This has unquestionably accelerated a change in the way we think about workspaces. Offices are evolving from rows of desks to collaborative spaces with productivity-boosting features. And businesses will need more flexibility in terms of usage, size and lease terms.
Yes, the pandemic has affected occupational activity. Tenants have put off decisions until the future is clearer, and rental levels are under pressure as a result. However, we expect to see a full recovery in the medium term. So, while transactional and financial liquidity are under pressure, the long-term fundamentals in the sector remain solid.
Our employees have been our first priority throughout the pandemic. Yet, even as we embedded new safety and escalation protocols – across both sites and offices – we kept all 11 of our buildings under construction moving smoothly forward.
The only delays were down to supply chain issues. This meant we were able to complete five buildings during the year and saw huge success in terms of commercialisation, despite the challenging environment. We also secured 100% funding for all our projects under construction – they’re now all covered for full completion.
There were other highlights too. In Hungary, we leased over 90% of Agora – and have since seen Huawei sign a large deal. And Bratislava saw progress on all our projects under construction, from Nivy Mall to New Apollo – with the latter signing an important global anchor tenant IBM in February of this year.
Varso Tower in Warsaw is now the EU’s tallest structure at 310 m and offers new tenants an address in one of the world’s most iconic new buildings. Elsewhere in the city, one of Forest’s buildings was smoothly completed, and we’ve since signed a contract with French home improvement business Leroy Merlin, who’ll make it their new 12,358 sq m HQ.
leased over
of Agora, Hungary
Leroy Merlin signed a contract with
Our UK colleagues are continuing work on Bloom Clerkenwell in London. With finance secured, we expect the occupational market there to take off once the restrictions are lifted. Equally, we now have all the permits for One Waterloo, – huge congratulations to the team – and as the market stabilises the demolition phase will begin. The fledgeling One Worship Square project is now ready to see more concentrated activity over the coming months too.
Things are also moving forward at speed in Germany. Our DSTRCT.Berlin project is progressing according to plan and several large leasing deals should be pushed through shortly. One of them, e-commerce furniture brand, home24, take more than 13,000 sq m in May 2021.
The year brought changes to our business strategy. We discontinued our future development activities in Hungary to focus on our projects in London, Berlin, Warsaw and Bratislava.
The year brought changes to our business strategy. We discontinued our future development activities in Hungary to focus on our projects in London, Berlin, Warsaw and Bratislava.
to concentrate on our
four core countries
retain completed projects in a soon-to-be-created separate investment vehicle rather than sell them
evolve our Workspace
as a Service portfolio
roll out the Way We Work (WWW) initiative, which helps us efficiently run projects with clear expectations
Financially, we are now very well positioned – especially after raising €90m by tapping into the bond markets in the Czech Republic, Poland and Slovakia from December to March 2021.
Our key 2021 targets now revolve around replenishing our development pipeline, mainly in Germany and Poland, and founding the REIT vehicle, which will hold our completed developments. We also expect our Investment Management business to grow the assets under management, mainly through its flagship CE REIT fund.
Going forward, we’ll continue building our core development business by focusing on high-quality modern workspace products: super-prime core, well-connected locations crafted with exceptional quality and sustainability standards to create healthy, stimulating and modern workspaces.
The function of the workspace will innovatively shift from desks and chairs towards collaborative, healthy workspaces and supportive environments. So our strategy, with wellbeing and productivity at its heart, will garner positive results.
In fact, the topic of responsibility and the overall ESG policy is a pivotal part of our value creation and product development. We have incorporated ESG into our development process, making it a key component in ensuring our products comply with today’s standards. We aim to become market leaders in this area by securing future- proof developments.
Although occupational activity last year was restricted due to COVID-19, we are already seeing a gradual return to normal, with leasing activity picking up at the beginning of 2021 – a strong sign for healthy demand in the future.
Of course, success depends completely on our people. To that end, we have created a new mentoring programme that launches later this year. And, following research, we have also adjusted how we set goals and recognise performance – putting more weight on variable rewards. The result is that we all are now even more invested in the success of HB Reavis.
Let me finish by thanking all of my colleagues and our partners for their commitment. I’m in awe of the way they’ve balanced the demands of home life and work over the last 12 months while delivering such great performance.
I very much look forward to seeing what we can all achieve together – and seeing the progress in person – when all the restrictions are lifted.
Maarten Hulshoff
8 01 That’s us It’s at times of pressure that the quality of our people really shines through. And over the last year, I’ve seen so many among us manage our business in a proactive, hands-on manner – always keeping our clients’ interests at the forefront of our minds.
Naturally, most clients spent the majority of the year dealing with the COVID-19 crisis. Ultimately, this led to some delayed office moves – a situation compounded by larger companies releasing space and creating a new market for subleases. However, companies were generally positive about the long-term situation, with many enquiring how we can help them improve productivity and efficiency.
This was primarily down to the great strides we’ve made with our Workspace as a Service (WaaS) strategy. During 2020, we focused further on providing advisory services to our clients – enhancing employee satisfaction, productivity, health and wellbeing on one hand, and raising sustainability standards on the other.
In fact, environmental, social and governance have been at the top of our agenda. Last year saw the introduction of a new strategy and set of principles that will help to create a further point of difference in the market.
Its ethos is reflected in the work of services like Symbiosy and Origameo. These were already established, but will now become even more important as we look to the future. Increasingly, we will move from hard-core office development to an approach centred around soft and motivational people issues – combining stimulating office environments with innovative technologies that create a hybrid form of working that improves the employee experience.
As for the office developments themselves, we will be even more selective and, what I like to call, laser-beam focused on developing prime properties. Making decisions based on location, connectivity and sustainability, these will become the best possible environments for our clients and their employees.
n Bratislava, where the company was originally established, we will also start to diversify with some residential development opportunities.
At the end of 2020, our development portfolio, all located at vital transport crossroads, added up to some 1.1 million sq m. Around 44% of this is in London (market value on completion), with the most eye-catching scheme at One Waterloo – next to the UK’s busiest station, handling over 92 million visitors a year.
Financially, the year was not as rewarding as we hoped. Our clients went through difficult times staying safe and managing employees at a distance. This led to uncertainties that resulted in the demand for leases stagnating, and in some cases longstanding deals were cancelled or postponed. Agora, however, was an impressive exception, leasing almost 71,000 sq m.
Overall, we managed to keep construction going despite supply chain disruptions, but increases in the price of materials did lead to a few cases of cost overruns. As a result, we do have a leasing backlog.
What is positive, however, is our impressive performance in Q1 2021. It’s clear that businesses feel the end is in sight and want to make ambitious decisions so they’re best-placed to succeed in the long term.
We’re grateful for all the support and patience given from our stakeholders, including our clients, financiers, suppliers and our own staff.
There’s no doubting that our staff spent 2020 under pressure, dealing with both work and family dilemmas.
our financial performance
increased robustly
and outperformed our
long-term target.
How we performed The pandemic situation has significantly impacted the real estate sector. Leasing activity has recorded its lowest volumes in a decade. Deferrals of future rental income linked to our under-construction portfolio has been driving the fair market values, translating into net revaluation gains in 2020 of €28.7m (€519.4m in 2019).
In connection with a depreciation of CEE currencies and FX losses of €110.2m (compared to €22.7m profit in 2019), this resulted in a comprehensive loss of €183.8m (€388.6m in 2019).
Despite the macro situation, the Group managed to keep the construction activities going while securing debt financing to maintain progress on developments. The balance sheet value has grown to €3,097m (€3,040m in 2019) due to debt deployment, bringing the net debt ratio level to 38.2% (32.4% in 2019), within our targeted range of 35–40%.
Waterloo, London
122,510 sq m
1,318,689 sq ft
AHMM
Consent
€2.443bn
£2.196bn
WELL Core Platinum,
BREEAM UK New Construction Outstanding,
WiredScore Platinum
One Waterloo, in the heart of the South Bank, is our largest project in the UK to date. After 22 Bishopsgate, it’s also the largest office single build in Central London’s history.
The 122,510 sq m/1.3 million sq ft redevelopment of what is currently known as Elizabeth House will be an inclusive, wellbeing-focused environment for 11,000 workers – from startup and scale-up businesses to larger organisations.
This iconic and vibrant multi-purpose destination is located next to Waterloo Station – the busiest in the capital, supporting 180 million journeys each year.
And it will be a prominent scheme influenced by connected themes: the neighbourhood, nature and health, sustainability and future workspace – all underpinned by the user and visitor experience.
Targeting WELL Platinum with a focus on health and wellbeing, three acres of outdoor space will be created within One Waterloo to support the office workers and the wider community. A publicly accessible 200 m long garden promenade which is elevated two floors above street level will create a scenic journey from the concourse level at Waterloo Station directly into the building.
Victory Arch Square, the uniquely covered Waterloo Square and ‘The Curve’, a major new pedestrianised retail street lined with shops and cafés, will transform the public realm. Cascading terraces and gardens for office occupiers will provide a choice of outdoor spaces to find the right place to relax and rest. Additionally, an urban sky farm will offer ultra-fresh produce for the scheme’s occupiers.
With aspirations to be one of London’s most sustainable developments, the office space will be fossil fuel free, implementing low carbon solutions in all the project stages. We are targeting net zero carbon in operation too with over a 35% reduction in energy consumption through a ‘Lean, Clean and Green’ innovative building design by specialist Swedish designers that maximises efficiency through an all-electric solution combining integrated heat pumps and heat recovery. In addition, 98.8% of demolition waste is to be diverted from landfills. These initiatives, among others, will support the building in achieving BREEAM Outstanding.
Since our possession of the vacant offices at Elizabeth House in April 2020 and throughout the COVID-19 lockdown, we have provided ongoing support to the ground floor retailers to help the local business community, in particular by providing free car parking for NHS staff at Guy’s & St Thomas’ Hospital.
Clerkenwell, London
13,274 sq m
142,884 sq ft
John Robertson Architects
Under construction
€260m
£234m
WELL Core&Shell Platinum,
WELL Health-Safety Rating,
BREEAM UK Nes Construction Outstanding,
WiredScore Platinum
Bloom is ideally positioned within the vibrant Clerkenwell neighbourhood and in close proximity to the City of London.
It’s also situated adjacent to the newly built Farringdon Station, giving it optimum connectivity. Currently, the station serves overground Thameslink trains as well as District, Circle and Hammersmith and City Underground Lines. And with the forthcoming opening of the Elizabeth Line, a quarter of the UK population will soon be within a 45-minute commute.
John Robertson Architects designed the building to meet the highest standards of office wellbeing, catering to a variety of businesses that truly value the importance of having a well-designed and sustainable workspace where employees can thrive. The design of the building reflects the rich and varied context of Clerkenwell and nearby Hatton Garden, with a unique coloured, glazed terracotta façade.
Bloom Clerkenwell offers direct access to London’s Cycle Superhighway along with 243 cycle spaces, a 110 sq m (1,200 sq ft) multi-function training studio and more terrace space than any other office building of its size in London– helping to move the working day beyond the desk. It’s also connected to the thriving Clerkenwell neighbourhood through an activated ground floor public retail offering.
Testament to the quality of the building, we are aiming for Bloom to be among the first buildings in London to achieve a combination of BREEAM Outstanding, WiredScore Platinum and WELL Certified Platinum ratings.
Its sustainability credentials are enhanced by its use of a neighbouring district’s heating and cooling system, Citigen, which removes the need for high carbon energy-producing boilers and chillers on-site.
The building is targeting completion in June 2021, when it will become owner operated. Our new Ready to Work office space concept will be featured on the first floor, fully integrated with the Symbiosy platform. Companies choosing the Ready to Work offer will benefit from a tailored approach to workspace design, reduced upfront capital expenditure and a flexible approach to leasing.
Shoreditch, London
12,836 sq m
138,165 sq ft
MAKE Architects
Planned
€242m
£217m
WELL Core&Shell Gold,
WELL Health-Safety Rating,
BREEAM UK Nes Construction Excellent,
WiredScore Platinum
One Worship Square is ideally located in Shoreditch, in the heart of London’s Tech City. It’s only minutes from Old Street, Liverpool Street, Moorgate and Shoreditch High Street Stations – together serving 200 million journeys a year. The neighbourhood is also one where creative entrepreneurs want to work, and where growing companies want to be.
The building’s eye-catching design and blue façade will create a recognisable local landmark with a distinct identity. The 13,000 sq m/138,000 sq ft of floor space spread over nine storeys will be a mix of high-quality communal, collaborative and flexible spaces to suit the everyday needs of occupiers and their business activities. The ground floor lobby will open directly onto a new public square and feature a café and retail spaces.
The project is HB Reavis’ first London building designed for the post-COVID world, with fully integrated office and space management technology powered by Symbiosy.
Flexibility, sustainability, technology and wellbeing create a future-proofed workspace designed for employees first.
One Worship Square will be managed using a native app and in-house concierge teams. The app will give occupiers access to food delivery, laundry services and environmental and recycling monitoring data. The building will also please socially conscious employees: it will be net zero carbon in operation and a plastic free workspace. Just as well, the lobby will be a green heart of the building, featuring biophilic design and digital displays showing environmental and sustainable indicators.
The site was purchased with planning consent, but we’ve redrawn plans to include more outdoor terrace space as well as cycle storage directly on the ground floor.
Targeting WELL Platinum, the highest certification for wellbeing, the design includes a fitness suite for employees as well as free rentable bikes and e-scooters for those dashing to a meeting. One Worship Square will also sit on a new public square, available for employees and the public to use year-round. The aim is to host events there too, from a weekly food market to summer ‘big screen’ days, to create a lively and sociable space in addition to the project’s outdoor terraces.
Its high-quality design reflects the personality and creativity of Shoreditch and London Tech’s City. Designed by MAKE Architects, it’s scheduled for completion in 2023 with plans to start on-site in 2021.
Landsberger Alee, Berlin
48,535 sq m
522,426 sq ft
Gewers & Pudewill
Under construction
€399m
£358m
WELL Core&Shell Gold
DGNB Gold
WiredScore Platinum
Work. Eat. Meet... repeat.
There’s a new address tailor-made for Berlin’s creative and tech-led communities. Multipurpose DSTRCT.Berlin is nestled between vibrant Friedrichshain and Prenzlauer Berg. 20 million people travel through a major public transport hub yards away. It’s also only a few minutes from Alexanderplatz and downtown Berlin.
The new building’s modern curves and symbiotic features complement the charm of the former slaughterhouses – the four old halls are being carefully reconstructed to create a multifaceted destination with a new approach to business.
To help the development integrate with the area as a whole, we’ve taken the lead from our neighbours. The nearby Velodrome – the heart of Berlin’s cycling scene – inspired us to include a cycle garage for over 800 bikes. And there are a number of other wellbeing features, including spaces for cultural events and eateries, which combine with the new offices to create a buzzing, cohesive district.
A WiredScore Platinum certification reflects DSTRCT.Berlin’s superior tech capabilities. It also received WELL GOLD Precertification early in 2020, and we’re applying for DGNB Gold status – which will prove DSTRCT.Berlin’s sustainability credentials.
Beyond the benchmarks, the fact we secured a €235m development loan with Helaba proves others believe in our vision. The project is now 100% financed.
The end of 2020 saw a key construction milestone with the ‘topping out’ of the building. With the main structure complete, the focus is now on adding the beautiful glass façade and crafting the interiors. We aim to complete this project in autumn 2021 and hope to announce occupiers in the very near future.
Chmielna Street,
Central Business District
without the viewing
platform and aerial storage:
143,806 sq m/1,547,911 sq ft
Foster + Partners
HRA Architekci
Benoy
Under construction
€399m
£358m
BREEAM New Construction Outstanding,
BREAM Core&Shell Gold,
WELL Health-Safety Rating
The three high-rise buildings in central Warsaw that make up Varso Place encompass offices, a hotel and a shopping arcade, and will soon include a public terrace at the top of Varso Tower with views over the city.
The nearby Warsaw Central Station with neighbouring Warszawa Śródmieście and WKD commuter railway support 57 million passenger journeys each year. Both metro lines and several dozen public transport options are within just a few minutes’ walk. It’s also next to the city’s most popular mall – Zlote Tarasy – which sees more than 20 million visitors annually. And as well as both lines of Warsaw’s metro, there is excellent access to several dozen public transport options within just a few minutes’ walk.
Designed by Warsaw-based studio HRA Architekci, the two lower buildings were completed and almost fully leased in 2020.
Varso 1 (29,736 sq m/320,285 sq ft) is home to Poland’s first four-star NYX hotel, which boasts a total of 331 rooms. For fitness enthusiasts, Varso Place’s health centre and two-storey fitness club are already up and running.
Varso 2 (44,264 sq m/476,133 sq ft) has welcomed a mix of Polish and international companies, including Bank Gospodarstwa Krajowego, Cambridge Innovation Center, Orsted, Nvidia, Workday and act BSWW legal firm and a global payments technology company.
Designed by Foster + Partners
Varso Tower (69,816 sq m/751,493 sq ft without the viewing platform) is the centrepiece of this new mixed-use district.
When the roof topped out at 230 metres last year, the building surpassed Warsaw's Palace of Culture and Science to become the tallest building in Poland. And as works continued into Q1 2021, an additional 80-metre-tall spire means Varso Tower reached 310 m to become the tallest building in the European Union.
Varso Tower combines sustainable design with energy efficiency as one of the country’s greenest buildings. It scores highly across all safety, energy and comfort benchmarks, which helped it earn the highest level of BREEAM and WELL certifications.
Most of the buildings around Varso Place are already clad in a 4 m tall glass curtain wall, which provides the interiors with an abundance of natural light. Construction is set to be completed in Q1 2022. When finished, it will be an inviting haven for passers-by, with a tree-filled internal courtyard and 10-metre high lobby walls covered with handmade ceramic mosaics.
Burakowska, Wola district
79,391 sq m
864,560 sq ft
HRA Architects
Under construction
€292m
£262m
BREEAM Communities Very Good
WELL Core&Shell Gold,
BREEAM New Construction Excellent
A campus-style environment, Forest offers around 79,000 sq m/864,000 sq ft of workspace, ground floor retail and restaurant opportunities
Public courtyard filled with
200 trees
It’s located between hipster Burakowska Street and Arcadia – Warsaw’s largest mall at 117,000 sq m with 18 million visitors each year. Warszawa Gdanska metro a train station, with 8 million journeys a year, is just a 12-minute walk away.
Perfect for corporate, creative and startup businesses, it will offer the city’s largest floor plate as well as astonishingly flexible office layouts and coworking spaces.
The design maximises resources. Rainwater will be reused to irrigate the landscaping and improve Forest’s carbon footprint. The roofs also feature a community farm, relaxation zones and views of the lush greenery – all of this with the aim of improving the health, wellbeing and productivity of the people who work there.
It’s an approach that helped it become one of the country’s greenest offices, with BREEAM and BREEAM Communities certifications and WELL Precertification.
The first buildings are due to be completed in Q1 2021, with the 120-metre tall Forest Tower ready for the beginning of 2022.
The largest construction site in Europe
A revitalised brownfield that’s set to become the capital’s vibrant new business district, New Nivy encompasses a number of separate developments.
At its heart is an inspirational new international bus terminal, Nivy Station. With Twin City – and WELL Certified Twin City Tower – also creating a new spirit and energy in the heart of Bratislava, New Nivy is already thriving.
For proof, look no further than the BREEAM Communities certification at the Excellent level that New Nivy received last year – making it their fourth-highest rated development worldwide. The unique design standard assesses the impact of developments on their environment with an emphasis on social responsibility. The certification is further recognition of our ability to create people-centric workspaces that enhance local and business communities.
Mlynske Nivy Street,
New Nivy zone
102,160 sq m
1,099,641 sq ft
Benoy
Siebert+Talas
Under construction
€345m
£310m
BREEAM Communities Excellent
BREEAM New Construction Very Good
A future-proofed destination, 20 million passengers pass through Nivy Station each year – making it one of the region’s key transport hubs. But it’s the breadth of lifestyle activities offered in one location that elevates its role in the city.
The design draws inspiration from our years of experience, feedback from clients and the latest retail trends. Bratislavians now have a new airport-style bus terminal, over 250 retail outlets, a fully-fledged gastronomic zone and fresh produce market, and a green roof for exercise and relaxation. All within a dynamically developing business zone.
Mlynske Nivy Street,
New Nivy zone
32,470 sq m
349,504 sq ft
Benoy
Siebert+Talas
Under construction
€124m
£111m
BREEAM Communities Excellent
BREEAM New Construction Outstanding,
WELL Core Gold,
WELL Health-Safety Rating
Bratislava’s new 125 m architectural landmark offers innovation, breathtaking views and exceptional flexibility. There’s a direct link to the international Nivy Station travel hub. And smart technologies like the country’s fastest lifts complement signature services like workspace counselling, asset management and flexible leasing to make everyday life simpler.
It’s a stunning space and now officially Slovakia’s tallest office. We hope it will also win both BREEAM and WELL certifications.
Vaci Office Corridor
71,885 sq m
773,764 sq ft
Make Architects
Finta Studio
Under construction
€280m
£252m
WELL Certification
BREEAM 2016 New Construction Excellent and Outstanding,
BREEAM Communities Very Good
World-class architects from London and Hungary have worked together to create this new landmark at one of Budapest's busiest transport crossroads.
The Arpad Bridge metro station close by is the city’s fourth busiest with 37 million yearly journeys, and Volan Bus station adds 2 million more.
When completed, Agora will offer a range of community-led facilities. Inspired by local research, they’re designed to improve the productivity and health of everyone around the buildings and provide a rich combination of services that make everyday life easier.
Agora Budapest became the first commercial building in Hungary to receive preliminary BREEAM community certification. Furthermore, Agora Hub and Agora Tower both received BREEAM preliminary certifications – with the Hub matching top performers like Bloomberg’s London HQ and Edge in Amsterdam.
2020 saw major tenants start to move into the buildings. In one of the year’s biggest deals, Raiffeisen Bank now has over 1,300 people spread across Agora Tower in their new headquarters. Their Origameo-inspired workspace is based on data-driven designs and will enhance employees’ collaboration, productivity and wellbeing.
bp also moved in during the summer and, together with their neighbours, are enjoying all the features of this new business district, from the quality cafés and restaurants to conveniences like the supermarket and barbershop.
From the CEO
Looking back at 2020, it is hard to focus on
much else other than the pandemic. However,
we shouldn’t forget that due to the efforts of our
exceptional team in the UK, we started the first
few months of last year in a solid position with
a positive outlook.
HB Reavis UK had successfully completed the leasing programme of 20 Farringdon Street ahead of valuation, with all of the new customers moved in and enjoying the workspace.
In the same building, we had successfully opened our community-focused coworking space HubHub, which was attracting a wide range of startups, scale-ups and companies wanting to use office space in a new, flexible way. HubHub was exceeding expectations with near full occupancy and significant increases in average desk rates over the year.
Our major project under construction, Bloom Clerkenwell, was making significant progress – under budget, on programme and fully under offer (again significantly ahead of valuation) with a sustainability-focused financing package agreed.
At Elizabeth House, alongside achieving vacant possession, we had secured the resolution to grant planning consent for what will become one of London’s landmark projects. We were working well through the final parts of the stage 3 design and the development obligations to be able to start works.
We were also continuing to recruit and grow our UK operations.
And with the addition of our One Worship Square project, we had further secured our development pipeline with a strategically-sized and timed project to optimise and transfer our knowledge and learnings from Bloom.
And then COVID-19 came along, turning the world on its head. We are all too familiar with the impact it’s had on our sector, our business and each one of us personally. As the first lockdown in late March arrived, the business adjusted to working remotely.
We were well positioned to do so, after previously adopting flexible working tools and technologies. Our internal collaboration, external consultant management, planning committees and discussions, pitches and presentations, and supplier relationships all switched to a ‘virtual’ setting – and I’m very proud of how our teams showed both the resilience and adaptability to ensure a seamless transition during a time of unprecedented stress.
The other parts of our business in the UK were also impacted, and none more so than in the leasing market. During the year, as uncertainty grew, we saw many potential occupiers adopt a ‘wait and see’ approach which led to record low levels of take up and a near doubling of the vacancy rate.
Unfortunately, this led to both of our prospective customers at Bloom deciding against relocating their offices and agreeing short-term lease re-gears at their current older buildings. This was a theme seen throughout the London market, with over 3.5 million sq ft of lease expiries pushed out by 2-5 years as occupiers sought optionality. However, given the very limited supply of new space, we have yet to see any material impact on rental levels.
While the overall financial performance of the projects was negatively impacted as a result, our teams worked incredibly hard to mitigate any impacts, and we should not let that be forgotten in all the negativity of the year.
In May, we sold 20 Farringdon Street during the period of total lockdown when there was almost zero liquidity. At that time it was the largest City of London asset to trade. It emphasised both the appeal and liquidity of the high-quality workspaces we develop – especially as the completed price was the highest per sq ft for a building in the City.
At Bloom Clerkenwell, we faced the difficult challenge of deciding if it was safe for our works to continue. To protect our teams and our supply partners, we made the decision to suspend construction for a number of weeks to give time to assess how we could continue to operate safely. Then, following all government guidance we reopened the site with new health and safety measures in place.
I’m especially proud of how our collaborative approach to our supply chain allowed us to jointly agree to suspend all works on-site in a matter of days. The same collaborative approach allowed us to restart the works in an optimised way. We remain on budget and on programme for practical completion in June 2021, when Bloom will be one of the very first buildings globally to target WELL Platinum, BREEAM ‘Outstanding’ and WiredScore Platinum.
For our new One Worship Square project, we effectively assembled a brand-new team and started the project journey remotely. The team spent the majority of the year working on the concept design, focusing on providing a sustainable, flexible, people-focused place of work, supported by smart building technology.
We’re now adding an additional penthouse office floor, introducing a communal roof garden along- side an in-house gym. The development will also feature our affordable and flexible workspace concepts and will be supported by Symbiosy to provide the very best customer experience. We have now secured vacant possession and are preparing to commence construction works in early 2021.
At One Waterloo, we have made excellent progress getting ourselves into the best position for starting major construction works. We successfully achieved vacant possession and concluded our stage 3 design in excess of our target net internal area (NIA) and in line with the cost target.
We have continued to make progress on the development obligations, concluding the Asset Protection Agreement (APA) with Network Rail and having the agreements with the Secretary of State for Transport and TfL substantially agreed. We also finished the year with the great news that the S.106 (which secures the planning consent) was agreed and is now in the process of being signed.
Last but not least, I think the biggest achievement was by each individual member of our team dealing with all the personal and professional adversity that last year threw at us. I am not sure if I can ever find the right words to express this, but I was just so incredibly impressed and proud of how adaptable and resilient everyone was to getting on with it and getting through it – I can’t thank each and every one of them enough.
A special mention here must go to our site-based teams who have continued to turn up on-site every day despite a global pandemic to keep our projects on track – I salute you.
Looking forward to 2021
We start the first part of 2021 back in a national lock down, but I am filled with cautious optimism. We now have a Brexit deal secured, the most
recent lockdown appears to have reduced
the number of cases significantly and the UK’s
vaccination roll out is moving at great speed.
With projections that the majority of the UK
population may be vaccinated by the summer,
we now have been provided with what will be
a permanent plan to exit lockdown and return
back to a more normal way of life.
The outlook for the London office market remains robust with low levels of supply of the high-quality workspaces we create – there is currently only 3 million sq ft of space under construction and available with over 9 million sq ft of active demand.
There will remain a temporary period of supply/ active demand imbalance. We expect this to be quickly reversed by year-end as our customers are able to plan for the future with more certainty, and when they return to the market, they will be focused on how their workplace will be used in a more flexible, collaborative and people-focused way – all of which we are well-placed to provide.
Capital markets remain supportive too, with £9 billion transacted in 2020, over half of which was transacted in the final quarter of the year.
With a Brexit deal now in place and over £50 billion of capital looking to invest in London, we are already starting to see some yield compression for highly sought after new office buildings.
We will also continue to explore building our
UK pipeline and taking advantage of any market
distress, but only as and when we can do so in
a financially prudent and sustainable way.
I would like to finish by saying that I have a huge amount of optimism for HB Reavis and our future in the UK. The future success of office developers will rely on businesses that control their own capital, have a deep understanding of their customers and can develop best in class assets with great transport connections that have a clear focus on individual wellbeing, sustainability, flexibility and technology.
We continue to be one of the very few developers that can meet this brief with the added benefit of having a sustainable competitive advantage through our fully-integrated model of design, procurement, delivery and operation. Unlike many of our competitors, this isn’t a reaction to COVID-19 – we have been operating like this for many years and continue to deliver on our promise to create remarkable customer experiences for everyone that uses our projects.
I really do believe we have something special. By challenging the established way of providing workspaces and by doing it in an entrepreneurial and creative way, we can become the leading office developer in London.
So please, do all you can to support each other through these difficult months in order to give us the best chance of success in 2021 and beyond.
Hope to see you all soon and stay safe.
Steven Skinner
The market
The market in London started 2020 with very
strong fundamentals: historically low availability,
a committed development pipeline of over 50%
pre-let, a well-balanced and robust customer
demand outlook and both headline and net
effective rental values growing.
Following Q1, the majority of the year was spent in varying degrees of COVID-19 restrictions, albeit with some initial easing that was quickly reversed after the summer.
Many companies adopted a wait-and-see approach to their real estate strategy as they adapted to working remotely and then started thinking longer term about how their workspaces would be used. As a result, we saw a total central London office take up of 5.6 million sq ft, which was about a 56% decline on the long-term average of 12 million sq ft.
Of this 5.6 million sq ft, 45% was completed before March and the first of the lockdowns, resulting in the remaining quarters seeing some of the lowest levels of activity ever recorded.
Transaction sizes were also significantly reduced
in 2020 with only 10 leases signed for over
50,000 sq ft – which is 70% below the long-term
average – and nearly all deals were either
concluded or already agreed by the start of
the first lockdown.
The amount of active occupier requirements remained somewhat more resilient than the take up figures, with a decrease of around 25% to end 2020 at 5.5 million sq ft compared to 7.7 million sq ft at the end of 2019.
This should be seen in a positive light given there remains a commitment from customers to keep requirements live as well as a large increase in short-term lease renewals of 3.5 million sq ft, which is essentially deferred and not cancelled demand. We remain well placed to capture demand as and when it returns with our established strategy of people, planet and productivity-focused workspaces.
The overall availability of office space has increased substantially over the year to just over 23 million sq ft – the highest levels seen since 2004 with an additional 10.5 million sq ft added in just 12 months.
The majority of this space is second hand, only available in smaller units or in relatively tired buildings on short lease or sublease terms. These offices are less appealing to most occupiers given the ever-increasing focus we’re clearly seeing on new, high-quality workspaces focused on employee wellbeing and sustainability.
More relevant to us is an analysis of availability of new or Grade A space. Here we can clearly see that the available pipeline for the type of workspaces our customers want remains limited. There is currently a peak of 2.4 million sq ft under construction and available for delivery in 2021.
Looking forward, we can clearly see the COVID-19 impact where schemes are being delayed, with only 3.1m sq ft of space under construction and available to be delivered in 2022 and 2023 against the long-term average of 5.8 million sq ft per annum.
As a result, we saw the overall vacancy rate rise from 4% to 8.1%, but with the majority of this coming from the 95% increase in second-hand space. When looking at Grade A vacancy in isolation, the rate has risen only marginally to 2.9% against the long-term average of 2.6%. It is expected that vacancy will peak in 2021 before reducing quickly as transaction volumes recover swiftly for new workspaces and sublet space is withdrawn from the market.
In the context of falling demand and increased supply, prime rents in Central London have been remarkably resilient during 2020, reflecting that where there is customer demand for larger scale, high-quality workspaces the choices remain somewhat limited.
Headline rents declined slightly during the year. Net effective rents came under more pressure, with rent-free incentives increasing as tenants either renegotiated previously agreed deal terms or owners offered more inducements such as deferred lease start dates to secure the few deals available.
Overall, we expect prime rents in 2021 to remain stable. As tenant demand returns, it will continue to pivot into the best-in-class assets. And beyond 2021, we anticipate headline rental recovery before reaching pre-COVID-19 levels by 2023.
Investment volumes totalled £7.5 billion for the year, which was 33% down on 2019 levels and 50% down on the long-term average. Q2 and Q3 were partially weak with limited liquidity during the first lockdown, resulting in the lowest quarterly volume figures on record.
However, as a Brexit deal was formalised and before the new lockdown restrictions post summer, Q4 saw a large spike in volume with £4.3 billion transacted – broadly in line with the Q4 long-term average.
While volumes will clearly be impacted by the degree of travel restrictions in place, investors are clearly looking through the short-term occupational market indicators with a clear focus on acquiring the very highest quality future- proofed buildings with the clear ability to meet their ESG requirements.
There continues to be record levels of international capital targeting London assets of this quality, and coupled with the continued relative pricing divergence from other European gateway cities such as Paris and Berlin, we have seen prime yields remain stable through 2020 and have already started to see some indications of them actually decreasing for certain assets. As a result, we anticipate the outlook for yields is further compression throughout 2021 and beyond.
| HB Reavis Development UK |
GLA sq m |
Validation | ERV | GDV | Value Change | Investment |
||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | ||||||
| Projects under construction | 13,274 | 57.8 | 151.0 | 153.6 | 11.7 | 260.4 | 2.6 | 23.4 |
| Projects in preparation | 140,266 | 246.0 | 337.4 | 447.6 | 122.8 | 2,763.3 | 110.2 | 18.9 |
| Total 2020 | 153,540 | 303.8 | 488.4 | 601.2 | 134.5 | 3,023.7 | 112.8 | 42.3 |
| Total Pipeline for 2021 | 153,540 | 303.8 | 488.4 | 601.2 | 134.5 | 3,023.7 | 112.8 | 42.3 |
From the CEO
Well. 2020. What a journey!
Over the course of the year, we organised a couple of very popular bike tours. On these tours, the road could suddenly turn surprisingly bumpy. Similarly, in our business, after several years of relative stability, we suddenly found ourselves in a turbulent environment that heavily impacted our daily operations.
I’m happy to say that the Berlin team coped with the new challenges extremely well. We continued construction on DSTRCT.Berlin without any interruption. The team even grew – to almost 40 professionals.
Where some saw the current events as a threat to our market, we saw an opportunity. If companies are to meet their business targets in the coming years, they’ll need high quality and healthy workspaces more than ever.
Therefore, we intensified our acquisition activities in Berlin, and should start to see tangible results in H1 2021.
More and more, HB Reavis is being recognised in Germany as THE provider of modern workspaces driven by wellbeing and technology.
We look forward to 2021 as the year DSTRCT.Berlin is completed. So let me use this opportunity to thank everyone in our Berlin team for their efforts during last year. At the same time, I would like to give huge credit to our growing network of business partners for their trust and close cooperation.
The economy
Germany’s economy hasn’t been immune to
the consequences of the COVID-19 pandemic.
It affected – in principle – all sectors and put
the economy into a recession comparable with
the economic and financial crisis in 2008 and
2009. GDP declined by 5% after ten years of
continuous growth.
However, in comparison to other countries, the results were better than originally expected. Thanks to the robust flow of government subsidies on many fronts, the country managed to stabilise key economic pillars in the second half of 2020. The federal government expects around 3% GDP growth in 2021.
Nevertheless, the pandemic has had an impact
on the German labour market. 14 years of
steady increases in employment ended, with
unemployment rising 0.9% to 5.9%. Part-time
employees and the self-employed were hit
particularly hard.
On the other hand, the government’s broad programme (Kurzarbeit) helped to keep a significant part of the economically active population employed. With the recovery expected to start in the second half of 2021 and throughout 2022, the labour market should return to more positive dynamics before the end of the year.
GDP
Bundesministerium für Wirtschaft und Energie
https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2021/01/20210127-bundeskabinett-beschliesst-jahreswirtschaftsbericht-corona-krise-ueberwinden-wirtschaftliche-erholung-unterstuetzen-strukturen-staerken.html
https://www.bmwi.de/Redaktion/DE/Dossier/konjunktur-und-wachstum.html
Statistisches Bundesamt
https://www.destatis.de/DE/Presse/Pressekonferenzen/2021/BIP2020/statement-bip.pdf?__blob=publicationFile
Labour market
Bundesagentur für Arbeit
https://www.arbeitsagentur.de/presse/2021-02-jahresrueckblick-2020
https://www.arbeitsagentur.de/presse/2021-05-der-arbeitsmarkt-im-januar-2021
Statistisches Bundesamt
https://www.destatis.de/DE/Presse/Pressekonferenzen/2021/BIP2020/statement-bip.pdf?__blob=publicationFile
The market
Despite the pandemic, in general, the German
real estate market proved relatively robust in
2020, in terms of both investment and leasing.
Transactions totalled €59.2 billion, with over half
conducted in the top 7 cities: Berlin, Dusseldorf,
Frankfurt, Hamburg, Koln, Munich and Stuttgart.
Investment yields remained relatively sharp with
midterm forecasts set to strengthen even further.
The office leasing market was mostly driven by uncertainty among tenants, resulting in slower decisions to move or expand operations. Office take-up in the top 7 cities totalled approx. 2.6 million sq m compared to 3.9 million sq m in 2019 – a 35.3% decline.
Once again, the highest take up for 2020 was recorded in Berlin, with a better-than-expected 734,000 sq m total (-28.7% compared to 2019). This still met the 10-year average.
Germany’s office vacancy rate rose from a historic low of 2.9% (2019) to 3.5%. – so office space still
remains scarce, especially in Berlin where the
vacancy rate remains at a low level at 2.4%.
The significant growth of office rent seen in the last couple of years slowed down in 2020. However, averages still rose in several cities: Berlin 9%, Frankfurt 8% and Munich 7%. In particular, Berlin’s prime rent reached €41.00 per sq m. Only Frankfurt recorded a higher prime level with €45.00 per sq m.
Optimistic signs of recovery as well as GDP growth are expected to gradually translate into positive real estate market dynamics during 2021.
Colliers International
City Survey
Büro- und Investmentmärkte im Überblick 2020/2021 (Top 7 Cities)
Bulwiengesa
https://www.bulwiengesa.de/sites/default/files/bulwiengesa_immobilienindex_pm_2021_dt_0.pdf
https://www.bulwiengesa.de/sites/default/files/immobilienindex_2021_0.pdf
Our performance
Our first German project, DSTRCT.Berlin,
remained our focus for the whole year.
The development team, together with our
construction and procurement colleagues,
managed to deliver construction and related
works according to plan – worth over €50 million.
We continued to strengthen DSTRCT.Berlin’s wellbeing philosophy, enhancing the campus with unique features such as a large-scale bike garage solution, an attractive art concept and extensive greenery.
On the leasing side – with Matthias Goßmann as our new Head of Leasing – we built a robust active pipeline of over 50,000 sq m GLA plus several ongoing leads. These should see further progress in Q1 2021.
Our German pipeline is a key focus for the
company’s strategy – and we’re pleased to
say our efforts led to two exclusive acquisition
negotiations towards the end of the year.
Looking back, 2020 was not lacking business success.
We continued to build on our solid base and developed our team, our portfolio and our partner network to support further growth in the German market.
| HB Reavis Development DE |
GLA sq m |
Validation | ERV | GDV | Value Change | Investment |
||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | ||||||
| Projects under construction | 48,535 | 87.8 | 167.5 | 240.3 | 14.1 | 398.5 | 72.8 | 42.7 |
| Projects in preparation | 40,480 | 4.2 | 4.5 | 6.0 | 8.6 | 197.8 | 1.5 | 0.0 |
| Total 2020 | 89,015 | 92.0 | 172.0 | 246.3 | 22.7 | 596.3 | 74.3 | 42.7 |
| Total Pipeline for 2021 | 89,015 | 92.0 | 172.0 | 246.3 | 22.7 | 596.3 | 74.3 | 42.7 |
From the CEO
It’s natural that I’m not the only one describing
2020 as a year of challenges. There is no industry
or single person who was not affected by the
pandemic. But despite this, we’ve taken many
great steps forward.
We managed to finish the reconstruction of Mlynske Nivy Street, a complex task because of crucial project modifications and dynamically changing restrictions.
On account of COVID-19, we had to postpone the opening of Nivy Station. However, the situation in fact strengthened our relationships with our business partners. We used the additional time to modify some elements of the final project, thanks to which, we look forward to offering a future-proofed project – a real game changer – in August 2021.
The year also brought a change in perspective for offices, where workplaces are no longer seen as just a space between walls. Now, the focus is on employees as human beings rather than numbers in a company’s budget.
This has resulted in greater interest in our services, especially Qubes, Origameo and Symbiosy. Our offer of flexibility, effective cooperation and smart technology has made us more attractive to companies looking for healthy, productive spaces that support wellbeing.
It’s proof of our philosophy to build sustainable projects within the city district and great motivation for the future.
Last but not least, I’m very proud of the BREEAM Communities certification at the ‘Excellent’ level we received for the New Nivy zone – the first ever in Slovakia and one of just four worldwide.
The economy
Slovakia is one of the most open export-oriented
economies, with close ties to the German
economy. Although services account for almost
66% of GDP, it relies on the automotive and
electronics industries, which dominate exports.
In fact, Slovakia is the world’s largest producer of cars per capita, with four manufacturers in the west of the country building over one million cars a year. Investors are driven by the availability of the cheap and well-educated workforce and government incentives.
The outbreak of COVID-19 and the consequent slowdown in production and consumption caused GDP to drop 5.1% in Q1 and 12.1% in Q2, rebounding partially with a 2.4% drop in Q3. The estimated GDP contraction for 2020 amounted to 6.3%.
The large volatility in GDP was down to the
openness of the local economy, which depends
heavily on the demand and performance of its
main economic partners, mainly Germany.
The economy is expected to grow by 7.4% in 2021 with a revival from the negative effects of the pandemic. Actual performance will depend on whether there are additional lockdowns and how much demand there is from export partners. Unemployment is expected to grow to 8% from a record low of 4.9% in 2019.
The second wave of COVID-19 continues to hamper the economy. The mass testing programmes that were implemented in early November only brought a temporary drop in infection rates.
Still, the economy continues to fare better than during the first lockdown.
Retail sales dipped 1.2% month-on-month in October but stayed above pre-pandemic levels. Services turnover fell 0.8%, although November likely saw a much steeper fall as lockdown restrictions took their toll on contact-intensive consumption. This is all the more worrying because these areas had still not recovered from the first wave – accommodation and food were 23% below pre-pandemic levels.
Retail sales dipped 1.2% month-on-month in October but stayed above pre-pandemic levels. Services turnover fell 0.8%, although November likely saw a much steeper fall as lockdown restrictions took their toll on contact-intensive consumption. This is all the more worrying because these areas had still not recovered from the first wave – accommodation and food were 23% below pre-pandemic levels.
Confidence in services dropped sharply by 17% to -28.7% in November, but had reclaimed half of the fall by April 2021.
Averaged across all sectors, the economy grew 11.6% in Q3 compared to 2019. Consumption grew by 5.9%, while investment expanded by 9%. Exports grew by 37.2% on the back of strong external demand. This was reflected in a strong Q3 for industrial production, which rose 31.6%.
Overall, the economy remained 2.8% smaller in Q3 relative to pre-pandemic levels, mainly due to a sharp drop in investment in H1. Oxford Economics expects capital expenditure to recover fully only once the uncertainty around the pandemic dissipates.
Industry was set to remain a bright spot during the winter. Following the strong Q3, it rose a further 3.8% month-on-month in October – well above pre-pandemic levels – and entered the latest lockdown with solid momentum.
Unfortunately, consumption was set to drive a fall in Q4 – the contact-intensive services sector was essentially shut down. Consumer confidence remains subdued and, worryingly, unemployment is expected to rise.
On the upside, Q3 data proved that consumers are willing to spend their excess funds once the virus is contained.
Less directly exposed to the pandemic and buoyed by strengthening external demand, industrial production rose 3.6% in October while industrial confidence and volumes of domestic and export order books made solid gains in November.
The market
The changes in global economic activity have not
yet impacted H1 investment volumes in Slovakia.
Both industrial and office sectors recorded
relatively average volumes, comparable with the
last three years.
We estimate the market traded around €400 million-worth of space, surpassing the first half of 2019. This relatively high volume, especially in Q1, is a consequence of slipped deals from the end of 2019. In fact, the number of deals actually decreased – but their average size was approx. €50 million, in part due to large industrial transactions.
Volume-wise, the largest office transaction was our sale of Twin City B to one of its investment fund structures. This prime scheme, located in the CBD, is anchored by Swiss Re with an above market standard WAULT. Neighbouring Twin City Tower, mostly leased to Amazon, was acquired by South Korean institutional capital in 2019.
The industrial sector, especially logistics and
warehousing, has been increasing its share of
overall investment volumes over recent years.
The pandemic strengthened this trend.
We expect 2021 to see a number of smaller transactions take place, in particular retail parks. Anchored by a food retailer and boasting the right tenant mix and a strategic location, these assets will prove to be resilient, tradeable and liquid as their KPIs bounce back swiftly following the loosening of pandemic regulations.
Our expectations are that the second half of the year will mostly depend on a few factors such as the likelihood of another COVID-19 wave, macroeconomic data and the economic outlook for 2021.
Our performance
2020 was quite a challenging year for us as we
were delivering the tallest office building in
Slovakia with more than 32,000 sq m onto the
Slovak market and continued to build a new retail
destination with a leasable area of 70,000 sq m.
We were also actively managing COVID-19
impacts that had a considerable impact on the
real estate and construction environment.
Yet, Nivy Tower has found its place on the market. Our unique strategy, anchored by the Workspace as a Service concept, has been an unmitigated success and proved its value, especially with the service portfolio of Origameo and the new workspace option Qubes providing a fully-serviced and flexible option for SME and corporate project teams.
Nivy Tower has not only become a home for international companies like Resco and CAPCO, but also for startups Akular and Wolt who have settled into the HubHub coworking network. Closed deals for Nivy Tower have reached 14,000 sq m in total in 2020.
With regard to retail leasing, Nivy Station retained
3/4 occupancy though the year, with our leasing
team keeping 99% of signed tenants and also
acquiring new ones despite the critical situation.
In 2020, we started the demolition of Apollo I and excavation works for a new scheme – New Apollo*. After more than three years of assessment, the New Nivy zone acquired BREEAM Communities certification at the ‘Excellent’ level – making it the first certified area in CEE region.
2020 was also a considerable success for
our project team on the revitalisation and
reconstruction of 500 metres of important city
infrastructure which reopened after two years
and a €40 million investment.
* The New Apollo project was as of 31.12. 2020 owned by a related party outside of the Group. The current owner intends for HB Reavis to develop the project and that the ownership will be transferred to the Group during 2021.
| HB Reavis Development SK |
GLA sq m |
Validation | ERV | GDV | Value Change | Investment |
||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | ||||||
| Projects completed | 32,470 | 36.8 | 107.5 | 102.6 | 6.8 | 124.1 | -5.0 | 6.3 |
| Projects under construction | 102,160 | 120.4 | 219.7 | 269.8 | 22.5 | 345.1 | 50.1 | 60.1 |
| Projects in preparation | 421,639 | 88.8 | 137.6 | 142.1 | 51.7 | 1,369.9 | 4.5 | 5.2 |
| Total 2020 | 556,269 | 246.0 | 464.8 | 514.5 | 81.0 | 1,839.1 | 49.5 | 71.6 |
| Total Pipeline for 2021 | 523,799 | 209.2 | 357.3 | 411.9 | 74.2 | 1,715.0 | 54.6 | 65.3 |
From the CEO
The global pandemic brought many unexpected
situations into the business, and we will be seeing
its impact over the long term. We’re putting all
our efforts into ensuring we emerge stronger from
this crisis.
HB Reavis is well-positioned to face the current crisis given all our Polish projects under construction have committed bank financing in place. Even in the period of immediate uncertainty over the outbreak of the pandemic in Poland, we were able to adapt our response, introduce safety procedures on construction sites and in our offices, and continue works with minor delays.
Strong demand for downtown Warsaw offices meant that most of our new buildings were leased prior to opening, as was the case with our Varso 1 and Varso 2. However, companies are now taking more time to carefully analyse their office needs.
The lockdowns demonstrated that working from home is not an ideal response to every profession or person. People need spaces to focus on work, interact with colleagues and collaborate in a user- friendly environment.
With our tenants continuing to move in and launch their operations in Varso Place in mid- 2020, we focused our More by HB Reavis efforts on their work environment safety. These included contactless technology, designs that allowed for greater social distancing and smart solutions.
One of the elements we provide is our Symbiosy platform, which helps to control work environment conditions and room occupancy, as well as office traffic flow and the distance between users. The pandemic has shown that we were right to make health and wellbeing the focus of our long term strategy and introduce solutions that are now sought after by employers.
The new paradigm accelerated trends in using offices on more flexible terms, all while boosting productivity and being compatible with a work style that involves greater mobility and remote work. At HB Reavis, we are well-equipped to respond with our flexi leasing and coworking offering, providing clients with HubHub and Qubes solutions.
The recent sale of Postepu 14 shows how a strategy built on wellbeing, technology, services and sustainable design increased the resilience of our portfolio, even during something as tumultuous as the COVID-19 pandemic.
I would like to thank each of our employees, clients and business partners for their impressive effort and contributions during the pandemic-hit 2020.
The economy
The pandemic and the restrictions imposed to
combat the virus resulted in a marked fall in
economic activity in the first half of the year.
The general government deficit is set to deteriorate strongly in 2020 due to the economic downturn and the support measures adopted to mitigate the economic fallout of the pandemic. Private consumption, the backbone of Poland’s growth in recent years, posted a double-digit drop, as social distancing measures and low confidence took their toll.1
Real GDP declined by 2.8% in 2020 and
remained below 2019 levels until the end of
2021. Economic growth is expected to resume in
2021 and 2022 in line with the assumed easing
of containment measures and increased foreign
demand, although the fading away of policy
support could weigh on growth in early 2021.2
Investment activity is projected to recover in
tandem with reduced uncertainty and increased
domestic and foreign demand.
Unemployment rose to 6.2% in December 2020 from 5.2% in the same month last year. It was the highest jobless rate since April of 2018, as the number of unemployed increased by 179,600 to a near three-year high of 1.046 million.3
1 https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-performance-country/poland/economic-forecast-poland_en
2 https://ec.europa.eu/info/business-economy-euro/economic-performance-and-forecasts/economic-forecasts/autumn-2020-economic-forecast_en
3 https://tradingeconomics.com/poland/unemployment-rate?continent=europe
The property market
Despite a strong start in 2020, the year turned out to
be a tumultuous year full of seismic shifts in everyday
norms. The global pandemic caused uncertainty that
dominated business and private activities. Poland,
as in many other countries, experienced COVID-19 waves and related restrictions that influenced general
business activities.
Overall, the year recorded relatively robust outcomes in the investment market, exceeding expectations from the onset of the crisis.
Investment turnover on the property market in Poland totalled €5.6 billion. This was a 30% decline on 2019, but also the third best result ever. Still, quite a few meaningful transactions were postponed and are expected to carry on in 2021.4
These positive signs were underpinned by the industrial sector. While gradually growing over the recent years, the outbreak of the pandemic accelerated its progress. And despite the trend of postponing transactions, office assets were the second most traded product.
With nearly €2 billion transacted, the sector
represented 36% of the total investments. Prime
office yields in Warsaw were discussed at 4.50%.5
We expect that investment in the office sector will
start to recover as we go back to our workplaces
following the roll-out of the vaccination program
in 2021.
The Warsaw office market grew by 314,000 sq m of new supply, including 12 new developments delivered. Some 50% of the capital’s total new supply is located in the Rondo Daszyńskiego area. Warsaw reached 5.9m sq m of total office stock by the end of 20206, with our own Varso 1 and Varso 2 projects among the largest completed investments in 2020.
Office space under construction has significantly decreased compared to previous quarters. However, it still exceeds 576,000 sq m or almost 10% of the actual office stock. There is an expected scarcity of new product in coming years. This may further boost the appeal of, and competition for, space in best-in-class buildings located outside of the central parts of Warsaw.7
4 https://www.jll.pl/en/trends-and-insights/research/cee-investment-market
5 https://www.jll.pl/en/trends-and-insights/research/cee-investment-market
6 https://content.knightfrank.com/research/1164/documents/en/office-market-in-warsaw-2020-7760.pdf?_c=26/01/2021%2011:00:09
7 https://www.jll.pl/en/trends-and-insights/research/office-market-in-warsaw
Office tenant activity in Warsaw amounted to almost 602,000 sq m leased in 2020, which is approx. 276,000 sq m less than in the previous year. Moreover, tenants often decided to extend their lease for the short term, while waiting for a return to normality before making any long-term commitments.8
The slowing pace of leasing seen in the Warsaw office market, along with the high supply of new space not yet fully pre-leased resulted in a further increase in the vacancy rate, which stands at 9.9% (up 2.2%). Despite the market situation, asking rents on the Warsaw market remain stable.9
Our performance
Despite the challenging times of 2020,
we delivered 74,000 sq m in two Varso Place
buildings with close to a 100% occupancy rate.
Proving the commercial health of our assets,
we also divested Postepu 14 (34,582 sq m)
to CA Immo for almost €87m.
In 2020, HB Reavis in Poland signed lease agreements for around 19,000 sq m of space. The most notable tenants obtained included Leroy Merlin (12,360 sq m) in Forest – one of the largest Warsaw office transactions that year – as well as act BSWW Legal & Tax (2,170 sq m), VISA (1,280 sq m) and Ipsen (950 sq m). We are continually negotiating with prospective tenants that are interested in leasing office space in Varso Tower and Forest.
Early in the 2020, we secured a €162 million loan to develop the Forest business campus in Warsaw from a syndicate of four banks, namely Santander Bank Polska, Bank Pekao, PKO Bank Polski and BNP Paribas Bank Polska. We also issued a €18.7m tranche of bonds in Poland that mature in December 2023.
We continue to work on the construction of Varso
Tower (69,816 sq m), which has now been
topped out and is planned to be completed
in Q1 2022. Meanwhile, Forest’s campus-style
building (23,702 sq m) have also been topped
out and were practically completed in Q1 2021.
The adjacent 120-metre tall tower (55,689 sq m)
is gaining a new floor each week and should be
ready by the beginning of 2022.
In the reporting year, there were changes to our Polish leadership team. Apart from his role as CEO for Poland, Peter Pecnik has become Group CFO and a member of the HB Reavis Group Executive Board. Maciej Olczyk has also been promoted to Deputy Country Construction Officer in Poland.
| HB Reavis Development PL |
GLA sq m |
Validation | ERV | GDV | Value Change | Investment |
||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | ||||||
| Projects completed | 74,000 | 217.0 | 389.3 | 404.2 | 20.3 | 435.1 | 14.9 | 34.0 |
| Projects under construction | 149,207 | 214.8 | 326.6 | 395.9 | 36.1 | 740.7 | 69.3 | 88.5 |
| Projects in preparation | 40,376 | 9.0 | 10.3 | 8.9 | 7.0 | 107.3 | -1.4 | 0.0 |
| Total 2020 | 263,583 | 440.8 | 726.2 | 809.0 | 63.4 | 1,283.1 | 82.8 | 122.5 |
| Total Pipeline for 2021 | 189,583 | 223.8 | 336.9 | 404.8 | 43.1 | 848.0 | 67.9 | 88.5 |
From the CEO
Even though 2020 turned out to be an extremely difficult year for everybody, HB Reavis managed to provide a working environment filled with quality and safety.
2020 also marked the opening of Agora Budapest, Agora Hub – home to companies like bp, B+N Referencia, Nowy Styl and Stada Hungary – and Agora Tower, in which Raiffeisen Bank has established its headquarters with more than 1,300 employees.
The building centre – in one of the capital’s busiest intersections – has already become one of the most pleasant spots in the downtown area of Budapest due to its friendly atmosphere and people-oriented design. These premium offices include green areas and a variety of services, all designed to nurture employees’ wellbeing.
Three of our Workspace as a Service brands – Symbiosy, More and Origameo – have successfully launched in Hungary. Now, apart from taking care of unique needs, HB Reavis actively participates in progressing technical development. For example, in Agora Hub, the workplace environment is supported by the professional data analysing technology, Symbiosy, which creates a more pleasant office experience, and it is also crucial regarding protection during the pandemic.
We’re delighted these ambitious plans have finally become reality and, despite the unusual events of 2020, that we were able to progress and look forward to the future.
Our achievements
Feedback from our employees is important to us.
However, the opinion of the real estate market is
significant as well. Fortunately, HB Reavis stood its
ground last year.
The two newly-opened Agora Budapest buildings, Agora Tower and Agora Hub, received WELL Certification at the Gold level in the autumn. Thanks to HB Reavis’ people-oriented building standards, the buildings were able to meet stringent standards regarding the areas of clean air, water, proper lighting, healthy eating, comfort, fitness and mental health, among others.
We maintained our first place in the Property
EU real estate market ranking too. And, as the
largest workspace provider in the European
Union, we finished as the top developer in
Euromoney’s 2020 real estate market survey –
in the Mixed, Office/Business, Retail/Shopping
and Overall subcategories.
This is an outstanding achievement for an international workplace provider company which designs, builds and manages office buildings with a focus on wellbeing at work and productivity.
Challenges for the future
The situation created by the virus, which
changed life for all of us, had to be handled
with speed and efficiency. Initiating our
breakthrough technologies for personal safety
was therefore essential.
Symbiosy’s sensor positioning technology enabled us to track the path of any employees who tested positive, identifying potentially infected office environments. Using alert messages on mobiles, we also detected and indicated potential social distancing issues where the lack of distance could be a problem. Our workspaces have shown that we’re ready to face the challenges of the future.
Due to curfew restrictions and social distancing,
we all deal with surrounding working from
home. While it might have seemed comfortable
at first, after a few months it turned out to be stifling. So naturally, it has only strengthened our commitment to providing exceptional experiences for employees though our offices.
Using state-of-the-art techniques and solutions,
we continue to put an emphasis on mental and
physical wellbeing. As soon as the quarantine
restrictions are suspended and employees return
to our offices, we will not disappoint them.
| HB Reavis Development HU |
GLA sq m |
Validation | ERV | GDV | Value Change | Investment |
||
|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | ||||||
| Projects completed | 71,249 | 70.0 | 216.4 | 265.5 | 15.4 | 280.5 | 49.1 | 52.5 |
| Projects in preparation | 64,101 | 35.0 | 54.2 | 53.2 | 14.6 | 253.0 | -1.0 | 1.0 |
| Total 2020 | 135,350 | 105.0 | 270.6 | 318.7 | 30.0 | 533.5 | 48.1 | 53.5 |
| Total Pipeline for 2021 | 64,101 | 35.0 | 54.2 | 53.2 | 14.6 | 253.0 | -1.0 | 1.0 |
In 2020, the Board of Directors adopted a standardised ESG strategy as a framework covering environmental, social and governance areas. The ambition in the field of corporate governance is to develop an organisational structure, processes and policies that follow the principles of transparency, professionalism and accountability.
HB Reavis Holding SA is not required to follow the Luxembourg ‘Ten Principles of Corporate Governances’ rules set for listed companies. Nevertheless, it has committed to comply with these requirements as much as possible. As a part of this, the number of executives and independent members of the Board of Directors have increased since January 1st, 2021.
At HB Reavis we believe
that a diversity
of opinions is key.
Our Board of Directors consists of dedicated professionals, including experts in the real estate industry and workspaces. The Executive Management consists of long-term professionals with a proven track record who oversee the running of the Group’s daily operations.
2020 was unprecedented due to the COVID-19 pandemic situation. It not only significantly influenced our business perspective, but also the way we operate.
COVID-19 reality
The outbreak of the pandemic in the spring of
2020 tested our team’s readiness for unexpected situations and our ability to operate in difficult
conditions. From day one of state ordered
quarantines across all HB Reavis markets, we
were able to switch most of our operations to
remote working.
Previous investments into a cloud IT infrastructure and mobile devices for our people enabled us to perform the majority of our business activities from home. At the same time, special COVID-19 task forces in all our offices took immediate measures towards the security of our own and 3rd party employees on construction sites, as well as those who needed to stay in the office.
Our technology platform Symbiosy, with its indoor positioning functionality, provided ongoing monitoring of office density. If an employee tested positive for COVID-19, it also enabled us to track all the contacts at risk and provide employees with tests, disinfect the working space and instruct the relevant employees to go into quarantine. These measures helped us keep our offices safe, and no work-related virus transfers were reported.
Ongoing monitoring of the mood within our team showed that people preferred a hybrid work-style of time in the office environment with the flexibility to work from home. This confirms the long-term workplace strategy reflected in our employee benefits and policies that were implemented prior to the outbreak of the pandemic (individual wellbeing, workspace experience and personal flexibility).
People strategy update
As part of our Business Strategy 2025, the People strategy is one of
its building blocks. The People strategy update brought refreshed
aspirations in the following areas:
Our mindsets
We revised our Mindsets model that defines our culture and the expected behaviours
of our people: passion, entrepreneurship,
professionalism, innovativeness, a focus on
people and long-term relationships.
Commitment to our success
Our commitment is expressed by several key aspirations:
Our leaders
Our leaders are accountable for achieving
company targets through people. A high
standard of people leadership is expected
and will be continually measured through
internal surveys as well as our performance
management system.
Our people strategy aspirations have been translated into specific actions and initiatives that will be carried out and monitored on an ongoing basis.
Compensation system review
As part of the business strategy update,
we have also reviewed our compensation system.
Unlike the past couple of years, we have returned
back to a more merit-based philosophy with
a broader use of variable components of total
target compensation packages.
In practice, we provide variable components to 80% of our employee population (in contrast to 30% of employees prior to the change). Only employees holding more junior or administrative roles stay on fully fixed compensation.
This step will enable our people to participate in our company’s success to a greater extent when we surpass our company goals. A variable component structure is linked both to team/company results as well as individual goals. We believe this change aligns our compensation system with the entrepreneurial mindset and nature of our culture.
Now, after 27 years in business, we’ve brought together all our learnings and experience to create our ESG strategy, which is inspired by our well-established ESG framework.
ESG is a set of standards that cover environmental, social and governance activities. It considers how a company performs as a steward of nature, examines how a company manages its relationships with employees, suppliers, customers and the community, and assesses how a company is governed.
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Responsible from the very beginning
We’ve taken innovative approaches to our work
before. But we want to continue raising the bar.
So we’ve set ourselves new challenges, like
reducing our carbon footprint and developing
better building performance markers.
In turn, the BREEAM and WELL Building Standard certifications are key drivers for us: validation of our thinking, methods and solutions. In 2020 alone, we saw New Nivy in Slovakia become one of just four projects worldwide to achieve the BREEAM Communities ‘Excellent’ level. In addition, Bratislava’s Twin City Tower also received WELL Core & Shell Gold Certification.
Firstly, it’s important to say that everyone – tenants, business partners, suppliers, local neighbourhoods, authorities and employees, as well as ourselves – need to take responsibility for creating spaces that work for people, communities and the planet.
Naturally, our strategy was principally developed with the people who use our premises every day in mind. A higher ESG standard reflects their values and helps them achieve their responsibility goals.
Before 2020, we had been delivering exceptional solutions, but were missing a comprehensive and integrated strategy. A single-minded approach had covered all our responsibility activities, from land acquisition, through design, development, construction and finally in the asset management of our buildings.
Now, we have a framework set in stone that lays out our ESG priorities and areas of expertise. One that can be distilled into a set of actions and activities that continuously strengthen our proposition to the market.
With respect to nature
Our processes, policies,
practices and the impact we
have on the natural environment,
applicable to both our buildings
and our company.
Taking care of people
Activities affecting both the
internal and external people with
whom we interact, applicable
within different project phases
and in the company.
The way we’re directed
Organisational structure,
transparency, measures,
protocols, procedures and
formalised governing bodies,
roles & responsibilities defining
our business nature.
Under each pillar, we’ve developed a number of activities that have a long-lasting impact. But we’re always looking forward. In particular, our environmental priorities concentrate on carbon reduction and green transport, our social priorities focus on people, health and wellbeing, communities and the employee experience, and our governance priorities are our mindsets and supply chain management.
As we work towards our priorities, we look at the needs of our stakeholders. ESG is a crucial aspect of our work for employees, clients, end users, communities, investors and future generations.
Therefore, our ESG strategy isn’t just about the product. It covers a range of activities that are performed across our organisation – underpinning our entire approach.
Improve the way we deliver and operate buildings, helping clients to maximise energy efficiency while they use them.
Implement low carbon solutions during all project stages, including design, demolition, construction and operation in order to reduce carbon footprints.
Improve water efficiency through innovative building technologies and fittings.
Encourage good design and construction practices that minimise waste across our value chain, including building operations.
Support green transportation choices by helping the people working in our buildings and our own employees to use emission-free transportation.
Create green infrastructure that increases the biodiversity around our projects.
Real estate development is a very complex business. Being an international workspace provider brings even higher complexity. We make life even tougher for ourselves because our mission is to bring remarkable experiences to people through our real estate solutions.
We aim to set trends in office space solutions. We aspire to always deliver something more than clients and communities expect, something that will differentiate our projects from others. We believe this is the right way to create greater value for our partners, clients and local communities, as well as for our shareholders to achieve their projected growth and desired return.
The development landscape
Looking at our portfolio, the share of
development in our total investment property is
65%. The increase from our targeted 50/50 split
was driven by the reallocation of One Waterloo
into our development arm as preparations for
construction progress.
Despite the difficult investment market, we also took opportunities to divest assets valued at €325m with an eye on building a strong cash position for the near term.
In the reporting year, we focused mainly on
both speeding up and growing the share of
developments in the permit stage as well
as making progress with our projects in the
construction phase. During 2020, the portfolio
value of core development property increased by
€370.2m*, while properties valued at €772.3m*
were completed and handed over to our asset
management arm.
Product design matters
and distinguishes us in the market
During our history and through the delivery of 961,000 sq m* of leasable office space, we have accumulated significant knowledge and experience. We understand why it is so important to talk to clients, identify their needs and wishes and, moreover, incorporate these into our product design process.
Currently, we have around 140 professionals in our dedicated product design team infusing client experience and technical innovations into our products. Recently we’ve focused on the following areas:
Leasing and marketing
Yet again, we’ve invested significant effort and
resources during the recent year into building
our leasing teams across the Group. Over the
last couple of years, we’ve grown our marketing
capability so that we can more effectively offer
these projects to our clients.
These teams consistently and efficiently use the Group’s know-how that has been accumulated over 27 years.
In terms of the numbers, facing a mix of market challenges that were significantly impacted by the COVID-19 pandemic, our leasing teams signed contracts for about 50,000 sq m of GLA*, down roughly 65% compared to 2019 (144,000 sq m signed in 2019).
| Forest | Leroy Merlin | 12,358 sq m | ||||||
| Agora Tower | B+N Referencia Ipari | 3,758 sq m | ||||||
| Varso 2 | BSWW | 2,174 sq m | ||||||
| Varso 2 | Global payment tech company | 1,283 sq m | ||||||
| Nivy Tower | Dobry Mlyn Surany | 1,216 sq m | ||||||
Development portfolio structure
Geographically, the structure of our whole
development portfolio is continuously shifting
towards western countries, where the UK and
Germany represent 52% of the future value
in our pipeline. At year end 2020, the share
of UK assets represented 44% of the whole
portfolio, Poland 12%, Czechia 7%, Slovakia 25%,
Hungary 4% and Germany 9%, all based on the
expected gross development value.*
As far as segments are concerned, during 2020 our strategic focus on office development was reflected in a 93% share of our development portfolio value, while retail and residential accounts for 7% based on gross development value.*
Developments in the office segment continued
to achieve growth, adding around €294m of
value and reaching a total of €2,254m* (including completed properties before their transfer to use).
In terms of the creation of the net value of the
required investment to achieve the value growth,
office properties contributed €85m* (net of the
yield shift).
Performance of development activities
Our strategic plan is to keep our balance sheet
on an even keel with the long-term share of the development portfolio of our total investment
property at around 50%. Due to our divestment
efforts and reallocation of One Waterloo, the
share of our development portfolio (excluding
One Waterloo and non-core assets) increased
to 75% (2019: 69.5%).
In all aspects of More by HB Reavis, our in-house asset management department, we always look for innovative and practical solutions for our clients. Through property managers we foster the creation of long-term relationships focusing on the best client experience.
We also thoroughly oversee the technical operations with our facility management specialists by focusing on delivering a high quality of service, effective building management that optimises the energy spent, wellbeing and being accessible 24/7 for clients’ requests. The closeness to our clients coupled with our capabilities enabled us to implement immediate actions ensuring the safety of our premises.
2020 was also a milestone thanks to the significant growth of our managed assets. A great accomplishment of all our teams was that we opened the Agora Hub and Agora Tower buildings in Budapest with prime anchor tenants, Raiffeisen Bank and British Petroleum. In the centre of the Warsaw central business district we enlarged our portfolio with Varso 1 and Varso 2, and in Bratislava we opened Nivy Tower, the tallest building in Slovakia. With these additions, we have expanded our portfolio with another 200,000 sq m under our management.
Source: Company information as of December 2020
1Including non-core projects Centrum Bottova and Kesmark.
Projects under asset management of HB Reavis CE REIF are not included.
GLA: 32.5k sq m
Currently Bratislava’s highest office building, it
is the latest completed project in the New Nivy
zone. The project is adjacent to Nivy Station
which, alongside its location, enhance its
transport connectivity. The building is aspiring
for BREEAM and WELL certificates.
GLA: 34.5k sq m
This sustainable A-class office building with efficient floor plate was completed in 2015 and benefits from great visibility and transport
connectivity. The building was sold to CA Immo
in 4Q/2020.
Combined GLA: 74.0k sq m
Varso 1 and Varso 2 benefit from their close
location to the core city centre, a shopping centre
and a railway station. The buildings offer 74k sq m
of GLA and are currently leased at 89% of their
full capacity.
Combined GLA: 71.3k sq m
The practical completion of the Agora Tower
and Agora Hub concludes the development of
the first phase. The Budapest landmark already
accomodates anchor tenants BP and Raiffeisen
in an area with BREEAM and WELL certificates.
Combined GLA: 48.7k sq m
Completed in 2009, the project is one of the
first in Slovakia to obtain BREEAM certificates.
The building offer a variety of service and are
occupied at more than 90% of their available area.
A summary of the actions taken by More by HB Reavis in response to COVID-19:
The Hi.Building app, a solution integrating the building’s amenities and systems:
These value-added services are to be further expanded to Agora, Varso Place and Nivy Tower, all supported by the rollout of the Hi.Building app:
In October 2020, HB Reavis sold Postepu 14, which is located in Warsaw, to CA Immo, a real estate investment company based in Vienna. The building was almost fully leased with high quality tenants such as Astra Zeneca and Samsung.
The divestment strengthened the position of HB Reavis in Poland as a successful developer, topping up its office portfolio of 220,000 sq m by another 34,500 sq m. Postepu 14 was recognised by the new landlord for having the most state-of-the-art technologies and solid tenants who, with the assistance of the More by HB Reavis team, managed to fulfil their financial obligations in spite of the COVID-19 impact. The handover process of the property went smoothly due to professionally delivered property and facility management services from May 2015, when the use permit was granted. The More by HB Reavis team not only supervised the building’s operations, but offered wide support during the due diligence and exit processes.
In May 2020, the divestment of 20 Farringdon Street was completed. The asset was sold to a Hong Kong consortium, Tenacity Group, which operates in the UK and the Greater China region. The 8,000 sq m building was fully leased to a range of companies including The Berkeley Partnership, TMF Group, HubHub coworking and Canon UK. Divesting the asset in the middle of the UK lockdown was a huge achievement for the business. The More by HB Reavis team worked hard to ensure all rent payments were made within a timely manner in order for the sale to progress.
HB Reavis’ investment management arm was founded ten years ago and is a key pillar of our strategy.
With a heritage in real estate, the team focuses on delivering exceptional long-term returns and superior client service for investors looking for value in European commercial real estate.
The business capitalises on its asset management capabilities and 27-year track record of leasing, asset management capabilities, property management and construction management. We believe that our active asset management, opportunistic trading approach and strategic decision making are the driving force behind the consistent returns we deliver to our investors.
Currently, the fund manager manages assets worth almost €800 million* across three core Central European countries (CZ, SK, HU). The flagship fund, the HB Reavis CE REIF, follows a core/core+ strategy, investing equity on behalf of over 250 high-net-worth individuals and institutional investors into a portfolio of prime investment properties with top-tier tenants in prime or strategic Slovak and Czech Republic locations.
The CE REIF fund has, since its inception in 2011, on average delivered excellent returns of 10% p.a., of which almost half has been distributed in cash to investors. These returns are the fruit of our diligent focus on maximising returns and enhancing the portfolio’s value through excellent lease management and hands-on asset management. The total assets under management grew to €345 million with an increasing number of investors trusting us to manage their wealth and funds.
The active asset management is provided by an experienced team of professionals from the HB Reavis Group – a unique value proposition that sets us apart from the competition.
* A combination of the HB Reavis Real Estate Investment Fund (with two sub-funds HB Reavis CE REIF and HB Reavis Global REIF) and the HB REAVIS Real Estate Development Fund
Workspace as a Service features and the use of analytical workspace data are driving innovations in real estate trends. The ability to collaborate and use spaces flexibly – as well as durability and technological advances – are now key requirements for tenants.
These changes are forcing real estate players to adopt new business models, or at least new, more complex business lines. They also present new challenges for financial strategies. Our model addresses all these challenges, and we have also adjusted our financial strategy to support it – while ensuring we maintain a healthy capital structure that gives us access to both new debt and new equity when needed.
Occupancy trends are changing. Increasingly, tenants are looking for greater flexibility, driven primarily by the ever-shifting dynamics of their actual business models and new economy sectors. In competitive labour markets, tenants need attractive recruitment and retention packages beyond remuneration and monetary benefits. The actual working environment now plays an increasingly strong role in recruiting top talent.
Given this new reality, the notion of a tenant committing to a long-term and inflexible lease contract (the most attractive to traditional finance providers and investors) is being challenged.
As a major player in leasing markets, we’re seeing a clear trend towards more occupational flexibility.
This, together with the advent of another recent phenomenon in how tenants use space – the coworking platform – means there’s a growing need for more agile debt and equity funding.
Through a combination of divestments and external financing operations, we accumulated cash at year end 2020 amounting to €192.7 million. This will help us continue our robust development programme and support our growth, both in an organic manner and potentially through acquisitions, should the opportunity come our way.
In 2020, dividends paid to our shareholders reached 1.4% of NAV, reflecting the challenges of the pandemic year, in line with our financial policy guidelines.
Note: Data in the Financial Review section are based on audited consolidated financial statements, external valuations and internal management reports. All valuations in the Business Review are based on external valuations and internal management reports before IFRS adjustments and excluded non-core properties. For segment information related to non-core segment, see Note 6 in the Consolidated Financial Statements. For balances presented in the Segmental Analysis in the Consolidated Financial Statements, see Note 6 of the Consolidated Financial Statements.
In terms of overall performance, the financial results of 2020 were strongly driven by a frozen leasing market and more conservative leasing assumptions, which were reflected in fair market values in general having an impact on future cash flows through longer void and rent-free periods, higher discount rates and so on.
Obviously, the main driver was a revaluation loss down from €541.5m in 2019 to €41.2m over the year (including the translation of foreign operations to the presentation currency of €-70m). At €27.8m, net operating income from investment property, in line with our expectations, was down slightly (2019: €34.2m).
In terms of the operating profit, the Group recorded a loss €8.4 million. The Group balance sheet increased to almost €3.1 billion. The adjusted net asset value reached €1.514 billion. Our net debt leverage ratio remained within the targeted range of 35-40%, reaching 38.2% (32.4% in 2019).
The disposal of subsidiaries impacted our financials negatively by €16.3m (2019: €3 million). Bottom line: we achieved a total comprehensive income of €-183.8 million (2019: €388.6 million).
| €m | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| Assets | 2,112.3 | 2,294.8 | 2,349.9 | 3,040.3 | 3,097.1 |
| Cash | 316.4 | 279.1 | 173.8 | 122.6 | 192.7 |
| Borrowings | 683.0 | 893.0 | 891.5 | 1,106.8 | 1,376.8 |
| Net Debt Leverage Ratio | 17.4% | 26.8% | 30.5% | 32.4% | 38.2% |
The net revaluation gain on investment property, including the impact captured by the translation of foreign operations to the presentation currency), resulted in €-41.2m (2019: €541.5m). This represents a significant year-on-year drop driven by the pandemic emergency and related market lockdowns, leading to leasing activity fallouts and a development progress slowdown.
When adjusted for yield shift, the Group achieved a €26.7m (2019: €404.1m) net revaluation gain while the yield shift contributed to an overall loss of €67.9m (2019: €137.4 million).
The average investment property portfolio yield decreased by 11 basis points to 5.08% as we continued investments in lower-yield projects in the UK while divesting CEE assets.
Income producing assets, primarily driven by higher yielding Slovak assets, were valued at a 5.55% yield at the end of 2020. The average valuation yield of our development properties, now more heavily weighted to UK, Polish and German assets, was also down by 2 basis points to 4.74%.
As our strategy in the mid-term is to keep and manage our assets longer after they become mature, the growth potential for our net operating income could be higher in the coming years.
How business lines contributed
In terms of contributions made by our business lines to the overall return on shareholders’ equity, leasing and revaluation drivers impacted both the development portfolio with a ROE of -12.3% (2019: 48.8%) and income producing property with a ROE of 5.9% (2019: 16%). The ROE of our non-core portfolio lagged behind with -4% as did the cash at -3.4% at the end of 2020.
During 2020, despite the steep slowdown on the investment markets caused by the pandemic, we managed to finalise transactions in the UK, Poland and Slovakia – successfully completing almost €325 million of divestments.
Important transactions include the divestment of 20 Farringdon Street in London, Postepu 14 in Warsaw and Twin City B in Bratislava. These sales underline the quality of assets we develop as well as our strong divesting capabilities, even during difficult times.
The real estate industry has long been slow to adopt new trends and technologies. But, similarly to almost all other industries, COVID-19 has accelerated its interest and implementation of new innovations.
Over recent years, we have significantly invested money and time into our Workplace as a Service (WaaS) solutions that are focused on occupier flexibility and user wellbeing and productivity. And with our business model transformed and a commitment to fusing progressive solutions into our buildings, they are proving to be an attractive proposition to prospective tenants and investors.
It’s an approach that’s helping us build long-term relationships with the tenants where we can provide valuable insights and wellbeing solutions focused not only on a safe and healthy workspace environment, but also on effective utilisation and better productivity. The result is higher tenant retention and therefore also increased valuations of our properties.
Nonetheless, our divestment preferences are also evolving to maximise shareholders’ value and reflect the Group’s strategy.
Now, apart from standard sales,
we are also focusing on:
This move will prove to be critical to the realisation of our divestment strategy and to increase the shareholders’ value.
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The purpose of the Annual Report is to provide information to the members of the Group. The Group, its directors, employees, agents or advisers do not accept or assume responsibility to any other person to whom this document is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. The Annual Report contains certain business, financial, numerical or technical information and forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances (such as successful closing of acquisitions, permitting, construction delivery, commercialisation or actual market conditions) can cause results and developments to differ from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual Report. Nothing in this Annual Report should be construed as a profit forecast.
Whilst the Company has taken reasonable care to ensure that the information on this website (other than information accessed by hypertext link) is accurate at the time of last revision of the website, the Company accepts no liability for the accuracy or completeness or use of, nor any liability to update, the information contained on this website. It should not be construed as the giving of advice or the making of a recommendation and should not be relied on as the basis for any decision or action. In particular, actual results and developments may be materially different from any forecast, opinion or expectation expressed on this website. Certain information on this website is of a historical nature and may now be out of date. All historical information should be understood as speaking from the date of its first publication. Nothing on this website constitutes an invitation or offer to invest or deal in the securities of the Company. This website contains certain hypertext‑links to other websites. The Company has not reviewed, is not responsible for, and accepts no liability in respect of, any information or opinion contained on any such other website.
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