STRABAG Real Estate has been developing real estate projects in major European cities since 1965. The company's range of services spans all phases of project development and its portfolio includes the development of commercial properties, as well as residential buildings, hotels, retail and entire urban quarters.
STRABAG is well known for its construction capabilities, less so for its Real Estate division. Can you briefly explain how the latter fits into the broader picture of the company?
STRABAG Real Estate is well known for more than half a century in Germany and consequently has been elected as most valuable brand several times, due to its numerous award-winning landmark projects such as Upper West in Berlin or Tanzende Türme in Hamburg. In CEE we have started our activities under this brand first in 2014 in Poland, followed by Romania in 2015. To state it clearly: both appearance on these markets and track record still have quite a potential to improve. In a range of importance, we are active in the office, hotel, residential and retail developments, always depending on the market and the experience of the respective local teams.
The global pandemic has, however, challenged us to rethink some of our plans. For instance, we have stopped work on four hotels - while some will be finalized once the waters calm down, others will surely suffer changes in scope. Most likely they will be oriented towards residential which stayed strong despite the particular economic situation. On the office side, the ongoing process within companies of defining future business models has an impact on leasing activities. For our boutique office project in Tudor Arghezi we are currently working to secure pre-leases before kicking off work, and despite generous interest the overall situation is still challenging.
How specifically are you adapting your plans to counter the effects of the pandemic?
When we decide on a project, we keep in mind three things: good feasibility, a good story and a good plan B. Now the time has come to take the good plan B out of the drawer.
The ideas we are entertaining are either to explore alternatives such as shifting the asset class, sell the properties or simply wait for the storm to pass. We decide for the latter option in cases where the location is top notch, for the rest we are still evaluating, generally maintaining an optimistic outlook.
Sounds like you have some difficult decisions in front of you. What maintains the optimistic outlook given the circumstances?
Things – hopefully - can only be better than last year. Residential is going well, the only question in my view is for how long affordability will remain high given the newfound uncertainty around job security. I don't think we are in a bubble now but selling at too high prices may lead to difficulties, especially in the case of middle-class customers.
Can residential-for-rent be a solution?
We still believe in the asset classes mentioned before, but with different horizons of recovery, demand and upcoming requirements of tenants. Regarding residential-for-rent: yes, there's a good chance that this model will grow in importance. What we know is that the Polish market has about 5-8% of residential-for-rent, but unofficially it is said to move somewhere around 15%. In CEE countries it is still an uncommon concept though, a legacy at the end of communist times I believe, when people could take their opportunity to own their flats or houses for relatively low amounts. By contrast, own property is now getting less affordable for young generations which may sway them towards renting.
Since you have experience with both Romania and Poland, can you briefly compare and contrast their real estate markets? What do they have in common and where do they differ most?
We already touched on residential, the cultural background is similar and the trend towards residential-for-rent is starting to become visible in both. What stands out in Bucharest is that it has a mix between new buildings sitting next to wonderful historic ones, most of them under monument protection for good reason. Warsaw on the contrary - also to Vienna - suffered enormous destruction during WWII, which – sadly enough – resulted in space for large new development schemes in or very close to the city center. The growth of last year with 700.000 m² only office space under construction is truly amazing.
On the office side I was impressed by the quantity and quality of office space when I first came to Bucharest, it was exploding in various parts of the city, especially around Floreasca, where our local branch team – earlier under the brand of Raiffeisen evolution – has realized Promenada Mall and Sky Tower. Even so, in my perception there is a gap of more than a decade between Romania and Poland, the latter being even more advanced than Austria regarding modern stock of offices.
Romanian laws often allow for wider interpretation, which is fairly problematic, whereas the administration in Poland proved more straightforward, with higher awareness for developers’ needs such as response qualities in timing, accuracy and bindingness, thus enabling investors to rely on a more stable basis. We as developers depend on investors’ appetite.
Stability, reliability and countability of politics and administration are the fertilizer to grow investments and so the overall economic development. For the real estate business, evident signs of the maturity of markets are – amongst others - investors’ yields and interest rates, openly available to compare for anyone at his own judgement.
You mentioned STRABAG's Real Estate is a fairly small division compared to overall business of the group. What is the vision going forward, are there any plans to increase its size?
Indeed: as of number of employees we as developers are far below 1 % of the entire staff. In terms of group’s turnover and result we had the chance during the last years to contribute in a significantly higher proportion.
Regarding the countries mentioned here: in Poland we want to continue with more than our three projects in Warsaw in pipeline, one of which is UPPER ONE, an office & hotel building in the heart of CBD with a usable surface of 40,000 m² and 135 meters high. Moreover, we are at the edge of stepping into selected secondary markets outside Warsaw. In Romania, besides office, we want to focus also on residential, where we missed out on some nice land plots in the past but surely learnt from that and are looking for new opportunities.
Overall, we are not necessarily challenged to grow, our goal rather is to maintain a constantly increased flow of high-quality products at positive results. Our aim is to continue the series of successes of the past years and position ourselves accordingly on the market. We want to offer attractive modern design, anticipating new trends and all this combined with high efficiency and sustainability according to newest standards.
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