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The Warsaw Voice » Real Estate » October 1, 2010
Modern Warehouse Space
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Developers Still Cautious
October 1, 2010   
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Developers are still avoiding speculative investments, focusing on build-to-suit projects and pre-lease contracts. Tenants are interested in flexible lease terms and rates.

Lease rates are low due to a large amount of vacant space. In the first half of the year, the highest rents reached 5.25 euros per square meter a month in Warsaw, 4.50 euros in Cracow and 3.60 euros in Wrocław. ProLogis still has the largest market share, 34 percent, followed by Panattoni with 16 percent. Segro and Europolis come third and fourth with 8 percent and 5 percent respectively. ProLogis also leads the field in terms of gross demand, which comprises new, renegotiated, expansion and pre-lease contracts. In terms of space lease, ProLogis has a 51-percent share of the market, Panattoni 21 percent and PointPark Properties 6 percent, according to Cushman & Wakefield.

Fewer projects completed
Only two projects, providing a total of 22,400 sq m, were completed in the first half of 2010 on regional markets – the third distribution building in Panattoni Park ŁódĽ East, providing 17,000 sq m, and Panattoni’s build-to-suit (BTS) project for Farmacol in Żerniki near Poznań, providing 5,400 sq m. But the number of projects entering the construction phase increased. According to Colliers International, space under construction now exceeds 285,000 sq m, of which 106,000 sq m is built-to-suit-projects. But not all the projects will be completed by the end of 2010 and a major drop in the amount of new space coming onto the market will be seen this year. In 2009, new space totaled 975,000 sq m.

ProLogis still leading the pack
ProLogis rented out 351,500 sq m of modern office and warehouse space in its logistics parks in Poland in the first half of the year. The number of new contracts signed in this period was over 40 percent higher than in the first half of last year and new tenants occupied more than 123,000 sq m.

Meanwhile, Panattoni Europe signed new contracts for 145,000 sq m, up on the 107,000 sq m rented out in the first half of 2009. Among the contracts Panattoni Europe signed in the first half of this year was Poland’s largest lease contract—for a 57,000 sq m build-to-suit facility for Tesco in the southern city of Gliwice, Silesia province. Panattoni is now the leading developer in terms of the amount of modern warehouse space under construction. In the first half of 2010, the developer had more than 200,000 sq m under construction, of which 137,000 sq m was build-to-suit projects. These included 20,100 sq m of space developed for Neuca at Panattoni Park Ożarów, more than 30,000 sq m for Cereal Partners Poland Toruń Pacific (CPP), a company owned by Nestle, at Panattoni Park Toruń, 30,000 sq m for H&M at Panattoni Park Poznań I and 5,400 sq m for Farmacol at Panattoni Park Poznań II. Additionally, Panattoni Europe completed the construction of the third distribution building, of the planned five, at Panattoni Park ŁódĽ East.

New venture by Segro
In August, Segro started to carry out its first small business units (SBU) project in Poland. This is located in the central city of ŁódĽ. SBU projects deliver business space designated for offices, small warehouses and light industry. Facilities of this kind are located in strategic locations within cities and close to their centers. Segro’s small business units will be situated in the Tulipan Park logistics center, which covers 6.7 hectares on Rokicińska Street. Segro will develop 3,000 sq m of new office and warehouse space in the logistics center, with the smallest rentable modules covering 750 sq m. The project is to be carried out within six months.

As there is a large amount of vacant space in existing facilities, lease rates have dropped again. Maciej Chmielewski, partner and director of the industrial and warehouse space department at real estate services company Colliers International, says that owing to the large amount of vacant space, developers will be starting new projects only after they have signed pre-lease contracts or in locations where the supply of warehouse space is small. He expects lease rates to stabilize.
Magdalena Fabijańczuk

Commentary: Warehouse Space Needed in ŁódĽ and Warsaw

Tomasz Olszewski, director of the department for industrial and warehouse space lease in Poland and Central and Eastern Europe for Jones Lang LaSalle:

Warehouse space developers have stopped building speculative facilities. The number of such projects has dropped almost to zero. During the boom, when financial institutions had a lot of money available, they eagerly invested in real estate. This situation has changed and banks do not want to be burdened with excessive risk or to finance the construction of facilities for which tenants have not been secured. Of course, this situation is temporary and will change once the financial market becomes stable and a boom returns, together with optimism and higher propensity to invest. The market has always gone from bullish to bearish.

It is impossible to describe the situation which now exists on the warehouse market in a word. Supply is fairly extensive and there is vacant space waiting for tenants, but the buildings are not located in the areas where the tenants need them. Błonie near Warsaw, Rawa Mazowiecka, Piotrków Trybunalski and Szczecin are typical examples of locations where space is difficult to rent out and where there is a lot of space remaining vacant. Tens of thousands of square meters are vacant in these locations. Tenants need warehouses in ŁódĽ, Stryków, the coastal Tricity area and within Warsaw. In these locations, the supply of space is already too small. In Poznań, supply has also shrunk significantly and developers do not have much to offer new customers. There is an interesting situation in Upper Silesia, where there is quite a lot of vacant space, but almost all of it is owned by a single developer.

It is always worth building in places where there is demand. But there is the problem of funding. Developers have learned to cope with it through pre-lease contracts. But a combined model is now becoming a dominant trend—a developer signs a contract with a customer who needs, say, 10,000 sq m, but develops 15,000 sq m or 20,000 sq m. The excess is speculative space, but with the pre-lease contract signed for half the project, banks will be more ready to provide a loan. I think this is how supply shortages will be eased in regions where demand has exceeded what developers can offer.

Commentary: Crisis the Mother of Invention

Robert Dobrzycki, managing partner for Central and Eastern Europe at Panattoni

Demand on the warehouse market revived at the beginning of the year. This is reflected for example in the fact that we are now building around 200,000 sq m of warehouse space across Poland. This does not mean, however, that financial institutions no longer have any inhibitions and are giving out money for anything. The start of each new construction project involves securing it with a pre-lease contract. But this does not mean the whole building has to be pre-leased before the first spadeful has been dug out of the ground. Most projects carried out at present are build-to-suit facilities, but parks are also being built that have some speculative space in addition to that being developed under a pre-lease contract.

Although build-to-suit facilities dominate in terms of new construction projects, speculative space is also returning onto the market and is most popular with logistics operators, who are the largest group of customers for warehouse space.

Speculative and build-to-suit facilities are two basic products on today’s market, but there are many more possible types of deals between the developer and customer. There are intermediate variants between the speculative and build-to-suit facility. They originate from direct projects carried out before 2008 and funded by the customer as loans were much easier to access then. As a result, many customers have logistics centers, but it is not always profitable for them to maintain them from their own resources. They prefer to have more working capital and operating funds and try to outsource everything that is associated with assets. This is where an intermediate variant comes in. One such variant is sale and leaseback, in which the property is bought from the customer, the buildings are modernized and leased back to the customer for a specified rent.

Another variant is fee development, which is more like general contracting, with a facility built on a turnkey basis for a customer and with their money. In such cases, the customer looks not only for a construction service but also a solution which will ensure the functional optimization of the facility and its proper implementation. The scope of a deal is much broader in this case than tasks undertaken by a general contractor. An example of a fee development contract is the facility we are building for Farmacol in G±dki near Poznań.
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