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The Warsaw Voice » Real Estate » March 4, 2009
Modern Warehouse Space
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Less Speculation
March 4, 2009   
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More difficult access to financing and the small number of new projects have raised rents at logistics centers. Rental rates have grown by up to 20 percent in Poland's largest cities over the past six months.

Developers of modern warehouse centers are no longer building what is known as speculative space. Practically all the new projects are built-to-suit facilities-commissioned by clients and tailored to their needs. Developers usually start construction after they sign leases for at least 60 percent of a project. In 2009 the owners of logistics parks will focus mainly on renting out already existing premises.

A good 2008
At the end of 2008 warehouse space in Poland totaled 5.1 million sq m, up by 34 percent from a year earlier, according to data from real estate services company Cushman & Wakefield. The most new space was built near Warsaw (in Błonie, Janki, Ożarów, and Pruszków) and in central Poland (in Łódź, Stryków, and Piotrków Trybunalski). In a new trend, a number of new warehouses were built in areas around the cities of Szczecin (ProLogis Park Szczecin) and Toruń (Crystal Park). There are also plans to build Panattoni Park Lublin in the eastern region of Lublin.

The Polish warehouse market is highly consolidated. Three developers account for a combined 55 percent of the supply, according to Cushman & Wakefield. ProLogis holds 34 percent of the market, Panattoni 14 percent, and Segro 7 percent. Last year these developers signed lease contracts for a total of 1.14 million sq m of new space, a figure that accounted for 72 percent of all new lease contracts on the market. Panattoni signed 31 percent of all the lease contracts, followed by ProLogis with 29 percent, and Segro with 12 percent.

Warsaw market stable
Warsaw is the largest market for modern warehouse space in Poland. Demand in the city has been stable for several years.

In 2008, around 400,000 sq m of new warehouse space was completed in Warsaw, compared with 140,000 in 2007. Another 290,000 sq m is under construction. An area referred to as zone two of the Warsaw market (10-25 km from the city center) is developing the fastest, with competitive rents ranging from 2.90 to 3.50 euros per sq m. The largest amount of vacant space is available in zone three (further than 25 km from the center). Despite relatively low rents (at 2.75 to 3.35 euros per sq m), 28.71 percent of the space is unoccupied there. The most space in zone three has been rented by logistics companies, and these have been cautious about leasing new space in recent months. The vacancy rate for zone one is 9 percent, and zone two reports 10 percent, according to data by real estate services company Colliers International.

Near the end of last year Pinnacle Real Estate took over Europa Park in Mszczonów, one of the largest logistics parks in this part of Europe. The facility, now called PointPark Mszczonów, is located about 45 km from Warsaw.

This logistics center has access to a railway siding and is close to the Warsaw-Katowice road (E67), the E50 highway, and the planned A2 freeway. The complex includes 96,600 sq m of existing A-class space with an option to build a further 214,500 sq m.

Vacant space in Wrocław
Almost 1 million sq m of new warehouse space was built in regional markets other than Warsaw last year. However, developers noted a significant drop in demand at the year's end. The amount of vacant space is growing, especially in Wrocław, Cracow, and Poznań.

Last year developers were especially busy in Wrocław, where the amount of modern warehouse space doubled. Substantial interest in this market encouraged companies to expand their warehouses in the area. Projects included stage two of Panattoni Park Wrocław. This facility lies 15 km southwest of the city center, along road No. 35, which connects Wrocław with Prague. The A4 freeway and the E67 expressway are nearby.

The financial crisis and decreasing demand for warehouse space have led to a significant increase in the amount of vacant space in Wrocław. At the end of 2008, the supply of modern warehouse space in the Wrocław market stood at 542,000 sq m, with 125,300 sq m of unoccupied space-translating into a vacancy rate of 23.1 percent, according to Colliers International.

Record Lease in Stryków
In central Poland, the supply of modern warehouse space increased by 82 percent, Colliers International says. Key transactions included a record-breaking lease contract signed by Leroy Merlin Poland for 56,000 sq m in Panattoni Park Stryków. This center, offering 100,000 sq m of warehouse and office space, is located west of the city of Łódź, near national highway 14 (Warsaw-Łódź) and highway 71 (Zgierz-Stryków), next to the planned junction of the A1 and A2 freeways linking eastern and western Europe.

In November last year, Segro, a leading European developer based in Britain, launched a new facility in central Poland. The facility, called Tulipan Park Łódź, is a modern logistics center 30,000 sq m in area plus 3,000 sq m of warehouse and office space in a separate complex of small business units. Tulipan Park Łódź is located in the industrial district of Widzew in the eastern part of Łódź.

Silesia going strong
The southern region of Silesia continues to develop rapidly, attracting a lot of interest from both logistics and automotive companies. The supply of modern warehouse space in the region at the end of 2008 exceeded 867,000 sq m, with just 54,400 sq m left unoccupied-meaning a vacancy rate of 6.3 percent.

Segro is preparing to start work on its newest project, Segro Business Park Gliwice. This will be a complex of small business units offering 10,000 sq m of flexible commercial space for both offices and small warehouses as well as light manufacturing. Segro Business Park Gliwice will be located along national highway 88, not far from the A4 and A1 freeway junction currently under construction, and 6 km from the center of Gliwice. The developer is offering modules from 300 to 3,000 sq m for rent.

Panattoni is also investing in Gliwice. In the third quarter of this year it plans to complete Panattoni Park Gliwice, a logistics center of 27,000 sq m.

Second half uncertain
According to real estate services company CB Richard Ellis, the capitalization rate for warehouse facilities in Poland last year fell to around 7.5-7.75 percent for the best projects. The market's development is being hampered by the global financial crisis and problems with obtaining funding. Analysts predict that the first half of 2009 will be better than the second half, because transactions are being continued from 2008. Rents are unlikely to go down, experts say.

Magdalena Fabijańczuk


OPINION

More Tailor-Made Warehouses
Robert Dobrzycki, Managing Partner Central and Eastern Europe, Panattoni Europe:

Due to the market's rapid development, over the past two years the key issue for companies has been to promptly meet client expectations-hence the high demand for finished space. This has been accompanied by shorter leases-for three to five years.

We expect the demand to change in the near future. Due to limited possibilities for financing speculative space, tailor-made projects and pre-let contracts will become more popular as a way to reduce the financial risk for developers and banks. We expect demand to decrease in the face of the global economic slowdown. More standard projects will be developed, while leases will become longer.

The demand reported by Panattoni is chiefly generated by logistics, retail and light manufacturing companies. For logistics companies, the key issue is road infrastructure and the proximity of major urban centers. Examples include Raben in Stryków and Raben in Gądki near Poznań. Retail companies tend to choose locations close to their customers/stores and local markets. Examples include H&M in Poznań and Leroy Merlin in Stryków. In the case of light manufacturing, the availability of labor plays a major role, as exemplified by the location of the Dell factory and its suppliers in Łódź's Olechów district and the Recticel factory in Panattoni Park Łódź South. For distribution companies, the most popular locations are those close to delivery points-for example DPD and Coca Cola in Mysłowice, and Lekkerland in Łódź.

Though Warsaw still leads the way in terms of market share, regional markets have been developing rapidly for some time. In 2008, our parks in central Poland (Łódź and Stryków) enjoyed the greatest interest among tenants. Panattoni rented out 140,000 sq m there. The Warsaw region was also popular, with tenants snapping up almost 100,000 sq m of space. Moreover, we recorded substantial demand in the Upper Silesia region, where we rented out more than 75,000 sq m, and also near Wrocław and Poznań, where we leased 83,000 and 82,000 sq m respectively.


OPINION
Warehouse and Logistic Market Slows

Tom Listowski, Associate Director - Head of Industrial Department, CB Richard Ellis Polska

An assessment of tenant demand from the final quarter of 2008 to the present indicates that the warehouse and logistic market in Poland has slowed. With retailers and logistic providers being the major occupiers of modern warehouse space, the current downturn in economic activity, global production and consumer spending is having a direct impact on these sectors and in turn on the demand for new modern warehouse space and development across Poland. The inavailability of financing has resulted in many end users suspending local expansion plans. However, we are witnessing more and more international producers revisiting Poland as an attractive production location due to the significant weakening of the Polish currency over the last several months. In regards to supply, the majority of developers who previously built-out warehouse and logistics parks on a speculative basis have readjusted their strategies for future developments. With many of these developers possessing significant land banks across the country, lower demand and increased vacancy risk has meant that phases of development close to completion will be handed over but new schemes will only commence subject to securing a pre-lease.

Developers are placing additional emphasis on built-to-suit transactions where a strong covenant occupier is secured for a long term, i.e. leases of 10 or more years. This being said, in some regions such as Łódź, we are seeing an increase in the development of in-town small module size projects. Rents offered by developers for space in newly completed schemes have increased. However, much more sub-leasing activity is taking place by tenants looking to downsize their operations which one can expect will result in rents remaining relatively stable and in some locations, even falling.
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