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The Warsaw Voice » Real Estate » February 23, 2010
Modern Warehouses
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Too Much Vacant Space
February 23, 2010   
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The market needs around 18 months to absorb the vacant warehouse space now available and developers, instead of building new warehouses, are focusing on renting out unoccupied space and extending lease contracts with existing customers.

Around 921,000 sq m of new space appeared on the market last year as warehouse construction projects that started before the crisis were completed. Developers signed lease contracts for a total of 987,000 sq m, according to real estate services company Jones Lang LaSalle.

The main players in terms of amount of warehouse space are still ProLogis with a 34-percent share of the market, Panattoni with 16 percent and Segro with 8 percent. Other important operators with a smaller share in the market are AIG/Lincoln, Europolis, Menard Doswell, MLP Group, Pinnacle and Valad, according to real estate services company CB Richard Ellis.

Supply frozen, demand low
The highest demand for warehouse space was recorded last year in Silesia, with 180,000 sq m rented out; the city of Wrocław, with 167,000 sq m; and central Poland, with 129,000 sq m. The weakest markets in terms of demand for warehouse space were Cracow, with less than 20,000 sq m rented out; the northern region, with 46,000 sq m; and Poznań with 109,000 sq m. In Warsaw, more than 336,000 sq m of warehouse space was rented out, of which 66 percent was in zone 2, according to Jones Lang LaSalle.

"It was the norm that each successive quarter was better in terms of demand than the previous one," says Mateusz Polkowski, senior research analyst at Jones Lang LaSalle. "I think that demand this year will be similar to last year. Vacant space, which now accounts for 18 percent, has to be absorbed by the market, as this will bring stability back to the market." Polkowski adds that a reasonable level of vacancy is 10 percent.

ProLogis leads the market
Last year, ProLogis completed all its planned projects, both build-to-suit and speculative ones. In Poland alone, the company completed 14 buildings with a total space exceeding 360,000 sq m. The projects were started before November 2008. ProLogis signed lease contracts for more than 325,000 sq m of modern warehouse space, of which 153,000 sq m were new deals. Asplex (Acer) was ProLogis's largest new client in 2009. The company rented 19,300 sq m in ProLogis Park Wrocław III. In 2009, the developer provided its customers with three build-to-suit (BTS) facilities-50,000 sq m of space in Building 3 constructed at ProLogis Park Błonie II for EasyTruck (Antalis); 21,600 sq m in Building 2 at ProLogis Wrocław II for FagorMastercook and 15,000 sq m in Building 5 at ProLogis Park Błonie II for Raben.

At present, ProLogis has around 2.1 million sq m on offer in 25 parks in Poland and 3.7 million sq m in 40 parks in Central and Eastern Europe. In 2010, the company does not plan to buy any land or begin any speculative projects.

Panattoni keeps building
Last year, Panattoni rented out over 250,000 sq m of warehouse and office space, most of it in build-to-suit (BTS) premises. The largest contracts for the delivery of BTS facilities were signed with customers operating in the pharmaceutical and food sectors. Torfarm SA, a pharmaceutical distributor supplying pharmacies across Poland, signed a contract with Panattoni Europe for the delivery of 35,000 sq m of warehouse space in the vicinity of Warsaw and Poznań. The build-to-suit contracts include three for finding land for customers, including Torfarm SA and Farmacol.

The warehouse park in Mysłowice, southern Poland, where Panattoni rented out almost 50,000 sq m of space, attracted the most interest from customers. Among new tenants there are Intermarché, which launched its logistics center in Mysłowice in 2009, and PartnerTech, which opened its manufacturing unit at the park.

The Warsaw region also saw much activity, with lease contracts signed for around 70,000 sq m.

In 2009, Panattoni completed almost 240,000 sq m of warehouse and office space. Almost 100,000 sq m is now under construction as the company has begun several new projects. Panattoni has started the expansion of Stage 3 of Panattoni Park ŁódĽ East, where it is building a third warehouse building of 17,000 sq m. Also under construction are warehouses for Farmacol (5,400 sq m near Poznań), H&M (30,000 sq m near Poznań), Torfarm (23,000 sq m in Warsaw) and stage 2 of the warehouse center in the southern city of CzeladĽ (20,000 sq m). The construction of 7,000 sq m of space in the coastal city of Gdańsk is scheduled for the second quarter of 2010.

Segro Third
Segro last year completed 125,000 sq m of warehouse space, of which 95,000 sq m has already been rented out and occupied. The developer signed lease contracts for 75,000 sq m of space, of which 20,000 sq m were contracts with new customers and the remaining 55,000 sq m were extended contracts with existing customers. The largest new customers were Air Container, a South Korean logistics company, which rented 7,000 sq m at Tulipan Park Gliwice, and IGS Schreiner Polska, a member of the German logistics group IGS Schreiner GmbH, which rented 2,800 sq m of warehouse and office space at Tulipan Park Warszawa.

In Poland, Segro owns over 230 hectares of commercial land and 470,000 sq m of warehouse and production space. It has three regional offices in Warsaw, Poznań and Katowice.

Future depends on tenants
Last year developers completed most of their construction projects. What are their plans for 2010? Much depends on customer needs. Developers do not want to start speculative projects, that is projects for which they have not signed lease agreements in advance. They are likely to focus on renting out the remaining vacant space, extending lease contracts with existing customers and looking for build-to-suit contracts.

"Last year, a sharp drop in demand from the largest logistics operators, combined with an excessive amount of unoccupied space, resulted in stagnation on the warehouse space market," says Joanna Mroczek, associate director of the Research and Consulting Department at CB Richard Ellis. "Construction activity was curbed, more and more tenants decided to renegotiate their contracts and developers found it difficult to acquire funding, even for build-to-suit projects. However, this allowed equilibrium to return. An improvement could be seen from quarter to quarter. Despite that, it will take at least 18 months for the market to absorb the more than 1 million sq m of vacant space available, even if demand is stimulated by new industrial projects and the expected further expansion of the commercial market in large cities."
Magdalena Fabijańczuk


COMMENTARY
Magdalena Szulc, Segro business unit director for Central Europe:
In 2009, we had a difficult market situation and prices of properties and their market value fell significantly. We can see that tenants have become more cautious in renting new warehouse space. The decision-making process has also been considerably extended. However, this is directly linked to the economic situation. We monitor the market and customer needs. We predict that existing logistics parks will be expanded in Poland in 2010 and that projects will be started in new locations. Our strategy is based on providing a complete and diversified range of products. Apart from developing "big-box" space, we also plan to build "small-box" and small business unit projects.
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