Smaller European cities and capitals are stealing a march on Paris as the development engine cautiously sparks back to life.
Smaller European cities and capitals are stealing a march on Paris as the development engine cautiously sparks back to life.
Paris may be the first port of call for real estate investors in mainland Europe, but if they are looking for new developments, they may be better off going elsewhere. The UK is the only place at present where development is truly revving up again in Europe, especially compared to the French capital where there are still very few cranes on development sites.
‘In many cities around Europe we have a very clear lack of development of great new space,’ Christian Ulbrich, CEO of JLL EMEA, told PropertyEU earlier this year. ‘There are plenty of opportunities for developers, that’s for sure.’
Since the crisis, development has become something of a dirty word, but that is starting to change as supply starts to dry up in some of Europe’s leading investment locations. Very often it is the foreigners who start up development again in a cycle, Ulbrich noted. That is particularly true of the UK where a slew of foreign players are grabbing a piece of the London skyline. But it is also the case for other cities on the Continent, Ulbrich said. ‘For example, Tishman Speyer was the first to kick off an office development in Frankfurt.’
Frankfurt office towers
Earlier this year, the US office developer announced it had acquired the former head office of Metzler Bank for the development of a new high-rise office project in the German city. According to the vendor, the international bidding process drew strong investor interest, confirming Ulbrich’s point that foreign developers are an important driver of the development engine.
Located at Großen Gallusstraße in the centre of Frankfurt’s banking district, the site is opposite the Taunus tower, Tishman Speyer’s third high-rise building in Frankfurt after the Messe and Opern towers and its most recent development in the city. Tishman Speyer has an enviable reputation in Frankfurt as a developer of some of its most prestigious office towers, but it is not the only foreign developer with big ambitions for the German city.
Elsewhere on the former Neckermann site in the east of the city, listed Turkish investor Servet is developing OSWE 360°, a multifunctional complex located at a stone’s throw from the European Central Bank on what is said to be one of the few remaining sites in Frankfurt with development potential.
Bridge between east and west
According to the company’s CEO Mahmut Sefa Çelik, OSWE will bridge the gap between East and West and become a meeting point for important players in the world of international trade. A 222,000 m2 site has been designated for storage and logistics and another 81,600 m2 for office space, Sefa Çelik said.
‘Frankfurt-Fechenheim, the area where OSWE is located, is one of the fast growing urban areas in the city. OSWE is on the river Main with a direct link from the North Sea to the Black Sea. The complex has its own freight line linking it to the international rail network. We are close to the main motorways A3 and A5, Frankfurt’s entral Station is 10 minutes away and the airport is only 20 kilometres.’
Foreign developers have picked up some interesting opportunities in Frankfurt, but home-grown players are also helping redraw the city’s skyline. A notable example is Deutsche Immobilien Chancen (DIC), the mastermind behind the Maintor quarter, a new financial centre located along the bank of the River Main that was formerly home to the headquarters of the Degussa chemical company. Altogether the district comprises 108,000 m2 of space for offices, apartments, retail and eateries, offering room for around 3,500 work stations and 200 exclusive apartments.
The final project up for sale – the 42,000 m2 WINX tower project – was sold at the end of last year to Germany’s richest woman Susanne Klatten for €350 mln.Scheduled for completion before year-end 2017, the 29-storey WINX is 60% pre-let to Union Asset Management Holding. The sale brings the total proceeds from the six sub-projects that form MainTor Quarter to a total of €750 mln.
Elsewhere in the city, work continues on the new Europaviertel quarter which has seen a spectacular rise in housing projects over the last few years, led by the likes of local developers such as Aurelis and its Austrian peer CA Immo. The Vienna-listed company is also involved in the Skyline Plaza, a new urban centre for the Europaviertel including a shopping centre being developed by German retail specialist ECE.
Located between Messe Frankfurt exhibition centre, the financial quarter and central station, Skyline Plaza boasts a rooftop garden with a restaurant, sports facilities and even a small vineyard and jeux des boules court to create a Mediterranean ambience. ECE and CA Immo are also both involved in the development of the nearby congress centre Kap Europa for the Messe Frankfurt exhibition group.
Hines in Hamburg
Elsewhere in Germany, another major European retail investor-developer Unibail-Rodamco has made moves to leave its mark on the port city of Hamburg. Under a €860 mln deal sealed earlier this year, Unibail-Rodamco will acquire and develop land in Überseequartier, which is located in the heart of the HafenCity area, Europe’s biggest inner-city development project.
The agreement includes the acquisition of land plots from former owners and the project encompasses retail, restaurants, a multi-screen cinema, cruise terminal, offices, housing and a hotel, covering a total of 184,000 m2 of which 50% will be dedicated to leisure and retail. The opening of the retail and entertainment components of the project is targeted for the second half of 2021.
US developer-investor Hines also has a foothold in the mega-development. Earlier this year, the company announced it had acquired five mixed-use buildings in the Überseequartier Nord district of Hamburg on behalf of a German Spezialfonds for an undisclosed amount. The buildings were sold by a consortium of Dutch asset manager Propertize, the successor of the nationalised Dutch bank SNS and a major financier of the scheme, and developer Groß + Partner.
The five properties – Arabica, Ceylon, Java, Pacamara and Virginia – were built between 2009 and 2010 and provide a total rental area of around 54,000 m2, including 26,500 m2 of residential accommodation across 262 apartments, around 10,000 m2 of offices, and the 6,800 m2 25hours Hotel Hafencity. In addition, there are 691 parking spaces available. Hines said it aims to reposition and stabilise the roughly 7,600 m2 of shops and food service space over the coming years.
City-centre regeneration
Another mammoth project in mainland Europe – the Porta Nuova mixed-use development in central Milan – has meanwhile fallen into the hands of the Qatar Investment Authority. Earlier this year the sovereign wealth fund, which already owned a large stake in the site, acquired an additional 60% interest in a deal valuing the project at over €2 bn. Porta Nuova is a mixed-use development in downtown Milan combining offices, retail and residential. It provides a total of 290,000 m2 of space across three sections, Varesine, Isola and Garibaldi, located near Milan’s central station. The Garibaldi section is home to the 30-storey Garibaldi Tower, officially the tallest building in Italy, which was designed by Cesar Pelli. The skyscraper is 100% leased to Unicredit Bank.
QIA, through its Qatar Holding arm, bought the interest from a consortium made up of asset manager Hines Italia sgr’s European Development Fund, Italia Core Opportunity Fund and MontePaschi Hines Real Estate Crescita funds, as well as Italian insurance company Unipol Sai and property companies Coima and Galotti. Hines Italia Sgr will continue to manage the Qatari-owned investment funds which control Porta Nuova.
Coima, the property company of the Catella family, will be responsible for property and project management. The Qataris are active elsewhere in Milan together with their US partner Hines Italia. Last year the pair bought the Credit Suisse headquarters in Milan from US developer-investor Tishman Speyer for over €110 mln in cash.
QIA is also a force to be reckoned with in the further development of the Canary Wharf estate in London where it has now obtained majority ownership of Canary Wharf Group in a €3.5 bn deal with North American investor Brookfield Property Partners.
QIA’s acquisitions of Canary Wharf Group and Porta Nuova highlight the Qataris’ desire to create value by tapping into cities’ development potential. At a total of over 11 million sq ft, Canary Wharf Group has one of the largest development portfolios of any London developer – and offers one of the biggest value-creation opportunities.
In 2015 the group is expected to embark on the largest development pipeline it has undertaken since the 1990s with four separate projects totalling 22 buildings and 5.1 million sq ft of space. Similarly, Porta Nuova is one of the largest city-centre regeneration projects in Europe.
Polish potential
London, Paris and Frankfurt may form the golden triangle for office development but Warsaw is a clear contender for a CEE equivalent. Earlier this year, Belgian developer Ghelamco announced plans to start construction of a new €530 mln office complex to the north of the city. The scheme, dubbed Dworzec Gdanski, represents a joint venture with state-owned railway group PKP SA (Polish Railways) and is located near Unibail-Rodamco’s Arcadia shopping centre in the city. It will provide 165,000 m2 of commercial space as well as a new train station on completion in 2028.
The €300 mln project is currently 30% let with tenants including BNP Paribas and Frontex, the EU’s external border control agency. The development is set to be 70% leased by year-end, the company’s managing director Jeroen van Der Toolen told PropertyEU.
In Poland Ghelamco is best known for the Warsaw Spire, the largest office project in the capital city slated for completion at year-end. The 100,000 m2 scheme consists of a 220-metre high tower and two side buildings in a new district called Daszynskiego roundabout. Development activity in the region is benefitting from the opening up of the financing market, which has seen a dramatic change in recent months as commercial property lending margins have come down in the major cities.
Offices are more challenging, given the oversupply in the Warsaw office market, but for retail projects banks require a pre-let ratio of just 40%. The largest retail project currently under way in Poland is the €300 mln development of Posnania in Poznañ by French developer Apsys which previously developed the award-winning Manufaktura in Lodz. The Poznan mall, covering 100,000 m2 over 300 shops, is slated for delivery in H2 2016.
Other heavyweight international investors are also wising up to the potential of the Polish development market. In April, US private equity fund managers Pimco and Oaktree Capital announced they are taking a majority stake in CEE listed property developer Echo Investment in a bid to gain a foothold in new office developments in the region. Warsaw-listed Echo Investment owns around €1.5 bn of largely office assets in Poland, Budapest, Bucharest and Kiev and has a 1 million m2 development pipeline.
Griffin Real Estate, which is controlled by Oaktree, joined forces with Pimco to buy a 42% stake in the business space owner, which has a total market value of $720 mln (€680 mln). Indeed, demand for Polish real estate is so strong that Swedish developer Skanska recently put a number of regional offices that it has developed in the country on the market as a portfolio rather than as single assets. The move reflects both the growing strength of the occupational markets in key Polish cities and rising investor appetite for modern office buildings outside of
Warsaw, the developer-investor said.
The green office development arm of Swedish construction giant Skanska is marketing Kapelanka 42 A and Axis in Krakow together with Building A and B of Silesia Business Park in Katowice in a single 62,000 m2 portfolio. It is anticipated that the sale of the portfolio will be closed before the end of the year.
Judi Seebus
Editor in chief