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The Warsaw Voice » Real Estate » February 25, 2011
The Real Estate Voice
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Tailor-Made Warehouses
February 25, 2011   
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Magdalena Szulc, Central Europe director general at Segro, talks to Andrzej Ratajczyk.
How did the financial crisis affect the Polish market for commercial real estate, warehouses and industrial facilities in particular?
Both in Poland and around the world, the economic crisis hit developers of warehouse space hard, because it restricted their access to funding for new projects. That forced many developers to put their projects on hold. Buyers, in turn, scaled back their spending and outsourcing plans as far as renting warehouse space was concerned. All of this caused the demand for new warehouse space to decline, and the supply of such space decreased as well. Demand fell faster than supply and as a result, the amount of vacant warehouse space rose in nearly all parts of Poland.

The crisis has also strengthened the tendency among developers to focus on build-to-suit projects, designed and built as specified by the future tenant. Build-to-suit, or BTS projects, offer extra benefits for both tenants and investors. Tenants know such facilities perfectly match their expectations and changing needs, and developers are happy because contracts on such tailor-made buildings are usually signed for longer periods of time.

The financial crisis has also had an effect on the duration of lease contracts. Earlier, five-year contracts were prevalent, whereas at present, depending on a tenant’s line of business, most contracts are signed for either a short term of two to three years or a long term of ten years or more. Commercial and logistics companies usually opt for short-term contracts, as they allow a quick response to any changes on the market. Enterprises in the production sector, on the other hand, plan their operations many years ahead and from their point of view, long-term contracts pay off better.

Did prices and demand decline much?
Demand did, causing rents across Poland to decrease. The large volume of vacant warehouse space necessitated lower prices and in many cases, contracts had to be renegotiated. But then the market started to gradually absorb the vacant space. The real estate market entered a revival phase only last year, mainly because investors started trusting the market again and the general macroeconomic situation improved. Prices on the market have now stabilized, because very few projects are in development and demand is steadily rising.

Despite lower capital costs, prices at newly built facilities will not be as attractive as those at already existing warehouses, because borrowing costs have grown considerably and access to funding is limited.

How is Poland doing compared to other countries in the region?
Central Europe is a very important market for warehouse space. Despite the declining global economy, the market for business space in Central Europe did quite well compared with other countries. The strength of this region stems from an inexpensive yet very well-educated labor force, good location and relatively high buying power. Combined with the huge potential of increased consumption, all these factors stimulate the warehouse sector in Central Europe. At the same time, of all countries in the region, tenants are most interested in Poland. Growing numbers of foreign companies realize the investment potential of Poland, and appreciate the superb location in the very center of Europe.

What are the forecasts for this year and the years to come?
This year, developers will still tend to focus on build-to-suit projects that benefit both tenants and investors. Tenants will be more interested in small warehouses for lease. As a result, traditional large warehouses will be built alongside more flexible business space inside small-box facilities and small business units, or SBUs. A small box is a storage facility designed for tenants that only need several hundred square meters of space. The smallest small-box units for lease are 500 sq m. Segro will build Poland’s first small-box facility in Nadarzyn near Warsaw.

SBUs are modern business areas with space for offices, small warehouses and production facilities. Last year, Segro started building its first Polish SBU project in the Tulipan Park £ód¼ logistics park.

How has Segro been doing on the Polish market?
Segro has been very successful in Poland in the last several months. Last year alone, we rented out over 67,500 sq m of business space. In one of our biggest achievements last year, we succeeded in cutting the amount of vacant space in our existing projects to less than 4 percent. Our new tenants include such prestigious companies as Schweitzer-Mauduit, Universal Express Distribution and Omnires and many of our earlier customers—suffice it to mention CNOS Garden, Air Container and Brenntag—decided to rent more space in Segro parks.

We also started three important projects last year. The first one, in development since the latter half of the year, is a build-to-suit facility for HL Display AB of Sweden. The warehouse is located in Gliwice in a special economic zone and once it is completed, it will house 10,000 sq m of brand new warehouse and office space suited to the tenant’s use.

Then there is the small business unit in Tulipan Park £ód¼ I mentioned earlier. This new product is addressed to tenants who seek modern, functional and flexible business space. The smallest units available for lease in Tulipan Park £ód¼ will be 750 sq m. In comparison, the minimum space for lease in traditional warehouses is 2,500 sq m. Finally, last year we started work on a new logistics center in the Pruszcz Gdański district. This project will put 150,000 sq m of new, modern business space on the market. This year, we are planning to enlarge our logistics parks in Gliwice, Poznań and Stryków.
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