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The Warsaw Voice » Real Estate » February 25, 2011
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Demand Returns
February 25, 2011   
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After a period of stagnation caused by the global crisis, modern warehouse space is again in demand in Poland.

Following a major drop in demand for rented warehouse space in 2009, the next 12 months saw a revival in the sector and a rise in demand. The main reason behind this improvement was a rapid growth in industrial production in Poland. As a result, 1.26 million sq m of warehouse space was rented out to tenants last year.

In its report on Poland’s warehouse market in 2010, international real estate services company Jones Lang LaSalle predicts that demand for warehouse space will increase further in 2011 to 1.5 million sq m.

Another sign, apart from higher demand, that conditions on the warehouse market are now better is a declining vacancy rate. In mid-2010, 25 percent of warehouse space in the Warsaw area was still vacant. By the end of the year, the rate fell to 20.8 percent. The vacancy rates on other large markets also decreased: from over 18 percent to 12 percent in Upper Silesia, and from almost 17 percent to 13.5 percent in central Poland.

The situation is also improving in the construction of new warehouses. Following poor economic trends in 2009, developers almost stopped building new premises. As a result, according to Jones Lang LaSalle data, only 270,000 sq m of new warehouse space was completed in Poland in 2010. This represented a drop by over 1 million sq m from the record year of 2008. The largest warehouse facilities completed in 2010 were Panattoni BTS Tesco Gliwice and Panattoni Park Toruń.

Around 179,000 sq m of modern warehouse space was under construction at the end of 2010. Most of the projects were built-to-suit (BTS) facilities tailored to the needs of specific tenants. CB Richard Ellis Polska analysts project that around 350,000 sq m of new warehouse space may be constructed this year.

Not just Warsaw
Recently significant changes have taken place in the geographical distribution of warehouse space. Until not long ago, most of the large warehouse facilities were located in the center of Poland—in Mazovia province and in the vicinity of Warsaw. But now, the distribution is more even. Warsaw and the surrounding areas still lead the charge, with 2.3 million sq m of warehouse space already constructed, but Upper Silesia is seeing an increasingly rapid growth. Developers have already built 1.17 million sq m of warehouse space there and new premises are popping up in the region faster than in Mazovia. Only 43,000 sq m of new space was built in Warsaw and its vicinity in 2010 while in Upper Silesia the amount of newly built space was more than two times that.

In 2010, Poland’s total warehouse space increased to 6.2 million sq m. To compare, the remaining Central and Eastern European countries offer 7.7 million sq m of warehouse space between them, which shows that Poland has a dominant position on the distribution and logistics market in the region. ProLogis and Panattoni have the largest share in the Polish market, at 33 percent and 19 percent respectively. The other major players are Segro, with an 8-percent share, and Europolis and MLP Group, each with a 4-percent market share.

ProLogis focused on renting out existing space last year and did not start any new projects. Segro and Europolis also focused on renting out vacant space in their distribution parks.

ProLogis rented out more than 1 million sq m of space in five countries in Central and Eastern Europe last year. An impressive 61 percent of the total space was rented out in Poland. “Poland is the most important market for us alongside Britain, France and Germany,” says Ben Bennatyne, managing director responsible for the CEE market at ProLogis. “This is why it is here that we are concentrating our efforts aimed at making the best use of existing warehouses, building new premises and developing the land we have.”

Data by another international real estate services company, CB Richard Ellis, indicates that last year ProLogis rented out over 656,000 sq m of modern warehouse space in Poland, 114 percent more than in 2009. As a result, the company had an over 40-percent share in the market in terms of lease agreements signed in 2010.

The Jones Lang LaSalle report shows that Panattoni Europe was the most active developer on the Polish market in 2010. The company built over 233,000 sq m of new space, of which 132,000 sq m were BTS projects, including the largest contract on the Polish warehouse market last year—renting out 57,000 sq m to Tesco. The developer signed contracts for around 356,000 sq m, of which 287,000 sq m were new lease agreements. Additionally, the developer was in the process of building almost 300,000 sq m of new space.

In 2010, Panattoni Europe finalized the industrial property sector’s largest portfolio transactions by selling around 400,000 sq m of warehouse space. The value of the deals exceeded 200 million euros. Panattoni Europe also announced plans to enter the retail market. The company set up a new division for retail space. Panattoni started operating in Poland in 2005.

Rents stabilize
Rents for warehouse space in Poland bottomed out in mid-2010 and have since been growing slowly but steadily, except for a few local markets with an exceptionally large oversupply of space and fierce competition among property owners. At present, the highest rents are for warehouses in Warsaw—around 5 euros per square meter per month.

Joanna Mroczek, director of the Research & Consultancy Department at CB Richard Ellis, says the Polish market for warehouse properties has entered a period of equilibrium between supply and demand, which is the best moment for both sides: tenants are still able to negotiate rental terms while developers are still ready to reduce the asking price. The situation may change in several months to the disadvantage of tenants, Mroczek says, because the amount of new warehouse space brought onto the market is not large.

For the time being, there is still over 1 million sq m of vacant space on the market, down from 1.2 million sq m in 2009. A continued gradual decrease in vacancy rates in all Polish regions is expected in 2011. This year should still be a time of attractive rents, but from 2012 rents will begin to rise, according to the Jones Lang LaSalle report.

Depending on location, effective rents range from around 5 euros per square meter per month in prime locations in Warsaw and Cracow to around 2.30 euros per square meter in central Poland and Warsaw outskirts.

Rents, which showed a downward trend since the beginning of 2009, have stabilized in locations such as Cracow, Poznań and Wrocław. On other markets, slight drops are still being recorded. On most regional markets and in Warsaw’s zones II and III, effective rents range from 2 to 3 euros per square meter per month. On the Cracow and Gdańsk markets, which have a small amount of warehouse space, effective rates are higher—exceeding 3 euros per square meter per month. Warsaw’s zone I, located in the immediate vicinity of the city center, is the most expensive area, with effective rents ranging from 4.40 to 5.20 euros per square meter per month.

Demand for industrial sites strengthened slightly in 2010 as economic trends improved. The Jones Lang LaSalle experts say 2010 was a transitory period preceding the expected increase in sales contracts for sites designated for warehouses and factories in 2011-2012.

Demand for industrial lots is lower than expected because the largest industrial developers have substantial reserves of land. Most of the lots were bought in 2005-2008 and stayed undeveloped during the crisis. They now represent a significant burden for the developers and prevent them from looking for new locations. This is coupled with reduced demand for land among manufacturers as many of them have suspended their investment projects.

Except in locations such as the Warsaw area, developers tend to buy land for their projects only after they have signed a built-to-suit contract with a tenant.

Commentary: Cause for Optimism
Ben Bannatyne, Managing Director Central & Eastern Europe at ProLogis:
In Central and Eastern Europe, demand concentrated mostly in Poland and in the Czech Republic; 61 percent of all our lease agreements signed in Central and Eastern Europe were signed in Poland.

Optimistic economic forecasts for Central and Eastern Europe allow us to assume that the market of modern distribution facilities will see an increase in 2011. As is the case now, the demand will be generated mostly by companies in the logistic sector, and by the growing retailers and manufacturing companies. It is worth noting that due to the decreasing stock of available warehouse space, this year may be the last opportunity for our customers to capture industrial space at relatively low rent rates.

Commentary: Future Belongs to Build-to-Suit
Robert Dobrzycki, Managing Partner for Central and Eastern Europe at Panattoni Europe:
Although many believed that no new projects would be built for many years to come and the days of speculative space were gone for good, statistics have shown that the demand for warehouses grew last year. Despite a vacancy rate of almost 1 million square meters, the amount of vacant space in many regions stood at either zero or several percent at the most. The financial market was again keen to provide money for pre-let facilities and there were also investors willing to buy industrial projects. The future belongs to build-to-suit (BTS) projects, most notably production facilities in Special Economic Zones. After infrastructure, such facilities will soon become the second driving force of the market, especially when it comes to industrial properties. A trend for relocating business will thus emerge as a consequence of the developing infrastructure and opportunities presented by Special Economic Zones. The economic benefits available in the zones will be of key importance.
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