Genesis Property is the largest owner of Class A offices in Romania, rented exclusively to large multinational companies. The company developed Novo Park and West Gate Business Park, totaling a leasable area of 150.000 m² office space. They have been active in the market since 2004.
Genesis Property stands among the top players in Romania's office market - you have developed notable projects and refer to the hospitality you provide as 5-star. Why did you consider this approach to be appropriate for Romania?
On one hand the owner of our company, Liviu Tudor, has always been keen on quality and high standards, it is simply his style of doing business. It also has to do with the type of clients we accommodate - you may have noticed that we work exclusively with top multinational companies (Siemens, Ericsson, Hewlett Packard etc.), who look for large spaces and have sophisticated needs.
They also think long term when joining a market. As they grow, they want to know that resources are available, including office space. HP for instance started out in 2006 with 1200 m² (enough for about 100 people) and grew to about 30.000 m² now (fit for about 5,000 people). The story is similar for other tenants of ours.
The fact that we deliver to these high expectations is noticeable through the long-term leasing contracts we have established. Some of them have already been renewed three times. Without quality, it is difficult to make it in today’s office market given how competitive it has become.
You mentioned tenants that come from the IT space. What other industries create demand for your offices in Romania?
It is fairly diverse, we have prominent tenants from the banking sector as well, for instance. But it is true that IT, and more specifically BPO, is the main driving force.
The global pandemic has raised difficulties especially for the office market - what has been the impact on Genesis Property?
Our contracts are normally signed for medium or long-term periods, usually no less than five years. Some were even 10-year contracts, and they cannot be interrupted. So, we have not been affected this year. The contracts have remained in place even if many employees switched to remote work. The question is, what will happen when we discuss the extension of these contracts? In our case, however, the most recent cycle of extensions took place in 2019 so we have until 2023-2024, and we hope that by then things will have gone back to normal.
Also, as I mentioned, our customers tend to be multinational companies whose businesses are moving forward well - those in the IT field were in fact favored by the crisis. In terms of revenue many have grown in 2020. In other words, they have the resources to pay their contractual obligations.
Obviously for owners whose contracts expire this year or in 2021, tenants will likely seek to optimize their costs and maybe consider reducing their spaces, however I don't think this will happen to the extent that some voices in the market have said.
Have there been requests to renegotiate the deals?
Of course, there were exploratory discussions on this matter, but companies understand that markets are cyclical and there are periods when the economy fluctuates. I would say that the discussions we’ve had focused mainly on how to maintain things in balance for both parties involved.
It is worth adding that these companies have benefited for a long time from a rent that was highly competitive, precisely because they signed medium or long-term contracts.
Looking at the market at large, the global pandemic came on top of an already existing trend of working remotely. How do you expect things to evolve in the coming years?
Indeed, many companies had already set-in place rules which allowed their employees to work from home a couple of days per week. The pandemic accelerated the trend no doubt, but we are still talking about a hybrid model. What we have heard from our tenants is that ultimately offices still play a fundamental role when it comes to building relationships, and generally within the organizational culture.
When it comes to the cost structure of such a company, real estate is not substantial, roughly 5-6%. Therefore, this is not a place where they would save that much. And on the long run, they can lose in terms of team cohesion, and delivery of services can be affected. When circumstances oblige you to work from home it's one thing, but once restrictions are lifted, the hybrid model will still be tilted towards offices.
You have developed the IMMUNE Building Standard that has aroused international interest, and recently the world's first IMMUNE building has been certified in London. How did this idea come about?
It was conceived and developed at the initiative of Liviu Tudor, together with a team of experts from various fields. Starting with April 2020 and continuing today, companies are reluctant to bring their employees back to the office. Many buildings met standards related to energy efficiency or sustainability, but this aspect of health was not as well covered.
The remarkable aspect is that the idea was executed at a really high speed. And the impact was powerful, we moved fast and came up with a solution for a stringent problem for both office owners and tenants.
For those who are not yet familiar with the concept, can you briefly explain what the key aspects are? How is it useful to businesses?
The IMMUNE Building Standard consists of approximately 120 measures that must be implemented in a building - once done, an evaluator checks the level of implementation and certifies it on three levels of performance: strong, resilient or powerful. Similar to a hotel rating if you wish.
The measures refer to aspects like quality of air, facility management activities etc. but also more innovative aspects like the fact that every building needs an "IMMUNE Steward" - a person who knows the standard by heart and continuously ensures that requirements are in check.
The key benefit, aside from safety, is a matter of "trust", of how can we inspire the trust that employees are returning to a place which is safe, and where the company took all possible measures to protect them.
Isn't it possible that the employees develop a false sense of safety? Human behavior cannot be fully controlled so certain risks may still be there.
Our assumption is that aspects like distancing, masks etc. are rules which will be respected. If this type of awareness is missing, then no standard can work. But in our experience, multinational companies are very diligent in applying these rules.
How do the office buildings you have in Bucharest fare against these standards?
We are in the process of implementing this standard in the H3 Building, part of West Gate, and we expect to obtain the highest level of certification by the end of January 2021.
Do you find the process difficult? Does it entail significant investment?
It is a relative matter, as you can imagine it depends on the building itself and how well equipped it is when the certification process begins. We estimate that the costs would represent about 2% of the value of the building. A value we do not think is prohibitive, especially since we are dealing with people's health.
Given the circumstances what would you say are Genesis Property's priorities for the coming 2-3 years?
The main challenge for us, considering the trends we've discussed and the global situation, is figuring out how offices will look in the future. Surely there will be changes, although nobody can say for sure how significant, but we want to anticipate them and position ourselves for the next cycle (20-30 years).
Our priority will continue to be, as it always has been, to deliver our tenants and their employees the best services and experiences.
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