urban development in central europe_article

8/12/2019 Urban Development in Central Europe_article

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Urban Studies, Vol. 38, No. 13, 2457 2476, 2001

Globalisation, Institutional Structures and

Real Estate Markets in Central European Cities

Ramin Keivani, Ali Parsa and Stanley McGreal

[Paper rst received, September 2000; in nal form, March 2001]

Summary. This paper examines the urban development process in post-socialist cities of Budapest, Prague and Warsaw in the context of economic globalisation and societal transform-ation. Several factors have helped to shape the post-socialist cities of central Europe since the endof the 1980s. These include political transformation, economic change, restitution, privatisation,price liberalisation and decentralisation of local government. It is argued that local governmentadministrative and planning structures have been ill prepared in meeting the requirements of international investment capital in a co-ordinated and effective manner. Institutional constraintshas promoted an organic form of urban development primarily determined through the inter-national demand for, and supply of, commercial and retail space.

1. Introduction

A considerable body of literature addressingthe processes of globalisation and the conse-quences for regions and cities has been pub-lished in recent years (Castells, 1991; Sassen,1991, 1994, 1999; Brotchie et al. , 1995;Behrem and Rondinelli, 1992; Healey et al. ,1995; Newman and Thornley, 1996; Shortand Kim, 1999; Sykora, 1994, 2000; Good-win, 1996; Badcock, 1997; Budd, 1995,1998; Amin and Thrift, 1994; Lo and Marco-tullio, 2000; Godfrey and Zhou, 1999; Mo-han, 2000). A common theme is the in uenceof structural trends upon cities through econ-omic restructuring and internationalisation of capital ows, labour markets, commoditymarkets, information, raw materials, manage-ment and organisation.

Globalisation embraces both complemen-tary and competitive activities. On the onehand, cities must gain and sustain their com-petitive advantage in a manner which com-plements global strategies and networks(Yeung, 1998). This implies creating urbanalliances and economic synergies within andacross national boundaries. The building of such networks requires co-operation and co-ordination of functions. At the same time,however, cities are in competition for captur-ing investment and rede ning their roleswithin the emerging world urban hierarchyorientating themselves towards the highervalue-added, command-and-control, exportservices and research functions. Success isoften dependent on the ability to offer institu-


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RAMIN KEIVANI ET AL.2458

tionalising processes to attract ows of in-vestment and entrepreneurship and to offer avariety of external economies of suf cientscope and scale to business (Amin andThrift, 1994).

In relation to the central European region,Drbohlav and Sykora (1997) identify the cre-ation of integrated systems of cities whichcompete and complement each other. Theexamples of re-uni ed Berlin and Vienna onthe one hand and the post-socialist cities of Warsaw, Budapest, Prague and Bratislava onthe other hand are highlighted. It is arguedthat these city systems are engaged in com-petitive co-operation in order to improve

their integration into western Europe andprovide regional gateway and headquarterfunctions to the eastern European economiesas a whole.

The position of the capital cities of centralEurope within the wider global hierarchy isyet to be determined. Furthermore, with thegradual political and economic stabilisationof other former Warsaw Pact countries, thepositions of Budapest, Prague and Warsaw asgateways to the region are increasingly underchallenge. In 1998, for example, for the rsttime Romania had a slightly higher FDI in-take than Hungary (World Bank, 2001) im-plying a greater competitive role forBucharest in supporting international invest-ment capital in the region than has existedhitherto. In this respect, the underlying pres-sures of the world economyparticularly interms of competition for attracting inwardinvestment and improving position within theregional urban hierarchyare just as appli-cable in central Europe as elsewhere in theworld (Musil, 1993; Sykora, 1994, 1998,2000).

2. Globalisation, the Property Market andUrban Development

The forces which shape and determine spa-i l i d l i i i

booy, 1993; DArcy and Keogh, 1997, 1998,1999). The development and role of propertymarkets, therefore, are crucial to the relativesuccess or failure of the competitive stanceof cities in the emerging global economy.Moreover, the dismantling of barriers to in-ternational movement of capital, liberalisa-tion of nancial markets and developmentsin information technology have made globalinvestment in property a viable and attractiveinvestment option for international institu-tional investors in their attempt to diversifyinvestment portfolios and spread risks. How-ever, Adair et al. (1999) argue that an effec-tive diversi cation strategy does not rely on

a simple geographical spread of assets acrossdifferent countries; rather, it is selective onthe basis of locational advantages in terms of different hierarchies, specialisation and ag-glomeration economies. Indeed the socioeco-nomic framework and the organisation of thereal estate market, particularly the main ac-tors and their strategies, combine to producespeci c characteristics and qualities whichare exploited to create development opportu-nities and extract value as rent or develop-ment gain (Healey, 1994). In terms of thecompetitive global economy, locational ad-vantages are perhaps the most importantfactor in the investment decisions of inter-national investors since it is the ability to usethese speci c advantages for obtaining thehighest return in comparison to other loca-tions and sectors of the economy that deter-mines the viability of the investment(Harvey, 1985).

Within the socioeconomic framework, themost in uential factor in terms of locationaladvantage is the human, physical and institu-tional infrastructure which cities can drawupon to support international economic ac-tivity (Amin and Thrift, 1994). A succinctdescription of city infrastructural require-

ments for successful global competition isprovided by Berry and McGreal (1995) whoh i i i h h i l


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GLOBALISATION AND CENTRAL EUROPEAN CITIES 2459

with the ability to stimulate and exploit inno-vation; the research, design and educationalinfrastructure capable of supplying necessaryskills; cultural and environmental assets thatcan attract and retain quali ed and mobilelabour; excellent communication links to keydecision modes in the international urbannetwork; and institutions capable of continu-ous improvement and re nement of policyand strategy.

A major factor in uencing the socioeco-nomic framework and institutional capacityfor property investment is that pertaining toplanning regulations. However, facilitatingand attracting property investment requires

the right balance between inhibitive controlregulations and creating conditions con-ducive to investment. Berry and McGreal(1995) argue that, with the advent of thepost-Fordist mode of economic developmentand in line with the changing role of thestate, planning systems need to be geared tothe priorities of the market. Land and prop-erty as investment media are part of thestrategies of the nancial sector. Moreoverthe portrayal of a positive and exible imagein terms of new development is important forboosting general investor con dence inmaintaining and expanding investment, asopposed to moving to alternative locations.

Set within this global framework, this pa-per examines the changing function of citiesin central Europe focusing upon Budapest,Prague and Warsaw. Emphasis is placed oninstitutional capacities and policies, the de-velopment and functioning of property mar-kets and the ability to attract and retaininternational property development and in-vestment. In considering these issues, thepaper addresses the hypothesis that centralEuropean cities lack the necessary institu-tional and administrative infrastructure tomeet the challenges of globalisation, particu-

larly in terms of attracting and directinginternational property investment and devel-i i

adopted the structure and agency model de-veloped by Healey and Barrett (1990) in-volving the analysis of interaction betweenagents (actors) in the urban economic devel-opment process and the socioeconomic struc-ture governing their decisions. The paperdraws on the results of extensive semi-struc-tured interview programmes and focus groupdiscussion meetings with public urban pol-icy-makers, private real estate actors and

nancial institutions in the three case-studycities. However, interpreting the varying per-ceptions of the ef ciency of city administrat-ive structures and planning systems in centralEurope against any international norm is

problematic given the lack of recognisedquanti able measures. As noted in the pre-vious section, recent work based on exam-ples of cities drawn from both Europe andthe Paci c Rim (Berry and McGreal, 1995,1999), while not establishing a set of criteria,articulates that, in a global context, city plan-ning systems need to be responsive to marketconditions to facilitate the emergence of newinvestment opportunities. Berry and McGrealstress that responsive planning needs to beset within a exible regulatory framework which is sensitive to the particular require-ments of the individual city and its planningobjectives. Newman and Thornley (1996), inadvancing broadly similar arguments, referto the institutional complexity in which ur-ban planning is embedded with factors suchas intergovernmental relationships, politicalconsiderations and the role of developmentagenciesall central considerations. In thiscontext, the administrative and planning is-sues facing central European cities are notnew, but what are important are the relation-ships that develop between the structures andthe actors including both the indigenous andinternational players in the market.

In addition, an internal measure of control

has been introduced in the methodology bysubjecting the different categories of private,bli d i d i il


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Table 1. Breakdown of interviewees

Type of actor Budapest Prague Warsaw

Private agents/consultants 10 11 15Private banks 6 2 3Private property investors 2 4 2

Private developers 2 2 2Private developer/investor 3 7 5Private other 1 2Total private 24 26 29

Public central government agencies 7 3 5Public local government 10 4 4Public research institute 2 1 Total public 19 8 9

Occupiers 6 6 5

Overall total 49 40 43

category interests. A nal measure of internalcontrol is validating ndings from differentstages of the researchnamely, interviews,focus groups and literature reviewagainsteach other.

3.1 Interview Programme

In evaluating the extent of regulative andlegislative development and the institutional-isation of real estate development a series of semi-structured interviews were conducted.These involved experts from local and cen-tral government departments and agenciesconcerned with policy formulation, planningand development. Private-sector participantsincluded personnel from international prop-erty agencies, development and investment

rms active in the market.As part of the overall research programme,

50 interviews were envisaged in each city. Atotal of 132 respondents from the 3 maincategories of public organisations, private

rms and corporate occupiers were inter-viewed (Table 1). This represents a highi h h dif l

too distant from their immediate expertiseand concerns. In contrast, the relative ease of access to the agent/consultant category wasfacilitated by the existing network of con-tacts which the research team had establishedin the region, direct involvement in real es-tate operations and interest in the outcome of the research.

3.2 Focus Group Meetings

In terms of behavioural research, the focusgroup concept provides a useful complementto structured interviews. The merits of focusgroups according to Kitzinger and Barbour(1999) include the exploring of experiences,opinions and concerns, thereby enabling dif-ferent perspectives to be investigated. It isrecognised that the interaction between focusgroup members often produces insights and adynamic not readily obtained through indi-vidual structured interviews (Stewart andShamdasani, 1990). Although focus groups

also have acknowledged limitations, the ap-proach has the distinct merit of permitting aid i f i d i b i


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ing backgrounds and perspectives of theproperty market. A common approach wasemployed in each of the case-study citieswith participants including chartered survey-ors employed in the main international prac-tices, local agents represented throughCEREAN (the Central European Real EstateNetwork), developers, banks and inter-national accountancy practices. Public-sectorrepresentatives were drawn from the of ce of the mayor/vice-mayor, local authorities andinvestment agencies. Each focus group wascentred around four main themes: namely,the rationale for investment in emerging mar-kets and speci cally in central Europe; fac-

tors in uencing property investment andurban development; policy mechanisms andinstitutional perspectives including the roleof planning; future development within aregional and wider European context. A se-ries of contentions were proposed with par-ticular emphasis placed upon the commercialproperty sector. The focus groups werechaired by either an independent chair or amember of the research team. Recording in-volved a dual approach of note-taking andaudio-tapes; numbers attending varied be-tween 8 and 15 persons; and the duration of each focus group was between 2 and 2 hours30 minutes.

4. Societal Transformation, Re-emergenceof Private Markets and Reform of Urban

Administration and PlanningIn central Europe, political reforms have es-tablished and enshrined the democratic pro-cess and legal reforms have enabled theformulation and implementation of majoreconomic restructuring policies. These havecreated the necessary socioeconomic frame-work for the re-establishment of the privatemarket mechanism and participation of inter-

national investment capital. Two main pillarsof economic reform which have greatlyi d h d l f i di

countries have vigorously pursued these poli-cies.

In the Czech Republic and Poland, exclud-ing Warsaw, original owners or their heirscould apply to the courts for restitution of property con scated after the 1945 49 com-munist take-over or could ask for compen-sation (Ghanbari-Parsa and Moatazed-Keivani, 1999). In Warsaw, the situation iscomplicated by the massive destruction of the city during the Second World War andthe 1945 Warsaw Rights Act which led tonationalisation of all urban land and build-ings which were deemed to have sufferedmore than 40 per cent physical damage.

Given the scale of destruction in the city thevast majority of land and buildings werecon scated by central government and weresubsequently rebuilt. Moreover, while the1945 Act had provisions for payment of compensation against con scated land, itseems to have been ignored in most cases.This has created major dif culties in terms of physical restitution and the level of compen-sation, due to dif culties in identifying theextent of initial war damage prior tocon scation. As a result, much of land in theWarsaw Centrum area is still subject to dis-pute and counter-claims leading to formu-lation of a new Act for Warsaw which is nowbeing nalised. In Hungary, different mecha-nisms are in place. Although restitution of actual assets was not available, compensationwas made available by way of vouchers to amaximum value in any single case of Hft 5million ($43 478). These vouchers are trad-able enabling the owners to participate in theproperty market or in the privatisation pro-cess.

Restitution coupled with land and propertymarket price deregulation collectively havehad signi cant impacts upon the urban form.However, effects have mainly been in the

central parts of the three capital cities sincethe outer urban areas were mainly character-i d b h i li f b i d h i


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the vast majority of buildings in the citycentre (70 per cent) had already been re-turned to their original owners by 1994(Sykora and Simonickova, 1994). This pro-cess plus high demand for of ce, retail andgeneral commercial activity in the centralareas of the city have led to large pricedifferentiation between the central and per-ipheral locations.

Privatisation, as opposed to restitution, canbe described as all those actions which takethe state out of decision-making concerningexisting capital assets and increasing privatecontrol of the economy. In all three coun-tries, privatisation has followed two basic

stages of small privatisation and large pri-vatisation programmes (Ghanbari-Parsa andMoatazed-Keivani, 1999). The former waslargely carried out through auction wherebysmall retail units, restaurants, service andmanufacturing rms were sold to domesticinvestors. The latter, on the other hand, fo-cused on medium and large state-owned en-terprises through tenders and direct sale andwas open to both domestic and foreign in-vestors. With respect to both programmes,Williams and Balaz (1999) identify speci cpath-dependent peculiarities stemming frominherited political and economic structuresand relationships which made the processopen to a high degree of in uence and domi-nation by a few banks, insurance and invest-ment companies. Particularly in the CzechRepublic, the processes have been open toabuse and vehicles for accumulation of vastwealth by individuals and nancial groups,thereby creating major problems in terms of inef ciencies in corporate governance andthe operation of rms. As argued byWilliams and Balaz (1999), such peculiari-ties have undoubtedly negative social effectsin terms of rental windfalls to a few and theexclusion of large parts of civil society, thus

increasing social divisions.In terms of increasing private control of h h i i i

gure of 31 per cent in Poland, 16 per cent inHungary and 5 per cent in Czechoslovakia in1990 (Williams and Balaz, 1999). Moreover,a substantial increase in the number of pri-vate enterprises has also been due to creativeprivatisation rather than redistribution of state assets. It is estimated that in Polandindividuals using their own capital ratherthan privatised state assets created most of the 1.7 million new private rms in existenceby 1993.

With transition to a market economy, therehas been a fundamental change in local ad-ministration and urban planning policy. Inthe socialist system, urban development was

the result of central government investmentin projects whereby central authority subor-dinated the processes of planning to its ownideological and economic interests (Enyediand Szirmai, 1992; Elander, 1997; Sykora,1994, 1998; 2000). These ideological andeconomic interests emphasised the acceler-ation of industrial development, particularlyin terms of heavy industry. The developmentof, and investment in, urban infrastructure ingeneral and in housing and community facili-ties was subordinated to the overall goal of achieving an autonomous national economy.In spite of gradual reform towards increasingdecentralisation, local governments in thesocialist system were essentially not allowedto have a real identity or mandate of theirown (Enyedi and Szirmai, 1992; Alm andBuckley, 1994; Horvath, 1997; Elander,1997). They had limited scope in terms of taxand expenditure decisions, with the majorityof their budget being determined by the cen-tral government. In effect, local councils per-formed primarily a transmission role forcentral government policy and authority tothe local level (Alm and Buckley, 1994).

As a result of 40 years of socialist urbanplanning, certain physical characteristics

tended to be repeated in central Europeancities including Budapest, Prague andW Th i l d d l i


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share of high value-added of ce and retailspace in downtown locations, while at thesame time accommodating a large share of residential as well as manufacturing work-shops and warehousing (Sykora, 1994,1998). This led to a major functional gap atthe time of societal transformations in theearly 1990s, resulting in a rapid replacementof many of the old functions in valuablecity-centre locations. Furthermore, with theexception of old historic centres and existinghousing stockoften neglected as a result of lack of adequate resourcesthe cities werecharacterised by a uniformity of architectureand urban landscape. This was primarily

manifested by a ring of factory-built estatesof ats in the outer and other newly devel-oped areas which were designed and builtwith quantity rather than quality as the im-portant issue. Finally, development of shop-ping facilities lagged far behind housingdevelopment in suburban areas. This led to arelative concentration of the existing, albeitinadequate, retail facilities in the more cen-tral areas of the cities. A case in point is thatof Prague, where in the late 1980s, nearlyhalf of retail turnover (excluding fuel andconstruction materials) was concentrated inthe city centre with only 5 per cent of thecitys population (Sykora, 1998).

Since the 1990 transformations, the mostimportant administrative reforms impactingon urban development in central Europe havebeen that of decentralisation of power and are-emergence of local authorities as the maindecision-making entities with respect to ur-ban functions and development (Enyedi andSzirmai, 1992; Sykora and Simonickova,1994; Wollman, 1997; Zsamboki and Bell,1997; Niemczyk, 1998; Sykora, 2000).Consequently, at present all major decisionsconcerned with property ownership, planningand development are the vestige of local

governments. Decentralisation of power,however, has also brought issues of con ict,i i d i l b diff

between the municipal council and auton-omous communes/districts/boroughs.

The degree of the autonomy and power of local communes vis a vis the municipalgovernment varies considerably between thethree cities. For example, Warsaw is dividedinto 11 local communes with elected coun-cils. The central communei.e., WarsawCentrumis further sub-divided into 7 dif-ferent districts. The local communes inWarsaw are the most autonomous in terms of their competencies in land use, local planpreparation and implementation, and localtaxation functions. As a result, while the citymunicipal authority has responsibility for

master plan preparation, it has confused andunclear competencies with only a nominalauthority over the communes (Niemczyk,1998). The municipal authority therefore haslittle power in co-ordinating developments ata city-wide level. In Budapest, 22 auton-omous districts have major powers over landuse and planning activities as well as taxationon real estate and industrial activity in theirown areas (Enyedi and Szirmai, 1992).Nevertheless, in spite of some tensionswith local districts, the municipal authorityhas relatively clear powers in terms of co-ordinating and approving larger develop-ments and infrastructure projects which canhave city-wide impacts including main roads,commercial developments over 6000 squaremetres and shopping centres over 20 000square metres. The municipal authority isalso in charge of the preparation of the citymaster plan. In contrast, Prague, divided into57 local boroughs, offers the weakest localautonomy at the borough level and thestrongest metropolitan authority which de-cides on decentralised responsibilities at bor-ough level and oversees urban planpreparations and policy formulations for thecity as a whole (Sykora, 2000).

Physical development and planning in allthree cities are governed by a variety of l i l i l d l i B h d


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Master Plan was approved in 1982, revisedin 1992 (with a shift from detailed land-useallocations to a more general functional zon-ing) and is still in force, although a new planhas been completed and awaits approval.Similarly, the main master plan guidingPragues development during the 1990s wasin fact rst approved in 1986 and revised in1994. Prague, however, now has a new mas-ter plan approved at the end of 1999. Bu-dapest has fared better, with new masterplans in 1993 and subsequently in 1998thelatter applying for the next 25 years. Allthree cities also have provisions for detailedlocal plans prepared by the communes/

districts/boroughs. The local plans relate tothe site planning of individual plots and areto be based on the general provisions andrestrictions of the master plans and/or currentlegislation such as building code or environ-mental protection.

Clearly, major societal transformations, inparticular restitution and privatisation, havecreated the conditions for the operation of private markets in general and in the propertysector in particular. At the same time and tovarying degrees, each city is faced with aconfused, contested and changing situation interms of urban administration, land-use man-agement and urban planning. In the contextof this research, the relevant issues are towhat degree administrative and planningstructures have been effective in attractingand guiding international investment and theimplications for property markets and urbandevelopment. The operation of foreign rms,property ownership, currency control and re-patriation of pro ts are perhaps the mostimmediate issues affecting international realestate investment. In this context, resultsfrom the research indicate that the operatingenvironment for real estate investment is notconsidered to be restrictive in any of the

examined cities. Furthermore, the majority of private respondents in each city did not con-id h i i i f i i l

erty were linked to the purchase, sale andleasing of agricultural land; this was seen tobe restricted, with special permission re-quired for any activity on such land. Never-theless, restrictions do not seem to haveprevented the development of several largeout-of-town retail parks, shopping centresand hypermarkets. This is particularly evi-dent in Budapest where some 11 large big-box-type hyper markets and a shoppingcentre had been developed on the outskirts of the city and a further two hypermarkets wereunder development at the end of 1999.

5. Assessment of City Administration andPlanning Processes

In order to assess the effectiveness of cityadministrative structures and planning sys-tems, respondents were asked to express theirviews on several related issues which can becategorised according to: strategic manage-ment and planning, including incentives forprivate investment; and, administrative andplanning exibility.

5.1 Strategic Management and Planning

This topic was examined by considering citycapacities in terms of long-term investmentstrategy, achievement of an overall visionand plan, and development of a coherentmarketing strategy. The overall perception of respondents with respect to the capacity of the city authorities is more negative thanpositive (Table 4). Nevertheless, in Prague57 per cent of public and 39 per cent of private respondents regarded the city auth-ority to be effective in terms of long-terminvestment goals. Although Budapest wasconsidered to be the most effective city interms of overall vision and plan, only 31 percent of public and 22 per cent of private

respondents regard the city to be effective inthis context, highlighting the relative overallk i f i l i f


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2465GLOBALISATION AND CENTRAL EUROPEAN CITIES

T

a b l e 2

. P e r c e p t i o n s o f r e s t r i c t i o n s o n f o r e i g n o w n e r s h i p , s a l e a n d l e a s e / r e n t a l o f p r o p e r t y , p

e r c e n t a g e o f r e s p o n d e n t s

O w n e r s h i p

S a l e

L e a s e / R e n t

B u d a p e s t P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

t e R e s p o n d e n t s

le m a t i c

1 0 . 3

1 5 . 4

3 . 4

1 1 . 5

3 . 4

p r o b l e m

a t i c

5 2 . 2

8 7 . 5

7 2 . 4

8 . 7

1 1 . 5

5 7 . 1

4 . 3

1 0 . 3

a t a l l

3 9 . 1

1 2 . 5

3 . 4

7 8 . 3

6 1 . 5

3 8 . 1

8 7 . 0

7 3 . 1

4 8 . 3

ic R e s p o n

d e n t s

le m a t i c

p r o b l e m

a t i c

2 . 5

1 0 0 . 0

8 5 . 7

6 . 3

4 2 . 9

4 2 . 9

1 . 0

1 4 . 3

2 8 . 6

a t a l l

6 8 . 8

8 7 . 5

5 7 . 1

1 4 . 0

8 5 . 7


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Table 3. Perceptions of restrictions on currency control and repatriation of pro ts, percentage of respondents

Currency control Repatriation of pro ts

Budapest Prague Warsaw Budapest Prague Warsaw

PrivateProblematic 7.7 7.7 3.4Not problematic 47.8 11.5 24.1 52.2 11.5 24.1Not at all 52.2 76.9 55.3 39.1 76.9 51.7

PublicProblematic 14.3 Not problematic 6.3 42.9 6.3 28.6Not at all 81.3 100.0 28.6 81.3 71.4 28.6

implement effective policies for future devel-opment in terms of long-term investmentstrategy (76 86 per cent), overall vision andplan (86 100 per cent) and coherent market-ing (71 100 per cent).

A major weakness is the lack of a clearpublic organisation for promoting all three of the subject cities. Although each country hasspecial organisations for attracting FDIthrough global promotion and tax and

nancial incentives, their mandate excludesthe respective capital cities. Hence most re-spondents had highly negative views on cityinitiatives for attracting investment (Table 5),in particular there was an absence of tax and

nancial incentives and a confused pictureconcerning the potential role of streamlinedplanning and joint ventures. With respect tostreamlined planning, 54 per cent of privaterespondents in Prague regarded it to be non-existent, with public-sector of cials showinga lack of consensus on this matter. A similarsituation prevailed in Budapest. In Warsaw,only 28 per cent of private and 25 per cent of public respondents regarded the city as lack-ing streamlined planning, re ecting the abil-ity of developers to work with the system

through the right contacts. However, this im-plies the potential opportunity for corruptionf h i h l i

meetings in the respective cities. The mainconcerns identi ed in Prague related to thecomplicated nature of the planning system,particularly with regard to obtaining a plan-ning permit and the uncertainties created bythe strong in uence of environmental groupsin the planning process. This was seen to beparticularly problematic as appeals againstpermits often took over a year to be heardand thus increased the risk to the developer.In Budapest, on the other hand, particularemphasis was given to the lack of co-ordi-nation and rivalry between the 23 local bor-oughs as well as a lack of business culturefor developing partnership programmes on acity-wide level. Similarly, the issue of rivalryin Warsaw was seen to be a major problemwhich was exacerbated by limited develop-ment opportunities in the Warsaw Centrumcommune (central areas)particularly op-portunities for large retail developmentdueto unresolved title and ownership problems.In addition, participants in Warsaw perceivedthe city authorities to be too weak in the faceof market forces and believed that the politi-cal composition of local authorities had amajor role in in uencing investment deci-

sions.The situation concerning joint ventures isl i bl b h h i i


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2467GLOBALISATION AND CENTRAL EUROPEAN CITIES

T a

b l e 4

. P e r c e p t i o n s o f m u n i c i p a l c a p a c i t i e s f o r s t r a t e g i c p l a n n i n g a n d i n v e s t m e n t , p e r c e n t a g e o f r e s p o n d e n t s

L o n g - t e r m i n v e s t m e n t s t r a t e g y

O v e r a l l v i s i o n a n d p l a n

C o h e r e n t m a r k e t i n g

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e W

a r s a w

P r i v a t e

E f f e c t i v e

2 1 . 7

3 8 . 5

1 0 . 3

2 1 . 7

2 6 . 9

3 . 4

1 3 . 0

2 6 . 9

N o t e f f e c t i v e

5 6 . 5

5 3 . 8

7 5 . 9

4 3 . 5

6 1 . 5

8 9 . 7

6 0 . 9

6 1 . 5

8 9 . 7

O c c u p i e r

E f f e c t i v e

3 3 . 3

3 3 . 3

3 3 . 3

1 6 . 7


5 0 . 0

8 0 . 0

5 0 . 0

1 0 0 . 0

3 3 . 3

1 0 0 . 0

P u b

l i c

E f f e c t i v e

2 1 . 7

5 7 . 1

3 1 . 3

4 2 . 9

1 2 . 5

2 8 . 6


4 3 . 5

4 2 . 9

8 5 . 7

3 7 . 5

4 2 . 9

8 5 . 7

5 6 . 3

7 1 . 4

7 1 . 4


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2468 RAMIN KEIVANI ET AL.

T a

b l e 5

. P e r c e p t i o n s o f c i t y p o l i c i e s a t t r a c t i n g i n t e r n a t i o n a l i n v e s t m e n t , p e r c e n t a g e o f r e s p o n d e n t s

S t r e a m l i n e d p l a n n i n g

J o i n t v e n t u r e s

T a x i n c e n t i v e s

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

r i v a t e

Y e s

4 . 3

1 5 . 4

1 3 . 8

4 . 3

7 . 7

6 9 . 0

4 . 3

To s o m e d e g r e e

3 4 . 8

1 9 . 2

4 1 . 4

5 2 . 2

1 9 . 2

1 9 . 2

N o

4 3 . 5

5 3 . 8

2 7 . 8

2 6 . 1

6 1 . 5

3 . 4

8 7 . 0

9 2 . 3

1 0 0 . 0

c c u p

i e r

Y e s

1 6 . 7

3 3 . 3

6 0 . 0


2 0 . 0

N o

3 3 . 3

1 0 0 . 0

1 6 . 7

3 3 . 3

2 0 . 0

3 3 . 3

6 6 . 7

8 0 . 0

u b l i c

Y e s

1 2 . 6

4 2 . 9

2 5 . 0

6 . 3

2 8 . 6

1 0 0 . 0


1 2 . 6

1 4 . 3

5 0 . 0

1 8 . 8

2 8 . 6

N o

3 7 . 5

4 2 . 9

2 5 . 0

4 3 . 8

4 2 . 9

6 8 . 8

8 5 . 7

1 0 0 . 0


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sector respondents displayed negative opin-ions on the use of joint ventures. The re-sponses in Warsaw and Budapest areindicative of the higher autonomy and powerof local boroughs which have engaged in ad hoc joint-venture activities in the absence of a clear policy, notably at the city level.

Dif culties stemming from the lack of acity-wide co-ordinating and promotingagency are increasingly recognised by therespective city of cials. There is evidence of certain proposals to rectify the situation withthe formation of speci c organisations forthe promotion of the capital cities. Theseplans are most advanced in Prague with re-

gard to the formation of the Prague CityDevelopment Agency which, subject to theapproval of the city assembly, should beoperative in 2000 01. A major task of thisagency is to seek to develop partnershipschemes with international private investors/ developers both as a means of attractinginvestment and of ensuring better co-ordi-nation of real estate activity in the city.

5.2 Administrative and Planning Flexibility

With transition to the market economy, thereis demand for greater exibility and recep-tivity to private-sector activity on the part of city administration. This to a great extentdepends on the responsiveness of the localpolitical environment and can be de ned ac-cording to broad city administrative struc-tures including the planning system andbuilding and development control (Table 6).The majority of respondents in Warsaw viewthe overall city administration to have anaverage to high level of exibility. Indeed,the exible attitude of the authorities to de-velopment activity becomes more apparent inthe case of property developers who have todeal on a more direct basis with city bureauc-

racy as part of their activity. In this respect,approximately 84 per cent of this sub-groupd d h b ildi l d

Budapest, between 61 and 74 per cent, re-garded the 3 sections of city administrationto have an average to high level of exibility.This was corroborated by the responses of developers, 83 per cent of whom regardedthe development control and planning depart-ments and 67 per cent the overall city admin-istration to have an average to high level of

exibility.The apparent exibility in Warsaw and

Budapest is more a result of lack of effectiveplanning and rivalry between different au-thorities, rather than a prescribed policy de-cision from central-city or nationalauthorities. This situation applies particularly

in Warsaw where the focus group discussantsemphasised that the city does not have thepower to force local councils, whose compe-tencies are protected by the constitution, toalign their activities into an overall strategicpicture. As a consequence, growth pressureshave not been adequately managed. Disputesoccur with respect to general planning docu-ments, how binding these are at a local level,where building permits are granted and in-deed which authority has responsibility. Theperception of disjointed government and lack of co-ordination is reinforced by the resultsof the interviews which show that 71 percent of public respondents in Warsaw re-garded the different layers of governmentat national, metropolitan or local levels ashaving unclear and indeed rival administrat-ive relationships between each other.

To a lesser degree, lack of local co-ordi-nation is also viewed as problematic in Bu-dapest, with focus group discussantsidentifying the varying operation of the 23districts within the city as skewing the pat-tern of development activity. Some districtsare perceived as being developer-friendlyand hence have the capability of capturing asigni cant slice of new investment, but the

lack of co-ordination presents problems interms of decision-making and joined-up gov-i B d Th i f bli


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2470 RAMIN KEIVANI ET AL.

T a

b l e 6

. P e r c e p t i o n s o f e x i b i l i t y o f c i t y a u t h o r i t i e s , p

e r c e n t a g e o f p r i v a t e c a t e g o r y r e s p o n d e n t s

B r o a d c i t y a d m i n i s t r a t i v e s t r u c t u r e

P l a n n i n g

D e v e l o p m e n t c o n t r o l

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

B u d a p e s t

P r a g u e

W a r s a w

H i g h

4 . 3

1 1 . 5

1 3 . 8

8 . 7

7 . 7

1 3 . 8

1 7 . 4

7 . 7

1 3 . 8

A v e r a g e

5 6 . 5

3 4 . 6

4 4 . 8

6 5 . 2

5 3 . 6

4 8 . 3

4 7 . 8

4 6 . 2

4 8 . 3

Lo w

1 7 . 4

4 2 . 3

2 0 . 7

8 . 7

3 0 . 8

2 0 . 7

2 1 . 7

3 8 . 5

2 0 . 7

N o t a t a l l

1 3 . 0

7 . 7

3 . 4

8 . 7

3 . 8

7 . 0

4 . 3

3 . 8

3 . 4


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mal and complementary relationship and anunclear and rival relationship.

The situation in Prague is somewhat con-trary with 50 per cent of respondents regard-ing the overall city administration as havinga low level of exibilityalthough theplanning and development control depart-ments were perceived to have an average tohigh level of exibility by 61 per cent and 54per cent of respondents. This pattern of re-sponse is corroborated by property develop-ers, 53 per cent of whom regarded theplanning and development control depart-ments to have an average to high level of responsivenessalthough it was recognised

that some boroughs were more exible thanothers.One factor contributing to the perception

of less exibility is the lower level of inter-borough rivalry in Prague stemming from themore centralised system of urban administra-tion with a concentration of power at themetropolitan city tier rather than local bor-ough level. This point is emphasised by thepublic respondents interviewed, 86 per centof whom regarded the administrative rela-tionship between different layers of govern-mentnational, metropolitan or localasbeing formal and complementary, as opposedto unclear and rival. As a result, local bor-oughs have had a reduced scope for indepen-dent action or the bending of rules toaccommodate development activity.

However, it is important to distinguishbetween exibility and receptivity. Many re-spondents in Prague highlighted the differ-ence between boroughs being receptive todevelopment proposals, but lacking

exibility due to a raft of different develop-ment and planning regulations and the highercontrol of the metropolitan city authority.This was particularly so in Prague 1, thehistoric core and main tourist destination in

which conservation policies and objectivesare paramount. Indeed, as a result of con-l i i f d l

and has imposed a moratorium on new devel-opments in the city centre since 1997.

To a lesser degree, a relatively strict con-servation policy has also restricted develop-ment in the central areas of Budapest,particularly in the fth district which com-prises the old 19th-century city centre. Tothis must be added a high percentage of property ownership by the local boroughs inthe city centre and the associated practice of user-right interest payments, amounting toabout 50 per cent of the freehold value,which have limited the scope for retail andof ce modernisation in the area.

The near-total destruction of the Second

World War places Warsaw in a differentsituation. In Warsaw, the city and local au-thorities were deemed to be the most compli-ant of the 3 cities and, with the high level of borough (commune) autonomy, competitionhas produced a highly exible developmentenvironment driven largely by market press-ure coupled with local political and nancialinterests. However, unresolved title problemshave constrained development in centralWarsaw, thereby leading to a dispersed CBDextending over 3 different districts inWarsaw Centrum and encompassing between9 and 12 sq km. While the central core of thecity has an abundance of open, derelict orunderutilised space, this land has not beendeveloped due to ownership uncertainties.

An important issue for all three cities isthe underlying hierarchical culture of the

planning profession. In the respective focusgroups, the need to embrace new actors andthe complementary need to understand newprocesses in terms of encouraging en-trepreneurial planning and development werestressed. In this respect, a shift in attitudesand thinking is required to inject a new dy-namic into the planning process. As part of the agenda, the need for investors and localgovernment to work in partnership arrange-ments and share mutual experience emergesas a core consideration.


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Table 7. Summary of of ce market: Budapest, Prague and Warsaw

Property market indicator Budapest Prague Warsaw

Total of ce stock, 1999 (square metres) 3 255 000 2 500 000 3 400 000Modern of ce space, 1999 (square metres) 810 000 746 700 1 196 200Of ce take-up, 1999 (square metres) 104 600 140 000 150 000

Of ce supply, 2000 (square metres) 149 700 110 000 228 000Prime of ce rents, 1999 (square metre/month) 42 45a 45a 34.4 bVacancy rate, 1999/2000 (percentage) 16 16 11Yield (percentage) 10 12 10.0 11.0 12Lease (years) 3 10 3 10 3 5

a DM.b $.Sources: DTZ(1999); Jones Lang LaSalle,(2000a, 2000b, 2000c); Jones LangWootton (1998); Colliers

International (2000); Healey and Baker (1999); and Adair et al. (1999).

sitional form of urban administration andplanning in the 3 cities, particularly in termsof developing appropriate policies for a co-ordinated response to the requirements of international capital investment at a city-wide level. Yet available data point to arelatively high level of foreign direct invest-ment (FDI) during the past decade. Indeed,the combined share of FDI in the 3 countriesunder study amounts to 80 per cent of totalFDI ow into the region, excluding the for-mer Soviet Union, for the period 1995 98(World Bank, 2001). On a country basis, therecord of $19.5, $10.4 and $7.9 billion of FDI respectively for Poland, Hungary andthe Czech Republic during this period com-pares favourably with some other emergingmarkets in the South and Paci c-Asian re-gion. Malaysia and India, for example, re-spectively attracted $19.3 and $10.8 billionin FDI over the same period (World Bank,2001).

Sykora (1998) argues that, as gatewaysand the centres of tertiary and quaternaryservices for their respective countries, the 3capital cities dominate in terms of headquar-ter and export service functions. Hence, the

cities exhibit a demand for high-speci cationof ce accommodation required by inter-i l I d d b h d f 1999

since 1990 (Table 7). 1 Likewise, in the retailsector, the respective gures for modernspace are 370 000 square metres, 275 000square metres and 400 000 square metres,with demand primarily from major inter-national retail chains and brand names in allaspects of retail activity from fast food togrocery, clothing and furniture (Table 8).

International actors also dominate the sup-ply side of the market, including nance,development, investment and professionalservices. In relation to nance, an importantfeature of all three cities has been the domi-nant role of international banks, particularlyGerman and Austrian, to provide develop-ment nance through local subsidiaries. In-deed, the interview programme identi edinternational banks as the most frequentlyused source of property nance. However,the activities of foreign developers/investorsin the of ce and retail markets have beenprimarily for development or acquisition forowner-occupation, although there is evidencethat investment markets are starting toemerge in all three cities.

Local sources have also become active inproperty nancing (mainly loan) in Warsaw

and Budapest in the late 1990s. In Budapest,for example, syndicated loan nancing in-l i f l l b k d N h A i


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Table 8. Summary of retail market: Budapest, Prague and Warsaw

Property market indicator Budapest Prague Warsaw

Total retail stock, 1999 (square metres) 542 000 900 000 1 340 000 aModern retail space, 1999 (square metres) 370 000 275 000 400 000Shopping centre space (square metres) 285 000 169 000 270 000

Retail space under construction (square metres) 142 000 150 000 320 000Retail space planned (square metres) 134 000 500 000 800 000Prime retail rents, 1999 (square metre/month) 150 b 200b 80cShopping centre rents (square metre/month) 90 160b 60b 25 55cYield (percentage) 9 11 9.75 11.0 11 12Lease (years) 10 5 15 5 10

a 1997.b DM.c $.Sources: DTZ(1999); Jones Lang LaSalle (2000a, 2000b, 2000c); Jones Lang Wootton (1998); Colliers

International (2000); Healey and Baker (1999) and Adair et al. (1999).

be the most important source for residentialand smaller commercial projects. In Prague,bad debt from earlier privatised property andentities, a result of their use as overvaluedcollateral, has severely weakened the role of local banks in the property market. Further-more, constraints placed upon indigenouscompaniesfor example, Hungarian fundswhich are restricted to a maximum allocationof 20 per cent to real estate and Polish pen-sion funds which are prohibited from invest-ing in real estate or mortgage bondsemphasise the importance of external

nance. The latter has been facilitated byreforms on matters pertaining to currencycontrol and the repatriation of pro t, remov-ing those factors as sources of risk. While itis dif cult to separate the share of propertyinvestment from total FDI, internationaldomination of both supply and demand sug-gests that a substantial portion is concen-trated in the three capital cities to producethe physical conditions necessary for the op-eration of foreign rms in the region.

7. Conclusion

Th l E i i f B d

mand in the commercial property sectors.Yet, all three case studies lack city-wideco-ordination for either attracting or directinginternational development activity. More-over, while societal transformations havepaved the way for adequate operation of foreign companies and have secured theirurban property rights, at the city level there isa high degree of confusion and lack of direc-tion. Local government administration andplanning are still in a state of ux and devel-opment, with Warsaw and Budapest in par-ticular showing the highest degree of interborough as well as city borough rivalryand competition.

To varying degrees, international develop-ers and investors have to face complex bu-reaucracy and regulations. At the same time,planning and development decisions in allthree cities are prone to political in uences,cronyism and corrupt practices thus makingmost rules and regulations less effective interms of development control and plannedurban growth. However, the need for suchinformal relationships was acknowledged

by both private- and public-sector actors dur-ing the course of the research investigation.D di li i l d i


18/22


addition, peripheral expansion has been pro-moted by clear land title which in manycases is easier to obtain in suburban than incentral-city locations, notably in Warsaw.Hence, the property sectorparticularly thatsegment driven by major international devel-opment activityis in uencing the morphol-ogy and organisational structure within theurban areas.

From an administrative/institutional per-spective, systems are in place and althoughthese may not always be most conducivefrom a property perspective they cannot beconsidered as immature structures. Rather,they are systems in transition. However, if

the cities are to develop further as gatewaysto the central European region, they mustmaintain the quality of living environmentwhile at the same time supporting an en-hanced international economic capacity. Thiscannot be achieved through a somewhatchaotic and unco-ordinated development ac-tivity at the level of individual boroughswhich are prone to severe pressures fromprivate- and public-interest groups and politi-cal in uences. Hence, there is a need forgreater co-ordination at the city-wide levelinvolving dedicated agencies for attractinginvestment activity as well as stronger city-wide administrative structures and planningpolicies for directing this investment accord-ing to an overall vision for the future devel-opment of the city.

The analysis indicates that, while long-term vision is lacking, municipal authoritiesare starting to realise the limitations imposedon their future development as a result of theabsence of a clear and co-ordinated policy oninternational development activity. Thus,each city is preparing a strategic develop-ment plan which would provide a basis fordeveloping a city-wide vision. However,with the high level of local borough auton-

omy as a result of the political transform-ation, confused lines of administratived l f l l b h

process swinging back towards a greater cen-tralisation of power at the city level as anoverall strategic authority.

Note

1. This compares with a gure of about1 000 000 square metres of modern of cespace in 1999 for Brussels as the administrat-ive centre of the European Union (KingSturge, 1999).

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