legal status. Careful maintenance of documentation, possession of all necessary permission and expertise, as well as the overseeing of all formalities is a must for a properly prepared investment.

3. A market and yield

“We choose the markets with the highest potential and liquidity in order to provide buyers with a profitable product. CEE assets often provide higher returns than similar ones located in western European countries. According to our extensive market knowledge, the most attractive prime office yields can be found in Polish regional cities, such as Lodz and Katowice (around 7.5%), Krakow and Wroclaw (6,25%), but also in Bucharest (7.5%) and Budapest (7%). Despite a slight dip in the yields of Warsaw and Prague (around 5.5%), these mature markets are still first choice locations for investors,” says Adrian Karczewicz.

4. Product quality

A good project and timeless design underpinned by LEED certifications assure the buyer that they will not have to make significant capital investments in the property during its operation. The building’s technical parameters, such as the isolation of underground floors and the quality of rooftop insulation, are also important when selecting a project. “Lifts and efficient ventilation are also of significant importance. It is worth investing in such elements even at the expense of an area that could be used as additional office space. Furthermore, factors influencing the exploitation of office space and employee comfort, such as efficient temperature and lighting control systems, are also important“, adds Adrian Karczewicz.

“The building’s high quality is indicated mainly by the well-being of people working in it. Therefore, all innovative technical solutions always have one main aim – to contribute to creating a healthy and efficient working space. Appliance of ventilation systems as well as lighting, heating and cooling systems within the building – all these factors should be beneficial to the employees. Furthermore, space around the investment is also important as people feel well in an area with well-tended greenery and interesting and functional infrastructure. Thus, we focus on arranging places in accordance with the placemaking idea in areas surrounding our investments. They provide space convenient for leisure time activities as well as relax. Investors also look at office buildings in the long term and take into account the added value that sustainable building brings together”, says Arkadiusz Rudzki, Managing Director at Skanska Property Poland. 

5. High lease level

Buyers do not want to take the risk of seeking tenants after a property's acquisition so they prefer buildings which are well on their way to being fully let. In case there is a low vacancy rate at the time of a building’s purchase, Skanska offers the investor the opportunity to sign a master lease agreement regarding the remaining space for minimum of three years. A high lease level enables the purchaser to estimate, with a fair amount of accuracy, the ROI scale in the long-term. Therefore, the process of acquiring new tenants is of crucial importance and is launched very much in advance, even at the moment when the company starts construction works.

"Good results from lease serve as an enticement for investors and guarantee a long-term and stable return on investment. Both tenants and investors are willing to return to us and decide to co-operate with Skanska in new projects developed by our company. This is the best evidence that our partners are satisfied of our previous co-operation. This is due to the fact that our business is based on values. We believe in ethics, transparency and safety. We also focus on innovations and good relations with our clients. All these values provide solid foundation for our business and are a confirmation of our projects’ high quality", Arkadiusz Rudzki asserts.

Skanska cooperates closely with companies from the business services sector and investors do not need to be convinced that the sector is a good tenant with great development prospects. According to the latest ABSL[2] report, foreign companies have already established over 1,000 SSC/BPO/ITO[3] centers in CEE over the sector’s 15-year presence in the region. Its employment rate was 335,000 professionals in Q1 2015. According to McKinsey & Company, the sector could expand to between 850,000 and 1,050,000 jobs over the next ten years. This means that office space demand will be constantly growing, attracting developers and, as a result, investors to both the capitals and regional cities of the CEE region.

[1] Central and Eastern Europe (CEE) includes the following countries: Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Serbia, Slovakia and Ukraine.

[2] BUSINESS SERVICES IN CENTRAL & EASTERN EUROPE, Association of Business Services Leaders, 2015 http://absl.pl/pl/absl-publications

[3] Business Process Outsourcing/ Shared Service Centre/ IT Outsourcing

Last updated: 8/22/2017