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The Warsaw Voice » Real Estate » September 24, 2008
Modern Warehouse Space
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A Market With Potential
September 24, 2008   
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Poland offers excellent opportunities for logistics space developers, the best in Central and Eastern Europe, according to experts. The country's warehouse space market expanded rapidly in the first quarter of this year and had a successful, albeit slightly slower, second quarter.

A total of 645,000 square meters of modern warehouse space was completed in Poland in the first quarter of this year, bringing the total stock nationwide to 4.46 million sq m, according to real estate services company Cushman & Wakefield.

Warsaw remains the dominant market, with 45 percent of the total warehouse stock. Leading regional markets include Poznań, Upper Silesia, and cities in central Poland.

In the first quarter, the Wrocław area saw the fastest growth in warehouse space, 50 percent over the last quarter of 2007. The Wrocław area accounts for 9 percent of all warehouse space nationwide.

At the end of the second quarter, 877,000 sq m was under construction in 29 projects, according to another real estate services company, CB Richard Ellis.

Planned road construction projects and the country's fast economic growth have combined to spur the development of Poland's logistics sector. The country's location in the center of Europe is another important factor.

Since Poland joined the European Union on May 1, 2004, nearly 3 million sq m of modern warehouse space has been built across the country, and lease contracts have been signed for almost 3.5 million sq m, according to CB Richard Ellis. Poland's warehouse stock has grown by 230 percent since mid-2004.

Market drivers
The first half of this year saw a further expansion of the Polish warehouse market. Data collected by Cushman & Wakefield shows that total demand for warehouse space reached 864,000 sq m, a level similar to that noted in 2006 and over 200,000 sq m more than in the first half of last year. For several years logistics operators have been the prime tenants as a growing number of companies outsource distribution and warehouse services.

In the first half of this year, logistics operators accounted for 34 percent of the market. Shopping chains signed 17 percent of the lease contracts. Other tenants came from the food industry (6 percent), manufacturing (4 percent), the paper industry (3 percent), and the cosmetics sector (3 percent), according to Cushman & Wakefield.

Warehouse developers have so far focused on big cities and conurbations in central and southwestern Poland. The most popular locations include Warsaw; Poznań in the west; Łódź, Piotrków Trybunalski and Stryków in central Poland; Upper Silesia in the south; Wrocław in the southwest; and Gdańsk in the north. The development of the road network stimulates demand on smaller local markets such as Lublin and Rzeszów.

Smaller cities
Apart from Poland's largest cities, investors are increasingly interested in cities where no warehouses were built until recently, such as Bydgoszcz and Toruń in the north of the country, whose development has been boosted by the construction of the A1 freeway.

In September, Goodman, a company that owns and builds industrial and business properties in Australia, New Zealand, Asia and Europe, began building a logistics center in the town of Łysomice within the Crystal Park Pomeranian Special Economic Zone. Łysomice is close to Toruń, 60 km from an international airport in Bydgoszcz, and 200 km from Warsaw. The 15,000-sq-m warehouse is being built for global logistics leader Nippon Express and is scheduled to be ready in February 2009.

Goodman has already built two warehouses in Łysomice, with a total area of 40,000 sq m. They have been leased by NYK Logistics and Japanese logistics operator Nissin.

Other cities with rapidly developing logistics markets include Pilzno, Dębica and Mielec in southern Poland, according to real estate services company Emmerson. Apart from road infrastructure projects, investors are attracted to the area by its proximity to the Ukrainian border, which should facilitate the distribution of goods on markets east of Poland. Another factor attracting investors is the availability of qualified and relatively cheap labor force.

Built to suit
A report by Cushman & Wakefield indicates that 70 percent of warehouse projects under construction involve speculative space whereby developers do not sign any lease contracts in advance. Built-to-suit space-or facilities built on order for clients to suit their specific needs, on a previously acquired plot- accounts for 10 percent, and mixed speculative and built-to-suit projects account for the remaining 20 percent. In the case of mixed projects, the developer secures a plot and obtains a construction permit, and then undertakes to build a facility for a client on the available plot.

Speculative space usually attracts companies that lease up to 10,000 sq m and want to move in within a relatively short time. Built-to-suit projects usually involve tenants seeking space that exceeds 10,000 sq m, who develop their strategy well in advance and can wait 18 or so months for such a project to be completed. Then the developer and the tenant usually sign a long-term lease contract, for 10 years on average.

Many tenants
A total of 940,000 sq m of warehouse space was leased across Poland in the first half of this year, according to real estate services company Colliers International. In the second quarter, the vacancy rate was 8.03 percent, a decrease of 31 basis points from the first quarter, according to CB Richard Ellis. Most of the space in the new projects is leased out even before these projects are completed. According to Cushman & Wakefield, by July this year 43 percent of the space under construction had already been leased out, compared with 30 percent in December 2007.

Supply is reined in by a limited number of developers. Major players include ProLogis, Panattoni and Segro, which had built a total of 2.76 million sq m of warehouse space by the end of the first quarter, according to Emmerson.

Modern logistics parks offering what are called small units are a new trend on the Polish market, with space for rental starting from 300 sq m. Until recently, the minimum module for rent was around 2,700 sq m, according to Cushman & Wakefield. Parkridge, a developer operating in many European countries, will build two small-unit facilities in Poland, in the cities of Wrocław and Łódź. Construction of the Wrocław facility's first phase will start in late September or early October and will involve two warehouse buildings, each 5,000 sq m in size, and a 4,000-sq-m office building. In Łódź, Parkridge will build more than 18,000 sq m in total, including three buildings of 2,500 sq m each and three facilities of 3,700 sq m each.

All roads lead to Warsaw
The Polish capital and its suburbs remain the most attractive location in terms of warehouse space rental. According to CB Richard Ellis, there is 785,000 sq m of warehouse space in "sector one"-within 20 km from the center of Warsaw. In the second quarter, that figure grew 5 percent over the first quarter, with 39,000 sq m of new warehouse space completed. Four projects involving the construction of over 74,000 sq m of warehouse space are under way.

In the first half, tenants rented a total of 57,050 sq m of space in the sector. The vacancy rate at the end of the second quarter was 318 basis points higher than in the previous quarter, reaching 9.15 percent. Monthly rents in this area are among the country's highest, at up to 6 euros per sq m, according to Richard Ellis.

In a major project in sector one, ProLogis Park Warsaw II is constructing four modern warehouse buildings with a total area of 38,000 sq m. ProLogis is the world's largest owner, administrator and developer of distribution facilities. The project is located in the Praga Północ district, less than a kilometer from the E77 road that connects Gdańsk in the north with Cracow in the south. The project is 10 km from the E30 road connecting the western city of Poznań with Biała Podlaska in the east.

In sector two, 20-80 km from Warsaw, warehouse space amounts to 1,063,000 sq m, with a further 127,000 sq m under construction. In the second quarter, developers launched work on three warehouse and logistics projects totaling 105,000 sq m. The vacancy rate in this sector is 10.4 percent, which means that over 110,000 sq m of space is waiting for tenants. Monthly rents have not changed much recently, ranging between 3 and 3.60 euros per sq m, according to CB Richard Ellis.

The largest concentration of warehouse space in Poland can be found near the town of Błonie, 27 km west of Warsaw-nearly 400,000 sq m, according to Colliers International. Sustained demand keeps attracting major developers to the area.

Meanwhile, phase two of the Panattoni Park Błonie project has gotten off the ground. Once completed, the park will hold a total of 46,000 sq m of modern warehouse and office space. Panattoni Europe is a major industrial space developer in Poland and Central Europe.

ProLogis is developing its second logistics park in Błonie that will ultimately comprise eight buildings with a total area of 240,000 sq m. The first two buildings will be ready in the first quarter of next year.

Silesia, Poznań busy
The southern region of Silesia is another major market for warehouse space developers in Poland, offering a total of 674,000 sq m of modern warehouse space. In the first half of this year, 115,000 sq m of new space was completed in the region, according to Colliers International.

The city of Poznań has 550,000 sq m of warehouses space, plus 154,000 sq m under construction. Most these facilities are located along the A2 freeway and the E30 Warsaw-Berlin road. The former location attracts mainly logistics companies, while the latter is primarily chosen by tenants operating on the local market.

In the first half of this year, more than 135,000 sq m was rented out in Poznań. The vacancy rate is 8.8 percent, down by 417 basis points from the end of 2007, according to CB Richard Ellis.

Central Poland following suit
Not much warehouse space was completed in the Łódź area in the first half of this year, just 42,500 sq m, or 10 percent more than at the end of 2007, according to Colliers International. Some 320,000 sq m of new warehouse space is currently under construction in the region, accounting for 36 percent of all modern warehouse space projects in progress nationwide. The region accounts for 34 percent of the rental market outside Warsaw, according to Colliers International. In a record lease contract, Leroy Merlin rented 56,000 sq m of space in Panattoni Park Stryków. The park offers 100,000 sq m of warehouse and office space west of Łódź, close to road no. 14 (Warsaw-Łódź), road no. 71 (Zgierz-Stryków), and the planned junction of the A1 and A2 freeways that will link eastern and western Europe.

In the same region, the Complex company, a domestic leader in the production and distribution of machine spare parts and roller bearings, has launched a modern 10,000 sq m logistics center in Tulipan Park Stryków. The company has signed a lease contract for three years.

A new logistics park called Tulipan Park Łódź will open in November. Developed by UK-based company Segro, a leading European developer, the park is a modern 30,000-sq-m logistics center located in the city's eastern industrial district of Widzew. All the space in the project's first phase has already been rented out, mainly to forwarding companies Pol Fret (more than 15,000 sq m), JasFBG (5,000 sq m), and Sercom Solution (over 3,000 sq m). The investor plans to follow up with a second phase soon.

Wrocław catching up
The supply of modern warehouse space in Wrocław has doubled in the past few years. At the moment, the region offers 380,000 sq m, with a further 73,000 sq m under construction, according to Colliers International.

High demand for warehouse space in the area has encouraged the owners of local logistics parks to expand. The second phase of Panattoni Park Wrocław is under way. The project is located 15 km southwest of the city center, close to road no. 35 that connects Wrocław with Prague and near the A4 freeway and the E67 expressway. At present the park offers 40,000 sq m of warehouse and office space. Phase two will add a further 46,500 sq m to the available stock.

Gdańsk offers a total of 81,000 sq m of warehouse space. Tenants rented some 7,000 sq m in the city in the first half of this year. The vacancy rate in the second quarter was 16 percent, 314 basis points down from the first quarter, according to CB Richard Ellis.

In October, a new project will be launched, the first building of Panattoni Park Gdańsk, offering 15,000 sq m. The entire complex will have 43,000 sq m. It will be located close to the city center.

The fifth building in ProLogis Park Gdańsk will be completed by the year's end, yielding 20,000 sq m of space.

Panattoni Park Gdańsk is a distribution center 5 minutes from the Gdańsk-Sopot-Gdynia Tricity beltway, which will be part of the planned A1 freeway. At present the park includes four buildings with a total of 72,000 sq m of warehouse and office space.

Optimistic forecasts
Market analysts say that demand for modern warehouse space in Poland will continue to run high. The supply is stable, new projects keep entering the market, and developers hold plots in attractive locations. Despite the increasing availability of warehouse space, rents may go up a little, experts say, mainly due to growing construction costs.

Magdalena Fabijańczuk


Growing Need for Warehousing
Maciej Madejak, ProLogis Vice-President :
As an international corporation present in many world markets, we are able to observe and compare the growth of our operations in various countries. Without a doubt, at a time when Western Europe is experiencing a period of stabilization and even stagnation on the real estate market, Eastern and Central Europe still has a huge need for warehousing facilities. This is linked to the rapid development of the logistics sector as well as the ever growing influx of foreign investors, who, as they open new premises, boost demand for distribution centers in Poland. As well as Warsaw, the primary and biggest warehousing market in the country, local business centers such as Gdańsk, Wrocław, Katowice and Piotrków Trybunalski are showing growth trends in numbers of new and rented facilities. Demand for modern warehousing facilities in Poland is rather for small units of 2,000-5,000 sq m in area. At the same time though, huge areas of 20,000-50,000 sq m are gaining popularity. These are built-to-suit facilities, designed in accordance with a firm's requests and dedicated to that firm.

I think that in view of the development of Eastern European markets, together with the growing need for warehousing facilities, locations close to the border with Belarus and Ukraine could gain significance in the future. More so in that the organization of the Euro 2012 soccer championships by Poland and Ukraine will necessitate not only the improvement of roads but also an increase in the number of available freeways and traffic interchanges.


Further Expansion
Tom Listowski, associate director and head of the Industrial Department at the Warsaw office of the international real estate services company CB Richard Ellis:

In the second quarter of this year, Poland's warehouse and logistics market witnessed further significant expansion and development, however the growth rate was at a lower level than in previous quarters.

Overall, total take-up was down 31 percent compared with the first quarter of this year. However, close to 900,000 square meters of modern warehouse space was under construction in 29 projects across the country. In addition, the number of planned projects was higher than in the previous quarter, which again confirms that developers still see considerable potential in Poland.

In a market where new competitors are canvassing for potential entry opportunities, and established developers, already active in Poland, are diversifying the types of warehouse products as well as locations being offered to appeal to broader group of potential tenants, we can see that the market is now slowly starting to mature.

High construction costs and a weakening euro-which rents are denominated in-are two major factors impacting rents, which are definitely on the way up. Still, developers are now being more cautious when it comes to acquiring sites.

As the Polish warehouse market matures, the types of products available to tenants are also being broadened. In-town warehouse parks, previously only offered in Warsaw, are now also starting to arise in regional cities such as Łódź and Wrocław. Developers such as Parkridge, Panattoni and Segro are examples of companies active on the market that have started to place greater emphasis on the construction of those types of warehouse parks that offer smaller unit sizes for start-up and medium-sized businesses.

On a nationwide basis, the regional cities of Katowice in the south, Łódź in central Poland, Poznań in the west, Wrocław in the southwest, and Gdańsk in the north, are without a doubt witnessing the greatest amount of development activity. We can expect further warehouse development in each of these locations, in close proximity to key freeways and expressways that are to be fully constructed between now and 2012 when Poland will co-host the Euro 2012 soccer championships.
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