Your first new office building at Eurovea is 80% leased or under offer, and the second is somewhere between 30% and full. What does that tell you about Bratislava’s office market?
It depends how you look at it. From the development perspective, the pipeline for office space will shrink because residential works better than for office.
The price you can ask for residential is much higher than for office space. Also, the market for office space has been somewhat unstable for the past three years because of downsizing and the Covid situation. So, now you’ve got consultancies advising large corporations that that the “new normal” is called home office…as if home office were something new.
But you can’t combine it with the new managerial theory of agile management. Agile management is based on cooperation by teams in order to deliver better services and products and to meet the needs of customers. Agile management means bringing teams together to collaborate in order to produce ideas that will shift productivity. Agile management principles go against home office.
I happen to think it’s the way offices are set up that’s been the problem. The productivity of your work force shrinks because of issues like the noise levels in offices. People aren’t happy if they all work in one space and with a high density ratio of people.
Which way are end users of office space going to go?
There are two roads. There are companies that have realized that home office isn’t good for productivity. They’re being pushed to save money, including on investments into their accommodations. They tend to consolidate from a number of locations to a premium hub location, but it has to be in the city’s best locations. That’s one strategy.
The other strategy is not to do anything immediately. These companies are waiting to see what the overall impact is and after they see the data, then they’ll make a decision. From my own perspective, I think this second way is better. Because the first strategy involves spending a lot on consolidation and consultancy fees. There might be some savings afterwards, but they’ll be linked to a negative level of productivity.
Because you can’t let people go and work from home, unsupervised, not having the company culture under control. You have new employees who don’t get tutors or motivators. They don’t have leaders to watch over them and take them by the hand, show them the company and its culture, to make sure they’re in line with those values.
Instead, you have corporations paying huge fees to consultants and spending money on consolidating their operations just to achieve some savings. As a businessman, I always ask the same question: what’s better, to save money? Or to boost productivity and sell more? I think the money you could save through consolidating is a fraction of the value you could create with more productivity.
Overall, though, demand in Bratislava is weaker now, isn’t it?
Even we’ve remodeled certain office buildings into residential schemes, because the pipeline for offices in Bratislava is not justified by the demand. It wasn’t an easy decision but we’re not alone. The majority of our competitors are also considering focusing more on residential. Office space will not be booming for the future. We have a number of schemes to deliver, but they’ll mostly be build-to-suit developments. We’ll do speculative office projects on rare occasions, if we believe we can attract preleases. But we’re watching what’s happening closely.
Companies are shrinking, even though demand is stable. But you need to look at whether they’re attracting new investment capital from abroad and whether they will create a larger labor pool. The Shared Services Centers sector was a totally new industry that was dominating 5-7 years ago. It’s been heavily affected by Covid and some those companies are reducing the amount of space they need and letting people work from home. We’ll see what happens to their productivity.
You’re being pragmatic about new office development, then?
Absolutely, we see that there will be a certain demand for office space but not the way it was back in the past. The new buildings will have to be best in class in the city in order to attract new clients. We are currently designing two buildings: Klingerka 3, which is a high-rise tower. It will be carbon neutral and have all the features and appliances and technical features which will be a must to have by 2030 when the EU legislation wants to lower the carbon usage. We also have another building we call Triangl, located in front of Eurovea where the triangular parking lot is. That will probably be a build to suit development for a private client who wants a location in the city center.
Peter Píš is Commercial Director at JTRE
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